Board of Contract Appeals General Services Administration Washington, D.C. 20405 June 25, 1999 GSBCA 14845-RELO, 14846-RELO, 14847-RELO, 14848-RELO, 14849-RELO In the Matters of DAN A. BERKEBILE, JOHN A. FEFOLT, MICHAEL J. BURNS, AARON W. PATTERSON, SEAN T. LIVOLSI Dan A. Berkebile, Johnstown, PA, Claimant in GSBCA 14845- RELO. John A. Fefolt, Indiana, PA, Claimant in GSBCA 14846-RELO. Michael J. Burns, Johnstown, PA, Claimant in GSBCA 14847- RELO. Aaron W. Patterson, Johnstown, PA, Claimant in GSBCA 14848- RELO. Sean T. Livolsi, Blarisville, PA, Claimant in GSBCA 14849- RELO. Lt. Col. Thomas G. Kane, Judge Advocate General, Department of Military Affairs, Pennsylvania Army National Guard, Annville, PA, appearing for Department of the Army. GOODMAN, Board Judge. The claimants are civilian employees of the National Guard. They seek to recover expenses incurred in 1997 incident to their permanent changes of station (PCS). The agency reimbursed a portion of the real estate commission for the sale of their residences -- 6% of the sale price, not the 7% (in one instance, 8.5%) they negotiated and incurred. All claimants seek to recover the difference between the amount reimbursed and 7% of the sale price. One of the claimants also seeks reimbursement of survey costs. Background The reviewing official and representative for the agency, Lt. Col. Thomas Kane, determined that claimants could be reimbursed a brokerage fee of 6%, not the 7% (or 8.5% in one instance) fee which they actually incurred. He based this determination on several factors. He states in his memorandum dated April 8, 1998: I have received and process [sic] several PCS claims during my time in Pennsylvania. 6% has been the normal real estate commission upon these claims, regardless of area. It is almost like an unwritten rule. . . . I spoke to Mr. Larry Kennedy, DFAS, Rome N.Y. reference this matter. He stated that from his reviews he had seen 6% as normal for the Washington [Pennsylvania] area. . . . I spoke to . . . Jackie Lutz [attorney for Pennsylvania Real Estate Commission] who personally felt 6% was the standard, but that there is no fixed rate. A fixed rate would be illegal. She would not be pinned to any particular amount, other than to say 6% sounded standard. She referred me to the Association of Realtors. . . . I spoke to Patrice [at the Association of Realtors] who stated that she personally felt 6% was the norm, but voiced similar concerns regarding price fixing. . . . She said I could talk to realtors one on one. . . . I also explained that when I identify myself, the realtors are apprehensive and usually hem and haw and don t give an answer. She referred me to Deb Huellen at the Washington/Greene Local Realtor Association. . . . I called Deb Huellen . . . [S]he [w]as also reluctant to be pinned to a number. . . . She did say that 6% was normal in her opinion, but she had seen them as high as 7% and as low as 5%. It was negotiable and there was not a fixed rate. The agency reviewing official also spoke to four attorneys, who stated to him that 6% was the customary fee in the area. In responding to claimants' claims at this Board, the agency representative states further: [I]t is important to state that I do not dispute that the employee paid these higher interest rates[[foot #] 1] or that these higher rates have been paid in this area. My position is that this is not the normal and customary or reasonable fee for this area and had the employee shopped around or ----------- FOOTNOTE BEGINS --------- [foot #] 1 He is referring to broker's fees, not interest rates. ----------- FOOTNOTE ENDS ----------- dickered with the agent, the 6% fee I have recommended be reimbursed could have been obtained. . . . . . . . I have a general knowledge of the real estate community and commercial practices of the real estate community. I am aware of the commissions paid in Pennsylvania for the sale of a home[ ] and have the ability to contact fellow attorneys throughout the state to determine reasonable and customary fees. The average real estate commission in Pennsylvania is 6%. It has been that rate for several years. The majority of Pennsylvania is at this rate. There are some rates that exceed this amount depending upon the location and value of surrounding homes. You can expect to pay a higher rate in a larger metropolitan area. . . . As a result of my familiarity and research into this area, 6% was determined to be the customary and reasonable real estate commissions [sic] for that area. . . . I also had approved several other claims from this area for 6% real estate commissions. . . . I should say that real estate brokers and agents and commissions were extremely reluctant to provide any assistance and accused me of trying to price fix. I informed them that such was not the case I was merely trying to fulfill my legal responsibility and find out what was customary to the area. They generally refused to provide any information, but did state that 6% could be obtained and that fees were always negotiable. . . . The only information provided by the petitioners was merely evidence that they had paid the higher rate and a compilation that they had prepared showing a percentage rate next to the name of a broker. There was nothing showing the brokers were charging this rate as a regular fee, nor was their [sic] any evidence as to who prepared this document or a means to verify what it was offered to prove. The brokers I talked to in that area said that 7% was not the customary and reasonable rate. Oft times they would not state any rate as reasonable or customary. Even if the document was being offered to support that the brokers are charging this rate as their regular fee, which as stated has not been shown, the fact that the brokers charged this rate does not establish this rate as reasonable and customary. These brokers have a vested interested [sic] in the position that the customary interest rate is in excess of 6%. As stated I have never disputed that the petitioners paid this higher rate, but this does not make it customary or reasonable. They could have been "ripped off" or taken advantage of by unscrupulous individuals or they simply could have failed to do what any reasonable consumer would have done and tries [sic] to negotiate the fee. In any event the United States should not be held accountable for their lack of consumer awareness or reasonableness in hiring a real estate broker. All the claimants make similar assertions as to their claims. They state that prior to their moves, they were briefed concerning benefits authorized with the transfer of function. Based on the briefing and other information received, they negotiated with realtors and arrived at broker s fees which they believed were reasonable. Claimant Berkibile (GSBCA 14845-RELO) states: I and my employees negotiated with approximately 11 different realtors in the Washington County [Pennsylvania] area and none of us was able to negotiate a fee less than 7%. I personally negotiated and listed with two different real estate firms. I told both firms in my negotiations that I would not pay more than 6%. Both agents refused to list my house for less than 7%. I received no extras at this rate. [The agency official]'s professional acquaintances did not conduct any negotiations for the sale of their own property in the Washington County area nor do they provide any written evidence as to what a reasonable realtor fee is. . . . Mr. Kennedy, DFAS, Rome, NY, states that 6% is the normal rate for the Washington, PA area yet he provides no statistical data in writing to prove this. I too spoke with the PA Real-Estate Commission, the PA Association of Realtors, the Washington-Greene County Real Estate Association and the West Penn Multi- Listing. Not one person I spoke with would quote a going rate or average rate for real estate listings in the Washington County area or anywhere else in the United States. Statements by these attorneys [consulted by the agency representative] do not provide any statistical facts in writing concerning real estate fees. The only hard statistical facts in writing concerning a reasonable and customary rate for realtor fees in the Washington County, PA area are the listing agreements provided by the individuals selling their houses. Not one person was able to negotiate a rate of less than 7% during this time frame. Claimant Berkibile submitted a list of eight technicians (including himself and the other four claimants) and the broker's commissions they were able to negotiate. All except Mr. Fefolt, who negotiated a rate of 8.5%, negotiated a rate of 7%. Claimant Fefolt (GSBCA 14856-RELO) has submitted the following information: Enclosure 3 shows all the houses sold in [C]hartiers township, Washington county, Pennsylvania from November 1996 to June 1998 that had at least 1 acre, a well or spring water system, and a septic sewer system. Of these nine listings 6 sold with a 7% commission, 1 at 6.5% (when bonus is included) and 2 at 6%. Enclosure 4 shows homes sold in the city of Washington with a price range of $50,000 to $70,000, of these 7 sold at 7%, 2 at 6.5% and 3 at 6%. . . . . The property we sold was an A-Frame chalet in a rural area on 6 acres. There was a 700 foot unimproved driveway, a septic system that didn't pass inspection and the water system was from a spring on a neighboring property. These situations led us to list a higher rate to help ensure a timely sale. I understand we are not entitled to cost over what is customarily paid but 7% is reasonable in amount and customarily paid. Claimant Burns (GSBCA 14847-RELO) submitted a letter from his broker which stated that the 7% charged is a "typical" commission for resale of property in the area. Claimant Patterson (GSBCA 14848-RELO) submitted a letter from his broker stating that the 7% commission charged was the result of negotiation between claimant and his agent and "was arrived at after reviewing comparable commissions of properties in the Washington, PA area, so as to be competitive." Claimant Livolsi (GSBCA 14849-RELO) sold a parcel of thirty acres with a mobile home on it, a water well, conventional septic sewer system and an unimproved 1830 foot driveway. He has submitted a letter from his agent saying that parcels exceeding ten acres are usually charged a broker's commission of 10% but she discounted her rate to 7% for him. He also seeks $1130 in survey costs for which he was denied reimbursement. Discussion Statute permits the Government to pay an employee expenses incurred in the sale of a residence at the old duty station. However, the reimbursement for brokerage fees and other expenses may not exceed those customarily charged in the locality where the residence is located. 5 U.S.C. 5724a(d)(4) (Supp. II 1996). Claimants, as civilian employees of the Department of Defense, were subject to the Department's Joint Travel Regulations (JTR).[foot #] 2 JTR C1001-A.6. The JTR provision which governs reimbursement of the requested fees states: "A broker's fee or real estate commission paid by the employee for services in selling his/her residence is reimbursable, but not in excess of rates generally charged for such services by the broker or by brokers in the locality of the old duty station." JTR C14002-A.1. The JTR further state: C14004 Reimbursement for Closing Costs Incident to Sale or Purchase of Residence C. Review and Approval of Reasonableness of Charges 1. Official responsible for review. . . . This review is intended to be limited to determining whether the expenses claimed are reasonable in amount and customarily paid by the seller or buyer in the locality where the property is located. If items of cost appear to have been inflated or higher than normally imposed for similar services in the locality and for which a satisfactory answer can't be obtained, any portion of such costs determined to be excessive won't be approved. In determining whether the agency made a proper determination as to the reasonableness of the brokerage fee incurred by the claimants, the Federal Travel Regulation, at 41 CFR 302-6.3(c) (1996), provides that agencies may obtain technical assistance in determining the reasonableness of an expense incurred in a real estate transaction, including a broker's fee, from the local office of the Department of Housing and Urban Development (HUD) serving the area in which the expense arose. Where HUD has in fact been consulted to determine what charges are customary in the locality, the information supplied by HUD creates a rebuttable presumption as to the prevailing commission rate. Christopher L. Chretien, GSBCA 13704-RELO, 97-1 BCA 28,701 (1996). In the case before us, the agency official did not consult the local HUD office. He did contact other individuals whom he considered knowledgeable. He came to the conclusion that 6% was the customary and reasonable rate. However, the information upon ----------- FOOTNOTE BEGINS --------- [foot #] 2 Military technicians are a unique category of federal employees that exist only within the National Guard. According to the agency's representative, "they are military members on drill weekends and when performing military duty and civilian employees performing a federal military mission during the week or while in a technician status." ----------- FOOTNOTE ENDS ----------- which he relied indicates otherwise. While several attorneys to whom he spoke voiced opinions that 6% was the reasonable and customary rate, other individuals at various real estate agencies stated a general reluctance to provide information. One individual mentioned a range of 5% to 7%. The agency official, when faced with the five claimants who all negotiated a 7% rate concluded that they failed to negotiate or "dicker with" the brokers, that they lacked "consumer awareness," and that they could have ultimately negotiated a 6% rate had they been more diligent. His conclusions are contradicted by the information submitted by claimants. Claimants did negotiate with their realtors, and were not able to agree to a rate less than 7%. In the case of Mr. Berkibile, he insisted on a 6% rate and was refused by several realtors. Mr. Livolsi negotiated a 7% rate, when the circumstances of his property apparently dictated a higher rate. There is no information in the record that supports the agency official's conclusion that the claimants failed to negotiate or dicker, or that they were "ripped off." The fact that all five claimants negotiated a rate of at least 7%, together with the additional information submitted by their realtors with regard to their negotiations and other sales in the area, support the conclusion that 7% is the prevailing rate charged in the area in question and is a reasonable rate. Accordingly, the claimants are entitled to reimbursement of an additional fee of 1%.[foot #] 3 The agency also denied claimant Livolsi's request for reimbursement of survey costs. The record is confusing as to the amount claimed. Claimant's letter of December 8, 1998, to this Board states that he is claiming $1130 in survey expenses. His Form 1705 has an amount of $1750, with two supporting invoices. The first invoice is for $1650 for a survey of twenty-five acres, and the second invoice is for $100 to survey a five acre parcel for subdivision. The claimant explains that the second survey resulted from the first survey in which it was discovered that claimant s neighbor had encroached on his property. This caused claimant to subdivide the five acres to his neighbor. The reviewing official, in denying reimbursement for survey costs, stated: Although survey expenses may be justified, I do not find evidence that would justify the survey expenses claimed by the employee. Had they been required as a ----------- FOOTNOTE BEGINS --------- [foot #] 3 Mr. Fefolt admits that he agreed to a higher rate of 8.5% in order to expedite the sale of his property. The regulations do not allow for reimbursement of a higher rate where the higher commission was needed to expedite a sale. Raymond L. __________ Hipsher, B-214555 (Aug. 28, 1984). Accordingly, he is entitled _______ to reimbursement of only the additional 1%. ----------- FOOTNOTE ENDS ----------- requirement of refinancing or even listed in the closing costs, arguably they may be allowable. In this case the survey was conducted to determine the precise property line due to the original nature of the purchase under the land sale contract. The employee was attempting to clarify the area of ownership and permit the sale of a separate tract where individuals had been encroaching upon his land. The expense and survey purpose predate the sale and the requirement to sell the home. Reimbursement is not precluded even if the survey was not required for refinancing.[foot #] 4 Additionally, reimbursement is not precluded by the fact that the survey costs were not listed as a cost of closing. Surveys are generally required for the transfer of property regardless of the need for financing, and may be paid for prior to settlement directly by the seller or the purchaser. Claimant has indicated that the survey arose from the sale of the property. However, the JTR allow reimbursement of survey costs with respect to the sale of a residence only if they are customarily paid by the seller at the old duty residence. JTR C14002-A.3.d. Claimant has failed to prove that the survey costs for which he claims reimbursement are customarily paid by the seller of a residence in his locale. Accordingly, we cannot find claimant is entitled to reimbursement based on the record here. However, if claimant is able to demonstrate to the agency that such costs are customarily paid by the seller, and explain the derivation of the $1130 claimed, the agency may find that he is entitled to reimbursement. __________________________ ALLAN H. GOODMAN Board Judge ----------- FOOTNOTE BEGINS --------- [foot #] 4 The survey here was obviously not required for refinancing, as the property was being sold.