Realtor Rebates. Free Money or Expensive Savings?
This blog is supposed to be about the inside scoop on real estate right?
Well lets talk about a huge hush hush: Realtor Rebates!
Wow, I said it, and I put it in writing. A non-Rebate firm educating their customers and readers about something that we don’t do*… REBATES.
A fellow Realtor who hates rebaters told me “You’ve got some brass ones to talk about that.”
I say thanks!
Will this be suicide for my business? Shouldn’t that be kept secret? Why tell potential clients about your competition, which might be a better deal that they didn’t know existed? Why? Because I think buyers should know about all their options, and decide what is best for them.
(*Regarding the “we don’t do Rebates” comment earlier, tell me you want to pay full price for a particular $1M home , and sure I’ll give you a rebate. But what if I can find you a neighbor’s house for $20k less?)
Rebating is not bad. It is NOT the devil, it is just another business model.
First of all, what is rebating, isn’t it illegal?
Rebating is when a Realtor gives back part of their commission to their client, the buyer. This is done above the board on the HUD1* at closing. This is 100% legal in Virginia (4 or 5 states don’t allow it, the DOJ is working on them). (*Update 5-27-08 Even though HUD wrote me specific instructions on rebates having to be on the HUD1, some companies have found a legal way around this)
Why would a Realtor be stupid enough to do this?
(others say that, I don’t agree with that comment)
Lets take the following scenario:
- Agent #1 might get 2 deals and not rebate
- Agent #2 uses rebating as a marketing tool and as a result might do 4 deals within the same amount of time.
Lets say each commission is $10,000.
- Agent #1 “makes” $20,000 (* another blog will go over what they REALLY make, which is far lower)
- Agent #2 brings in $40,000 but “gives” back lets say 1% of each deal (1/3rd of their commission)
- Agent #2 “makes” $26,000.
Who is the dumb one? The rebater makes 30% more! That doesn’t sound too stupid to me!
Confession… When I first started I used to almost always rebate!
Why not? I was brand new, FranklyRealty.com just started (long story) and I had to find a competitive advantage. I didn’t have a good reason why the heck Joey should use me over his Mother’s cousin who has been in the business for 20 years?
Tell me what other industry doesn’t first compete on price to break into the market?
My rebating techniques got me in 
, and on the Discovery
Channel’s Double Agents reality show. They mentioned my rebating including my “REBATE” license plate. I got a ton of deals from that. And my Internet marketing was hot. Heck, look to see who owns RebateRealtors.com and RebateAgents.com. Yeah I made less per deal, but I was doing just fine, I made it up with quantity. I was also named 2003 Northern Virginia Association of Realtors Rookie of the Year, out of 1,000 new agents, and I did that in just 6 months, even though Rookie agents were given 18 months.
Why did I stop rebating?
I kinda got good. (I’m not saying rebaters are bad). I finally had a reason why people should use me over Joey’s Mother’s cousin.
- This story was my tipping point:
I had one client that wanted to buy a house listed at $600,000. They were ready to pay full price. I ran through my dozen proprietary how-to-price techniques (that I can’t publish in my blog, just email me for more info). I call it a CRA report (patent pending). Not a CMA, Comparative Market Analysis (which everyone does), but a CRA, Comparative Realtor Analysis. This is a background analysis of the agent’s past performance (not a bad idea heah? Imagine what else I have up my sleeve, the CRA was featured in Smart Money magazine).
I saw that this listing agent in 5 recent listings dropped her price by $25,000 after exactly 30 days. Obviously this was how she got deals. She would convince sellers to use her because she said she could get a high price, and after 30 days would drop the price and sell it fast. So there was a good chance they would do that with this listing. With 28 days on the market we offered $30,000 under and… they took it.
My client was super excited about the $30,000 discount, and didn’t really care that they were also getting 1/3rd
of my commission. At that point my focus changed to helping the client save as much money possible, without having to sacrifice my pay.
So are you saying that we should or should NOT use a Rebate agent?
I’m saying you definitely SHOULD use them if you think all Realtors are just overpaid paper pushers. However if you read my entire “insider scoop” blog and see that there is more to it, you should pick the best agent, and if perhaps you find one that also rebates, good for you!
Think of it another way. They have to make money some how, right? Either they are new and need this marketing technique to get more business (ask yourself whether a new agent is going to help you negotiate a lower price vs a 20 year veteran) or they have to do a higher volume to make the same pay (they claim to be more “efficient,” and maybe they are). With that volume does any service get left out? Maybe, maybe not. Will they search for deals that are off the market? FSBOs? Recently expires? Did they send out 100 letters on your behalf to see if a particular neighborhood that you loved had potential sellers in it (yes that works with my letter)? Will they take 3 weeks to negotiate a contract with a $100,000 price drop, or will they want the deal to close fast and try to push you to close faster/higher? (Heck that can happen just as frequently with a non-discount Realtor too!)
I recently had a buyer that said “Well I have a friend’s friend that will give me 1% back if we buy with her.” I said in return, “Really, I can find somebody that might give you 1.5% back.” I had a new agent in mind that would love to make a quick $10,000, but will the buyer get the lowest net possible? In the end is that cash back worth it if the agent isn’t as good at getting you the lowest net possible or giving you the time, dedication and hand holding that you might need? I got the deal and it took 4 weeks after we found a home they liked. We offered on 2 homes, one $300k below list, and I found them 2 off the market properties from my letters. I don’t know if a rebater would have been as patient and aggressive. Maybe they would be. My clients were very happy in the end.
Discount firm vs. a known non-discount brandname firm!
I’m excited. What a brilliant idea! I ran an analysis comparing the negotiating abilities of one discount firm’s closings to another well known firm (not mine). What I was hoping to show was how a rebater might give you money back, but if they didn’t fight to get you that last $5k or $15k, how much do you really save with a rebater? Your NET is what should matter, right?!
But guess what?! My numbers showed that the rebating firm was a better deal! Ha! Oh no! Do I ditch my blog? Nah.
Here is what I found in my non-scientific study:
- Rebate firm closed an average 96.7% below list (including seller subsidy)
- Brandname firm closed an average 96.2% below list
- Rebate firm gives .75% back
- Rebate firm on AVERAGE did .5% “worse”,
but with the .75% rebate, you’d be ahead by .25% or
$1,250 on a $500k home, … on average. - But you need to ask, what would an above average agent have been able to net you?
- Disclaimers: For those statistic majors out there, I know, I know, this is nowhere near a scientific report, just treat it as food for thought . It was hard to get a large enough sample (20 for the rebate firm and 65 for the brandname firm). Also buyers should not just be looking for the biggest discount off list. I’d rather buy a properly priced listing at full price, than get a $50k discount on a $100k overpriced home. I just used that as one way to measure a “good deal.”
So before you decide on your agent, whether it be a rebate agent, or another agent, make sure you read the following blogs so you know what type of agent to avoid (that is if you agree with the blogs):
- I Need A Buyer’s Agent! But For My Car.?
- Stockbrokers Can’t Predict Stocks, Realtors Can’t Either!
- Leverage, The Untold Risks With Buying.
- Tip #1 From Mom: Don’t Trust Realtors That “Sell” You On Buying.
- Shady Realtor Bonuses? 10%!! Free Cruise? Be Aware.
Also ask yourself whether the agent you are considering will give you this type of information (including telling you about rebates) and whether they put you first or their commission first. Ultimately if they mesh with your style, great. If they also rebate, great, go for it.
And for you Realtors that hate rebaters, don’t. Get over it. It is just another business model, here to stay. Instead hate the “weekend warrior” who does 2 deals a year and is clueless. Once as a listing agent, I literally had a buyer agent say something to me that lost his client $10,000. He said “Don’t worry, I know they will
go up, they really need to get this under contract this week.” Maybe he was playing me, but I don’t think so.
Will your agent (rebate or not):
- Push you into buying. Or do they tell you the real-life downside risks with buying? (risks sub-blog)
- Expose Shady Agent Tricks. 10% buyer agent bribes, MLS fudging, etc (shady sub- blog) or will they participate and accept those legal bribes (rebater or not)
- Acquisition approach. Do they treat your purchase like an acquisition of a company? With research on all parties involved, (including once going to the courthouse to find the existing loan amount) or do they just run a CMA and tell you it is a great deal?
- CRA Reports Run a CRA report (as seen earlier in blog) or do they not even know what it is or why it would be important?
- Off Market and FSBOs. Look and find properties off the market. Lowering those darn Realtor fees can net you a better deal. But it takes 3 times the work for a Realtor.
- Willing to lose deals. Will your Realtor be as aggressive as you want and lose deals left and right until you find a seller that needs to sell at your price? (Ask them the last time they LOST a deal because they tried to get a great price. I know one agent that bragged about wining 90% of her contracts during the bidding war days. Hoorraay! Her clients probably always overpaid! Losing a deal can DOUBLE an agents time with a client, but you get a better deal when you finally get one.)
- Give you a rebate. Some will, some won’t (we don’t).
- Get you the lowest negotiated price. This is what matters (along with service).
Or it might not.
Thanks for reading! Love to hear your comments! And remember…
– Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don’t like looking stupid. If you like this post, sign up for new blogs daily.
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- 6
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Thanks Frank, I didn’t even know Rebating existed.
Frank: As long as it’s on the HUD and the lender knows about it, no problem. I agree, it’s just marketing. I run specials and give customers coupons. We just show the credit on the front page of the HUD.
Frank: I used to rebate back in those days when I was still learning the curve. Now, I dont do that anymore because I have gotten to become very proficient in what I do. That’s how I justify it. I also dont want to work with buyers who are only-price conscious people (their sole determination of why they select their agent). I provide value in my business and that’s how I choose to do my business. That’s my business model. When my clients and my business model do not jive, then I’m sure I can help them find an agent who fits their needs.
We only rebate on new construction purchases – and then, only the amount permitted by the builder of the amount that exceeds our commission per Buyer Broker Agreement. We don’t advertise this up front – we do it once the Buyer has selected the home they want. This past Sunday there was a co-broke of 6% on a spec which the builder allowed 2% to be credited as a purchase price reduction for the benefit of the buyer. That left 4% for us.
We strongly disagree with builders trying to entice agents to get their buyers to buy homes based on the co-broke to the agent!
Hey Frank,
Loved this piece, very good reading. Rebating is becoming a hot topic here in Silicon Valley. I appreciated hearing from a rebater’s point of view. Can you share your CRA with us? Interesting concept, would like to learn more about it.
Thanks for sharing.
Steve Mun, Silicon Valley Realtor
http://www.stevemun.com
Hi Frank,
As a first time homebuyer everything is new and you just avoid details like that :)
We actually received one offer for a $1,000.- home depot card had we closed with a specific realtor, but we didn’t feel like they cared about us and they were too far away.
Thanks
as a budget-conscious prospective home buyer, i find your blog topics useful. thanks, once again, for shedding light on a practice i would have had to learn the hard way.
Watch out for Anti-trust comments and discussions here.
Rebates are the way to go. I just sold (about 9 months ago) here in Bakersfield and I demanded a rebate. Fortunetly, California has very kind rebate laws which allow for this to be legal. For example, did you know that in California Insurance Agents can (and if asked) give a rebate. Don’t them hog all the commission, they want your business.
thebubblebuster.com
Analysis guy,
Lets not confuse people.
You can’t get a “rebate” when you sell, that is called a “discount.” or a rate better than somebody else.
When you buy, that is a “rebate.”
I’m glad it worked for you.
Frank
Hi Frank,
Local friendly Realtor here.
I haven’t done the rebate thing yet and I lost a client because of it, mostly on principle. I had already negotiated my fee and had a signed buyers agreement. I showed them a few properties,then they called me to tell me that they were actually already working with a realtor when they signed their agreement (I pointedly asked them the question before they signed the buyers agreement and they told me no).
The agent was the wife’s mother, an agent in Florida, who wanted 25% referral fee or a rebate to the buyer.
I reminded them I already had a signed agreement with them that established my fee, and their answer was to either pay mom the fee, rebate or they would use another agent.
I ran the numbers (net paid to me after managing the transaction, and it worked out to about 10 bucks an hour.
I bid them farewell.
The decision for me was one of honesty. Had they negotiated with me up front I would have been more receptive, but to attempt to renegotiate after the fee was established just wasn’t cool. I just couldn’t negotiate the lowest price on their behalf and I told them so. They were NOT happy that I let them go; they told me they still wanted to use me in the several discussions we had after I told them no deal, but they broke an element of trust, so they were done.
How would you have handled it?
Typically rebates go towards closing costs but what happens if the rebate amount exceeds the buyer’s closing costs? How is the exra amount recorded on the HUD?
Hello Anonymous,
You wrote: “Typically rebates go towards closing costs but what happens if the rebate amount exceeds the buyer’s closing costs? How is the extra amount recorded on the HUD?”
Rebates don’t need to go toward closing costs, they can go toward whatever you want. You have you MAKE SURE to double check with your lender early on as they might have certain rules for how you can get the money. For example, if you do a 100% or 101% financing, they might have a problem with you walking away from the table with cash.
But if you put 25% down, they might not care if your rebate goes toward your down payment. You have to check with them.
Everything MUST be on the HUD1, don’t accept any side deals off the HUD1. If the builder won’t allow a Rebate on the HUD1, have your agent go ape-sh*t on them and call the DOJ. That is what I had to do once.
Frank
Hey Frank, thanks for the response re rebate that exceeds closing costs. Folow up question, what does it mean “everything must go on the HUD1”? Is that by law? Assuming there is full disclosure to the lender and the realtor (not builder) is offering the rebate, why can’t I get a check from him for the difference along with a 1099 after closing? If it must go on the HUD1, how is it recorded? Thanks in advance and keep up the great blog.
When I first started investigating the whole process, it was pretty daunting. I spent a week cruising all websites I could find that had a “Top 10” must-do’s when looking for a home. None of these FAQs spoke to anything about an exclusivity agreement. Many online home-buying guides emphasized that one of the most important first steps in the process is locking-in an exclusive buyers agent – and more importantly – a BA that only represents buyers. See http://www.naeba.org/
We started out just asking friend’s who they used as a buyer’s agent. I immediately qualified their recommendations by asking “Well, were they certified buyer’s-only????” To my surprise, I got many blank stares when asking this. I thought I was so smart and nimble!
Then comes along this Frank guy – he’s got a website, blog, and lots of fancy references such as tv shows, interviews, etc. One of my first conversations – this guy tells me “Nahhh, that buyer-s only thing is a bunch of marketing bullsh*t.” He went into a long-winded explanation that sure sounded good. BUT, then I had to explain to my wife that now I decided we didn’t need a buyer’s-only agent because this Frank guy told me so.
Honestly – I didn’t think twice when signing the Exclusivity agreement with Frank.
Thanks Frank
How can a realtor give a rebate of commission on the HUD when the commission isn’t earned (disbursed) until after funding?? A true rebate is when the commission is returned to the buyer after said commission is actually earned. The commission is disclosed on the HUD as a payment to an agent’s broker. The broker receives a check after the loan has funded. Once again, a seller is only obligated to pay a commission to the broker, not the buyer. Then, what the broker does with his/her commission is based an agreement with the buyer.
Sorry Anonymous,
What you are suggesting is considered FRAUD according to HUD. We have asked them repeatedly about this is many different forms.
The rebate MUST be disclosed on the HUD1 (not just the commission disclosed).
So, then it’s not a realtor rebate. It’s the seller increasing his/her contribution to the buyer?
No, it is a Realtor Rebate. Yes the timeline is not perfectly correct as you pointed out. How can the buyer get a rebate BEFORE the broker even got a pay out? You are just playing with the details.
Think of it like a purchase at Office Max. The $20 product says “Instant Rebate of $5”. When you go to the cash register, the process is:
1) You get rung up for $20
2) You get your instant rebate of $5 (note you are getting a REBATE before you even pay!!)
3) You pay $15 plus tax
Not:
1) You get rung up for $20
2) You pay $20
3) They had you $5 back.
It is like that.
Frank
Apples-to-Apples please.
Firstly, in your scenario, the manufacturer is giving the rebate — not the middle man who brokered the deal. In a real estate transaction, the manufacturer would be the seller. So once again, the seller is giving the rebate, not the agent.
Call it an apple, call it a spade.
Do the other way and you go to jail.
I wish that rhymed.
Are you a Realtor or a buyer? Why the anonymous?
Frank
“Why the anonymous?”
Because it’s an option. Why have the option?
Then I ask you, are you committing fraud to the public by calling it a realtor rebate when in fact it isn’t? This is misrepresentation. Your scenario is not a rebate from the agent, but an increase in the seller’s contribution — which the buyer could very well negotiate without you as an agent.
Thank you for again for you participation in this blog.
You obviously are upset about something unrelated to me or my blog.
I call it what the DOJ and HUD require us to call it. Take your issue up with them. Email me if you want their contact info.
Broker to Buyer rebates do NOT have to be on the HUD-1 settlement statement unless the rebate is used as a credit to purchaser’s “source of funds” for closing costs which obviously needs to be approved by lender and shown on HUD-1 settlement statement. If the rebate check is paid after settlement, it is not a source of funds for the purchaser’s closing.
Does rebate have to be on HUD-1? NAR’s answer is NO because RESPA does not cover payments or rebates to buyers because the buyer is benefitting from the rebate which reduces their transaction costs. The intent of RESPA is to REDUCE the costs for the consumers. Buyer rebates from realty brokers are not covered by RESPA, see below.
NAR Legal Affairs’ response: RESPA and the rebate laws referenced in the article are focused on two different types of payments. Rebate law prohibits the splitting of a real estate commission with an unlicensed person, although (except for a few isolated jurisdictions) these rules don’t apply to payments made by agents to their principal in the transaction. RESPA, on the other hand, seeks to remove from the transaction unnecessary costs that drive up the buyer’s expenses in buying a home. Thus, RESPA governs payments made for referral of business between parties (Section 8(a)) or to third parties other than for the value of the services provided by those third parties (Section 8(b)). Since the rebate payment being given to a consumer isn’t being made for a referral and isn’t an unearned payment, it wouldn’t be covered by RESPA.
Inest and BuySideRealty send checks after settlement.
Hope this helps. :) There is a lot of confusion with the word rebate even at HUD.
I love your passion.
I will take the more conservative approach and disclose it on the HUD1. I will also agree to disagree. I have researched this a year ago and was given a very strict written response from HUD that the rebate has to be on the HUD1.
Happy house hunting.
Frank,
There is nothing wrong with being conservative. However, you were speaking with certitude on the matter. I tend to agree with the former poster.
RESPA is a consumer protection act, it was created to lower the costs for the purchaser not as an excuse by real estate brokers to keep fixed commissions.
Of course, it is great to be conservative and disclose buyer rebate on the HUD-1 which is recommended but the realities of the real estate business simply prevents this because third parties to the buyer broker agreement are preventing the broker from disclosing the broker to buyer rebate on the HUD-1.
Homebuilders; such as, NV Homes, Ryan Homes, Beazer, Winchester Homes, Centex, Miller Smith, etc, etc simply will NOT allow the rebate on the HUD-1.
Broker will have no choice but to send rebate check to buyer after settlement because these third parties will not allow on the HUD-1.
The same can be true for the lender. 15 days prior to settlement, broker sends instructions to settlement attorney to show broker rebate to buyer on HUD-1. Buyer gives copy of the rebate letter to their lender at loan application so lender is informed. At settlement, lender (underwriter) instructs settlement attorney to take broker rebate off HUD-1; however, lender and settlement attorney are both aware of the broker to buyer
rebate. (If the lender really does not like the broker rebate, lender or even the settlement atty could require a price reduction for the rebate amount.) Normally, the settlement attorney and lender will say to take care of the rebate after settlement. Again, broker would have to send rebate check to buyer after settlement. Why? If a buyer broker is offering rebates and agreed to accept a 2% commission (instead of 3%) and rebate the 1% balance to buyer then buyer’s broker is obligated to send a check to buyer after settlement even if a third party will not allow to be credited on HUD-1 otherwise buyer broker could be in violation of Section 8 of RESPA which disallows a service provider from keeping “unearned fees” because the 1% could be considered an unearned fee if retained by the buyer’s broker! See Section 8 of RESPA on “unearned fees” and their penalties.
It is important to note that a few states do require the rebate to be showed on the HUD-1 and some corrupted states do not allow the buyer broker rebate at all (unless it is a price reduction which the builder will not cooperate). In these few states, the consumer may have to pay an inflated cost because DOJ and RESPA conflict with the state law’s restrictions.
Here is another question, if you took your buyer out to a very expensive lunch after settlement, do you have to call the settlement attorney and make sure the $500 tab at Ruth’s Chris is disclosed on the HUD with the lender’s approval? Or what about the tickets to the Redskins game in D. Snyder’s luxury box or the Plasma TV? Where would this stop? It is my understanding that this argument may have caused GA to reverse their rebate ban and/or requirement to show on HUD many years ago.
The DOJ, HUD, and the governors of those states need to get together to work this out so all home buyers can enjoy the full benefits of buyer broker rebates!
SINCE THE BUILDER, LENDER, AND SETTLEMENT COMPANY ARE THE SAME COMPANY, THE BUILDER CAN KEEP THE BROKER REBATE OFF THE HUD-1, AND MOST ARE DOING JUST THAT! ONLY OPTION FOR BROKER IS TO SEND REBATE CHECK AFTER SETTLEMENT–AGAIN, REBATES ARE PROTECTED BY ANTITRUST LAWS. ALSO, THERE IS EVIDENCE THAT BUILDERS AND REAL ESTATE BROKERS HAVE COLLUDED TO KEEP BROKERAGE FEES FIXED, THIS HUD-1 ISSUE IS ONE ATTEMPT TO KEEP COMMISSIONS FIXED.
IF A REAL ESTATE AGENT, BUILDER, MORTGAGE LENDER, SETTLEMENT ATTORNEY SAYS IT IS ILLEGAL OR FRAUD TO GIVE REBATES, OR IT HAS TO BE ON THE HUD-1, OR REBATE BROKERS OFFER POOR SERVICE OR REBATE BROKERS CAN NOT NEGOTIATE AS WELL, THEY ARE MISLEADING THE CONSUMER SO THE CONSUMER WILL HAVE TO PAY AN INFLATED COMMISSION WHICH INCREASES THE COST OF HOUSING. IF YOU LOST ON A REBATE BECAUSE OF THIS, FILE AN ANTITRUST COMPLAINT WITH DOJ OR FTC.
“IF YOU LOST ON A REBATE BECAUSE OF THIS, FILE AN ANTITRUST COMPLAINT WITH DOJ OR FTC.”
Great advice! Reparations for consumers may be in order. And what about those licensees who lost their licenses for giving rebates?
Another method my dear friend, call your company something like “I Give big Rebates To Buyers.com realty” . This way in case the builder or lender will not allow rebate credit on settlement statement, rebate will still be disclosed in your company name. Nobody could stop that because settlement attorney would have to pay to broker’s licensee. LOL! Cherio!
I just read a great blog that exposes the business model for one rebating firm.
http://www.tinyurl.com/yuyqo6
“Avg Monthly agent income $2,220 or $26,640 a year”
They said that one of their main problems was turn over. The company keeps such a big percentage and pays the agents so little that they leave. Many large firms are 50/50 for newer agents. This company only gives the agent 28%!
Again, I am NOT saying not to use rebaters, just wanted you to know that the agent you use will most likely leave once they get good.
Are unscrupulous rebaters violating RESPA by retaining unearned fees? The unscrupulous rebater agrees to work for a lower fee to attract buyers. At or near closing, the lender disallows the rebate on the HUD-1. The unscrupulous rebater tells the buyer “sorry, no rebate for you”. The buyer was duped and the unscrupulous rebater keeps the unearned fee — a possible section 8 violation of RESPA.
State of Illinois
May compensation be paid to a principal to a transaction, even if the principal does not have a real estate license?
The Answer: Yes. Section 10-15(c) of the Act authorizes the offer or payment of compensation (“prizes, merchandise, services, rebates, discounts or other consideration”) to an unlicensed person who is a party to a contract or lease. Of course, such compensation is not required. The payment of such compensation should be pursuant to the negotiations on the transactions. The payment of such compensation is not limited to payment by a licensee to the licensee’s client – in other words, a seller’s agent may pay compensation to an unlicensed buyer.
May a licensee offer compensation to solicit clients?
The Answer: Yes. Section 10-15(d) of the Act authorizes the offer or payment of compensation (“cash, gifts, prizes, awards, coupons, merchandise, rebates or chances to win a game of chance”) to a consumer as an inducement to that consumer to use the services of a licensee, even if the consumer and licensee ultimately do not enter into a client relationship. Any advertisement under this Section must also comply with all requirements regarding real estate advertisements. Also, care should be taken not to offer compensation to unlicensed persons for referrals of clients – this is prohibited.
Generally speaking, when a seller lists a home, a portion of the commission is allocated for the buyer’s agent; this process creates cooperation amongst agents to maximize the exposure of the home.
If the buyer has no agent, then generally the 3% overage will be retained by the listing agent (seller’s agent). A savvy buyer can negotiate a rebate from a true buyer’s agent; in turn, this buyer’s agent will be focused on getting a better price & terms on behalf of the buyer.
Hi Frank. You seem like a nice guy with good intentions. It is too bad that you don’t know what you are talking about. I am sure that many CDRE licensees wish you didn’t give them such a bad name. They know that many consumers’ attitude is that since they are realty agents like you, then, they are guilty by association. One call to the C.A.R. Legal Hotline will clarify that a buyer rebate does NOT necessarily have to be on the HUD 1. It depends on the specific circumstances of each individual transaction. Do your homework and let other s do theirs too. Instead of risking that someone may misstep and later point the finger at YOU for wrongful influence, why don’t you just point out that you do not practice law and suggest that interested parties contact a legal professional who specializes in real estate law? Duh! I’ve purchased several properties in the last 24 months and I’ve received over $28,000 in buyer rebates. I have peace of mind since I have received counsel from my own lawyer and I have been present when my broker spoke personlly with a C.A.R. lawyer via speaker-phone.
Hey Anonymous. Can I call you Steve? I hate anonymous.
Steve. What state are you in? The rules change from state to state.
You are correct, in part. You *might* no longer have to put the rebate on the HUD1 in Virginia. The initial rule came directly from HUD itself.
I asked HUD and they sent me a VERY strongly worded statement about it being required. However since this post, creative real estate firms have found loopholes around this.
While we don’t do it off the HUD1, some people do. One needs to ask their attorney if they feel it is ok. Also ask your lender, frequently they also require the rebate disclosure (unless your attorney says you don’t need to tell your lender and you won’t be committing loan fraud).
Also I frequently speak with VAR and NVAR legal on matters like this (I won’t quote them for now), and I never got any green light from them like you got.
Steve, I don’t know what a CDRE is. I even tried to Google it.
I write my posts so that others can do their homework and find what I know, oftentimes so that they can ask the right questions. I also allow people like you, even though sometimes rude, to comment and correct older posts like this.
Interesting that you picked on such a tiny part of the entire post.
For those that have missed my other 10 disclosures, I, Frank do not practice law, as of 5-17-08.
On cash transactions, there is no lender and so no problem.
If you are engaged in a real property transaction in which the buyer gets a mortgage from an institutional lender, and the buyer takes a rebate from the real estate agent without disclosing the cash to the lender…..pause for breath…….you run the risk of colluding in mortgage fraud.
I don’t give a damn how many lawyers think this is okay. Ask every defendant in a class action law suit or regulatory compliance police action if they got a legal opinion on their program and they will say yes.
Spend some time reading FBI mortgage fraud cases and you’ll catch the drift…….HUD may not scare you but I bet a visit by the guys with guns will.
One should always disclose any material fact to the lender — including a rebate of commission. The lender should also recognize that rebates are a viable means by which a buyer’s broker can lower his/her fee to the buyer; it’s a 2-way street.
To Diane: The FBI is a division of the USDOJ — which encourages commission rebates.
WE USED A DISCOUNT AGENT
Hi,
I came across your website in search (googling) of information on how to get out of a sticky situation. Any advice you can provide would be greatly appreciated.
Two days ago (7/1) we closed on a REO home. We did not get the HOA resale packet at closing. It turns out it wasn’t even ordered…. (we used a discount agent…. He’s not very helpful,,, won’t even return my calls…Now we know….)
Yesterday I called the HOA mgmt company and found out that there’s ~ $1400 in fees/fines levied against the previous owner. If I understand it correctly, we inherited that obligation.
Questions I have are:
1) can we legally cancel the contract within 3 days (by tomorrow)? … there’s language in the VA Property Owners Act that states that within 3 days of receipt of HOA Resale Package buyer may cancel… but since we didn’t get one, can we?
2) If we can’t, can the owner’s title policy protect us?
Thank you.
I will answer this over on questions.FranklyRealty.com
Anybody who tells you the buyer isn’t paying the commission is lying to you and is probably a real estate agent. Anybody who tells you they are a real estate agent because they love people and want to help them is lying to you. They became real estate agents because the six months course is a deal compared to education requirements for other professions. This profession, more than any other, is based on greed and the big fat commissions they want are directly related to how much they can get you to spend. They don’t really care if you can’t really afford the property and will end up in foreclosure. They just want you to purchase the property through them and it is in THEIR best interests if you purchase it at the highest price possible. I’ve even had an agent tell me, “You don’t want to insult the seller.” Thay are collectively directly complicit in the mortgage crisis.
P.S. It takes 3 minutes to fill out a pre-formatted purchase offer.
I totally agree with karel zeman post! I’ve been saying this for years. The profession is a disgrace…High school education is the only requirement and taking 2 months of online classes/passing a test…what a joke for the biggest financial decision in most people’s lives! In my opinion, you should have a law degree, construction engineering degree, etc…This would really help people..to actually be able to answer real questions and advise your clients…But everything now is just filling out “cover your butt” forms. What a joke. I went and got my license 10 years ago so I could represent myself and save money buying and selling my own homes…I’m a broker now..and yes I do give rebates..I can’t justify making $20k commission on a house that took 80 hours total work…ludicrous…The buyer do pay the commissions..always..never the seller…it is always considered when the seller is negotiating…I just laugh when buyers agent tell their buyers that they ares paid by the seller..I could go on for hours about this..but gotta go. Again nice post Karel!
[…] congratulate them. I have frequently said “I used to rebate, but then I got good.” (see Realtor Rebates also see Redfin Saves $27,000 vs FranklyRealty.com Client Saves $152,000! […]
[…] I was rebating at the time see “I used to rebate, but then I got good.” […]
[…] Then she told me she had a bad experience with her former Realtor with her last home. I then asked “Was it a rebate company?” to which she was amazed that I was dead on! (disclaimer: Rebater does not = bad, see my blog where I say “I used to rebate, but then I got good“). […]
[…] Read: Realtor Rebates. Free Money or Expensive Savings? and more on […]
Thanks for the article. I like your quote ‘ i used to rebate but then i got good”.
I do agree, but sometimes even GOOD agents need to rebate a little and be flexible in their fee structure to creat a win-win situation.
Kay
Interesting article Frank. I appreciate your objectivity (maybe yes and maybe no). Every transaction is different and every agent is different. Statistics will NEVER tell you if a particular agent is ethical and/or competant. I do Rebates for new homes and it works great for me and my clients love it. My clients and the Builder’s reps do most of the work. My clients receive 83% of all cash commissions paid to me by the Builder. Minimum 2.5% Rebate! So they expect that they will have to do a lot of the homework. I spend a lot of time on the phone with my clients and tell them what to under many different circumstances or how or where to find the answers to their questions. I see myself and my web-site as a consumer educator. Most of the time my clients know what they want, where they want it and how much they want to pay for it. Sometimes they call me before they have the answers to all those questions and I try and orient them according to the criteria they give me. So here in Texas I don’t make a lot of money on my new home rebates but I do get paid fairly for my time. Most of the time I authorize the Title Co to credit my commission towards the Buyer’s closing costs. IF there is anything left over then the Buyer gets a check immediately after the transaction funds. At the end of the year EVERYONE gets a 1099 for the full amount of the Rebate no mater how they got it…on paper or paid with a check cause I ain’t going to pay the taxes on money paid out of my pocket. The most I have eveer paid out on a rebate was a little over 5% on an inventory home. That worked out very well for the Buyer…all closing costs paid and some cash left over for out of state moving. Making 1/2% I think I don’t get in the way of anyone making the best deal possible with a Builder…whatever that may be.
So I just say to the consumers….if this fits…then lets work together…if not look for another agent…don’t let ME look for you cause then the referral has to pay me a cut of his commission. Consumers have more info, tools, and advatages in real estate than ever before…but you have to do your homework!
AS A LISTING AGENT I LOVE RABATE “REALTORS!” HERE’S WHY. YOU TEACH THEM HOW TO FILL OUT AND SUBMIT A PROPER OFFER IN A LOCALE THEY ARE OFTEN UNFAMILIAR WITH AND REQUIRE THAT THEY SHOW YOU THEIR BUYER AGENCY AGREEMENT. THEN THE FUN BEGINS. SINCE THEY ARE FOUND ON THE INTERNET, THEY ARE USUALLY FROM ANOTHER PART OF THE STATE, UNFAMILIAR WITH THE MARKET AND HAVEN’T EVEN SEEN THE THE PROPERTY THEY ARE NEGOTIATING ON BECAUSE THE TIME INVOLVED IN DOING A PROPER JOB IS TOO GREAT FOR WHAT THEY’RE MAKING ON THE DEAL. FURTHERMORE, BECAUSE THEY ARE FREQUENTLY INEXPERIENCED, THEIR NEGOTIATING SKILLS ARE POOR AND THEY OFTEN UNWITTINGLY GIVE ME INFORMATION ABOUT THEIR CLIENT THAT IS HELPFUL TO ME. IN ESSENCE, THEY SERVE AS MERE CONDUITS FOR THEIR CLIENTS. THESE FACTORS LEAD TO TWO POSSIBLE RESULTS: 1) THEY MAKE AN OFFER THAT IS RIDICULOUSLY LOW AND IS QUICKLY DISMISSED; 2) THEY MAKE AN OFFER THAT IS HIGHER THAN IT NEEDS TO BE TO SECURE THE PROPERTY AND, AFTER CONSULTING WITH MY CLIENT,I QUICKLY ACCEPT IT OR NEGOIATE THEM EVEN HIGHER!
THAT’S WHY I LOVE REBATE “REALTORS.”