Is a monthly brokerage fee worth it?

In some real estate offices agents have to pay a monthly brokerage fee. Not every realty brokerage charges a monthly fee to its agents. For example, Balboa Real Estate does not charge its agents a monthly fee. Now, even though we don’t charge a monthly fee, we aren’t universally opposed the concept of charging a fee in certain circumstances. Some real estate agents like to hang around an office. If you like to go down to an office, and jump on the company wifi with your laptop, as you drink a Keurig coffee, sitting in an auxillary desk, under an AC vent, as your print out an email, then a monthly real estate brokerage fee is indeed intended just for you. Also, you should happily pay it, because all the overhead created by the office ammenties you like to utlilize cost the company money.

Real estate brokerages that offer the “100% commission” model have a thin profit margin, so they must be careful when budgeting. The understanding is that the monthly fee is in place to help cover the overhead, ideally a break even. All the charges to an agent’s commission should be added revenue, to pay salaries and such. Balboa Real Estate offers 100% commission, a low flat fee per transaction, but no office to hang around. The reason is that we did have an office – for years- and it was barely utilized. Why was our big beautiful office not utilized? The answer is that it’s more convenient for agent to meet the sellers at the listings, buyers at the prospective properties, and conduct research/paperwork from their computer than to drive out of the way to our office. Agents that keep busy and focused know this, and many see no point in paying a monthly fee for an amenities that they do not use. Agents like this come to Balboa Real Estate for 100% commission, our broker supervision, and not our office.

/by

Is Errors and Ommission Insurance (E&O) Insurance Required?

Many agents ask if Errors and Ommission Insurance (E&O) insurance is required by law. A real estate broker, once licensed by the Department of Real Estate, can broker real estate sales without E&O insurance. They aren’t required by law to have a policy, but any legitimate professional would not conduct business without E&O insurance. So, while an E&O requirement isn’t enforced by the state, it’s still an unoffical requirement to properly conduct real estate brokerage. The implications of listing and selling real estate without E&O insurance are catastrophic. Also, clients deserve to have an agent that is insured.

Now, since we have established that E&O insurance is needed, let’s talk about cost. If you are a lone or independent broker you simply need to call an insurance company and tell them that you need a policy and they will send you a quite for hundreds or maybe thousands of dollars (based on your sales volume) for a year-long policy. For most agents that hang their license with a brokerage, the company has a blanket policy that covers the agents. Every type of transaction, residential, commercial, agent-owned, dual agent, sales price….you name it, affects the cost of the company’s E&O insurance policy. Most companies pass this fee on to the agents in the form of a per transaction risk assessment for, or some sort of charge assessed randomly.  Either way, agents have to come up with money to pay a fee for E&O Insurance. This is one important way that Balboa Real Estate is different than other real estate brokerages. Our E&O insurance is included in our transaction fee. This means that agents do not have to pay anything additional out of pocket for E&O insurance. It’s included in our flat fee plan. So, if you want to avoid paying an E&O insurance fee then join a brokerage that pays it for all the agents, might we suggest Balboa Real Estate?
Learn more about Balboa Real Estate’s 100% commission plan here. 

/by

What is a non-independent broker escrow company?

Have you heard of a non-independent broker escrow company, also known as a broker-controlled escrow? These are different from other escrow companies, and I’ll explain the difference. To conduct escrow business in the state of California, you must have a license. Interestingly, there are three different types of licenses that allow you to perform escrow. The reason there are three is because there are three different licensing bodies that oversee escrow activity.

  1. The Department of Insurance.
  2. The Department of Business Oversight.
  3. The Department of Real Estate.

Naturally, one license is harder than another to obtain. The Department of Insurance license is basically for title companies that have escrow divisions. This is an expensive and very regulated license to have and maintain. My personal opinion is that title companies are the safest places to have escrow conducted.

The Department of Business Oversight is for independent escrow companies. For example, let’s say an escrow officer that worked at a title company wanted to start her own escrow company. She could start an independent escrow company by obtaining a license through the dept. of business oversight. She would have to show 5 years of escrow experience for her escrow manager, maintain liquid asset reserves, pay into a surety bond to protect consumers, and have her financials audited, among many other screening mechanisms designed to maintain safety standards for the escrow company.

So where does the non-independent broker escrow fit in? A non-independent broker controlled escrow is licensed by the Department of Real Estate (DRE). However, there isn’t a special escrow license issued by the DRE. The license needed to conduct escrow is just a real estate broker license. This means that if you are a real estate broker you can open up an escrow trust account and, just like that, have an escrow company. While the the other types of licenses require all sorts of protections, assets, and audits, you can skip that as a non-independent escrow company. To be clear about how low the barrier of entry is, a real estate broker can file a “doing business as” (DBA) name i.e.. “Wild West Escrow – a non-independent broker escrow,” with the Department of Real Estate, then open an escrow trust account, and they are now ready to accept your wire transfers. This real estate broker is now in complete control of an account with people’s life savings swirling around in it.

What happens if an escrow officer makes a mistake at an non-independent escrow? Let’s say the escrow officer accidentially wires the seller’s equity money to a fraudulent account – it happens – then what? Does the non-independent escrow company have cash reserves to remiburse the seller- provided they would even be willing? Because there is no requirement to have reserves. Remember, a broker licensee started this company by registering the name and opening a business/trust bank account. However, there are zero guarantees that if something goes wrong they will have the means to fix it or even the obligation if they did.

A personal contact confided that she sold their home with a non-independent broker escrow and their sale proceeds were wired to a fraudulent account. She went after the escrow company and they settled for pennies on the dollar.

Additionally, escrow is supposed to be a neutral third-party. However, if one of the brokers in a real estate transaction controls the escrow and represents one of the parties, then that is a conflict of neutrality. The other party is supposed to trust that the other party’s broker will conduct escrow in a neutral manner.

A non-independent broker escrow company should always be avoided. Considering that credible, safe escrows are often cheaper and easily accessible, it’s extremely poor judgement to settle for a non-independent broker escrow company . We highly suggest using a title company for title/escrow because it’s safe and efficient. Second to that, an independent escrow company licensed through the Department of Business Oversight.

 

 

 

/by