Settlement agents fee deregulation – FAQ fee disclosure methods
As of 3 February 2016, regulation of fees has ceased. Settlement agents are now able to determine what fee to charge their client for their services in executing the transaction.
A new fee disclosure rule will be included in the Settlement Agents' Code of Conduct 1982 to ensure consumers can make fully informed decisions about fees. Under the new rule, a settlement agent must provide their client with a written costs disclosure setting out the maximum amount they will be charging for their services, before the client signs the Form 1 appointment to act.
What fee disclosure methods are acceptable?
Please refer to the below fee disclosure methods:
A common practice whereby a client is advised of the maximum service amount and that there are standard fees such as disbursements and statutory fees. An estimate is given and the client agrees to proceed in the knowledge fees/costs will be applied as and when they are applicable. The client receives a final invoice upon completion.
The maximum service amount disclosed to clients must include all fees, commissions, charges and general office disbursements payable for the settlement agent’s service in relation to the transaction. General office disbursements may include items such as telephone calls, facsimiles, photocopying, postage, courier fees and stationery. Please be aware this differs from current practice where the cost recovery of general office disbursements are charged separately to the scale of maximum fees for the settlement agent’s services.
The service amount the settlement agent must disclose does not include any of the following costs paid on the client’s behalf by the settlement agent:
- Duty chargeable under the Duties Act 2008;
- Any other tax, duty, fee, levy or charge under a written law (this means charges fixed under statute such as search fees at Landgate or local government authorities);
- Fees payable to financial institutions (such as bank transfer fees or cheque fees paid on behalf of the client while completing settlement)
- Commissions chargeable by an agent, developer or any other third party (if this is being paid by the settlement agent on behalf of the client).
This is on the basis these are not costs relating to the settlement agent providing their service, but rather charges paid on the client’s behalf to progress the settlement of the property.
Whilst not required to disclose or itemise the above costs, the Department encourages settlement agents to provide their clients with an outline of the likely statutory costs and duties involved in executing settlement. Settlement agents may wish to include their estimate of these additional amounts in the same document but they should be set out separately from the total ‘service amount.’
Upfront flat fee quote
Whereby a settlement agent will quote a fee and will not charge above this fee unless a significant unforeseen issue arises. This method is acceptable.
This method is acceptable, so long as the settlement agent provides the client with a capped fee. The fees will still be based on the number of hours multiplied by the settlement agent’s hourly rate, but there is an agreed maximum cap. The eventual fee may be less than the agreed cap, but never more. Note: Under the new fee disclosure rule, it will not be acceptable to provide a set hourly rate on its own. The new provisions require the agent to disclose the maximum ‘service amount’ – an hourly rate is not an ‘amount’.
Product disclosure statement or schedule
A method by which all the potential fees are disclosed through a fee schedule and the client is advised the fees may be applied should the need arise.
This is acceptable so long as the settlement agent provides the client with a capped fee in relation to the service amount. The agent must provide the client with a dollar figure for the potential total amount the client could be liable for and not exceed this amount.
Incremental fee or pay as you go
A method that may be common for ‘Off the Plan’ sales or protracted sales over many months.
Pay as you go will be acceptable as long as the agent discloses upfront (before being appointed to act) the maximum amount the client will have to pay for the services the settlement agent has agreed to provide in relation to the transaction.
Please note while it may be current industry practice to always wait for settlement to go through before charging a fee there is nothing in the Settlement Agents Act or Regulations preventing settlement agents from charging a proportion of their fee prior to settlement.
Even though there is nothing specific in the Settlement Agents Act prohibiting an agent from accepting a proportion of their fee once the initial work has been completed and prior to settlement, it would be best practice to inform the client up front this will occur. The client should have a good estimate of the percentage or amount due prior to settlement and when this amount is due.
What are appropriate means by which to advise clients of any increases to the costs?
A settlement agent may receive a payment for a service that exceeds the maximum service amount if there has been a significant change in the scope of the work. Clients must be advised of any increases to the settlement agent’s fee in writing, including by electronic communication such as email or text. Settlement agents may wish to advise the client about the change in scope over the phone but the agent must follow up with a letter or email.
Any increase in the amount above initially disclosed must comply with the new rule 6C of the Settlement Agents’ Code of Conduct 1982. For example, under the new rule 6C, the client must also agree to the licensee continuing to provide the service. The Department recommends the client’s written agreement is obtained to any increase in fees. Any fee increase must also be reasonable.
When will the Department of Commerce amend the Appointment Form to reflect the change?
The form will be amended at the same time as the fee disclosure rule is being introduced. The references to maximum scale of fees within the form are being replaced with this statement “I/We* agree to pay up to the service amount disclosed to me/us* under rule 6B(2) of the Settlement Agents Code of Conduct 1982.”
How do we account for PEXA fees?
PEXA’s single transaction service fee is considered to be a general office disbursement. The PEXA fee should be incorporated into the maximum service amount that settlement agents disclose to the client. Settlement agents can choose whether or not they provide a breakdown of the maximum service amount in their costs disclosure notice.
If fees are charged by PEXA’s sponsors or alliance partners which are not incurred as a result of a specific transaction, they should be considered an overhead of the settlement agent’s business.
How do I get help?
You can get further information about settlement agents’ fees on the Department’s website.
If you have any queries, you can contact the Department on telephone number 1300 304 054.
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