Is a Buyer's Fee 5% of the Purchase Price or 5% of the Commission

[AbeFM]

I'm in California, about to close on a home. There was an auction held before the transaction, which eventually just funneled into a short sale. Without bogging this down with details about how adversarial the past 6 months has been, suffice it to say that the auction company, and the loosely related (I believe both children companies of the same larger entity) seller's agent have been terrible at making this sale go through.

My question: I had to sign a document which said "Buyer agrees to pay 5% premium." But it says little about what it's 5% of. I had naturally assumed it would be 5% of the normal seller's fee (of ~3%, so 0.15% of purchase price) and now I'm hearing some people interpret it otherwise.

Nowhere in the escrow paperwork is this fee mentioned, it was just a stand alone document. The website from the auction said the following:

BUYER'S PREMIUM: A BUYERS PREMIUM OF 5% WILL BE CHARGED TO THE BUYER AS A CLOSING COST, DUE AND PAYABLE AT CLOSE OF ESCROW. THIS FEE IS PAID DIRECTLY TO EXPERT HOME SOLUTIONS, INC. AND IS NOT INCLUDED IN THE PURCHASE PRICE.


DEPOSITS: Bidder acknowledges that a security deposit of $2,500.00 is required within 48 hours upon being declared the winning bidder; this money will be deposited into Listing Brokers trust account until time of closing when it is transferred to escrow.

As best as my agent and other people can put it together, I should be able to close the house, and deal with this fee as a separate debt.

The document I signed says:

Date (date)
Buyer(s) (My name)
Agree to pay (company name) Solutions, Inc. dba (same company name) Auctions International a 5% transaction fee for services rendered on the purchase of (adress)
This transaction fee is due and payable at close of escrow as a closing cost to (company name as above)

This fee does not constitute an agency relationship.

(Signed by me) (unsigned by company)

Does anyone have any insight? I've tried to even FIND a lawyer who's dealt with this before, and so far, have been unable to. Some people have "heard" of it, but I need a bit more to go on. I'm supposed to close tomorrow or the next day, and want to know what sized check to bring, and if there's anything I can do/say if they demand 5% of the purchase price instead of 5% of the seller's commission.

These guys have had some terrible paperwork all the way through (the owner saying there is not AC in the place when there is, etc)... I'd like for once for their incompetence to work for me instead of against me - my own agent could use a healthy tip, for instance. :-)

Thanks! Even if you just know someone I could call, I would be much indebted.

[SChinFChin]

I'm in California, about to close on a home. There was an auction held before the transaction, which eventually just funneled into a short sale. Without bogging this down with details about how adversarial the past 6 months has been, suffice it to say that the auction company, and the loosely related (I believe both children companies of the same larger entity) seller's agent have been terrible at making this sale go through.

My question: I had to sign a document which said "Buyer agrees to pay 5% premium." But it says little about what it's 5% of. I had naturally assumed it would be 5% of the normal seller's fee (of ~3%, so 0.15% of purchase price) and now I'm hearing some people interpret it otherwise.

Nowhere in the escrow paperwork is this fee mentioned, it was just a stand alone document. The website from the auction said the following:



As best as my agent and other people can put it together, I should be able to close the house, and deal with this fee as a separate debt.

The document I signed says:


Does anyone have any insight? I've tried to even FIND a lawyer who's dealt with this before, and so far, have been unable to. Some people have "heard" of it, but I need a bit more to go on. I'm supposed to close tomorrow or the next day, and want to know what sized check to bring, and if there's anything I can do/say if they demand 5% of the purchase price instead of 5% of the seller's commission.

These guys have had some terrible paperwork all the way through (the owner saying there is not AC in the place when there is, etc)... I'd like for once for their incompetence to work for me instead of against me - my own agent could use a healthy tip, for instance. :-)

Thanks! Even if you just know someone I could call, I would be much indebted.

Without going into details, the home I live in is purchased at an auction, with a 6% auction fee tacked on with the fee being 6% of the PRICE that I bidded for the property, and it is paid to the auction company at the closing. I was required to pay 6,000 dollars into escrow at the auction.

My winning bid was 210,000 dollars, so the fee was 6% of 210K.

[AbeFM]

Yeah, no such bill has been given me, I already signed all the loan closing stuff and the escrow papers (like the title, etc), so I'm a little confused who expects what, when. And honestly, I'm looking at $20,000 here, quite a ridiculous chunk to just toss up my hands and say "Oh, whatever". If I can get out of this, I would like to.

So far, no one has been able to even point me to someone who would know what to do! (Thanks for your input, though... I'm not really that confused, I see what they want, I just don't want to pay it, least of all to them!)

[SChinFChin]

Yeah, no such bill has been given me, I already signed all the loan closing stuff and the escrow papers (like the title, etc), so I'm a little confused who expects what, when. And honestly, I'm looking at $20,000 here, quite a ridiculous chunk to just toss up my hands and say "Oh, whatever". If I can get out of this, I would like to.

So far, no one has been able to even point me to someone who would know what to do! (Thanks for your input, though... I'm not really that confused, I see what they want, I just don't want to pay it, least of all to them!)

When I bought my foreclosure at $210K, I thought 6% of that was high too. But then, market price of homes in the area was $325K, agents showed me homes in that range, and I would then have to pay them 5% of $325K as commission.

In my book, 6% of $210K is still less than 5% of $325K, and I'm paying over $100K less to boot. I see the problem here that people thinks an agent charging 5% is normal, but an auction house charging 6% as outrageous.

Also, in my case, I do not recall getting an invoice beforehand from any agent or auction house. I agreed to the terms and conditions going into the auction, signed an agreement, and the only other time I see anything is them taking the money out at the closing. In fact, for regular real estate commissions, you sign an agreement, they find a house for you, and you then go to a closing where it's paid. The agent does not send you a bill before hand, nor do they wait till you close on the house, and mail you the bill as a house warming present.

I bought both my own home plus a rental condo at auctions, (after going to dozens and dozens of them) and in neither case did auction fees come to as little as .15%. For that small a sum, they might as well call themselves RE agents, and collect a real commission, and have no one complain about how high it is.

I'm telling all this, because if you plan to sue, if the langage of an agreement is not clear, as you say 5% of what, then one has to go to what's the common practice in the business. And I don't think charging .15% in fees is common in the business. If you thought so, then it's a big misunderstanding.

When they use the word "pemium", it means something added to, in this case, the price of the property. It would not mean 5% of 5%.

Also, in most of these auction deals, I buy "as is", so if they don't know what exactly is in the house, if it has a bowling alley in the basement they don't know about, that's that, they are not supposed to know. I didn't just made this up, I read a news story in my local paper only yesterday, someone bought a commercial property at an auction, as is, with all the junk in it, and when he cleared out the garbage, there was a bowling alley underneath it all.

The auction company is not required to know there was a bowling alley in the place. They do auctions.

[AbeFM]

You're probably right on the 5% thing. I would love for it to go in my favor, but it sounds like it's not worth fighting.

As an aside, this is ON TOP of all the normal fees. The 5% paid to the listing and selling agents is still there. This is an additional fee above that. Both my agent and the seller is getting it.

BTW - I signed all the paperwork I have to sign. I'm supposed to get keys Friday. Which is why I'm waiting for a bill of some sort. It's certainly charging me twice. The lady who owns the house's agent already got paid - or maybe will in a couple days, but it's not like there was no commission here.