There are tons of terms that first-time homebuyers or home sellers tend to hear when they make their foray into the real estate world. You might already know terms like POI or earnest money, but most people are still relatively "green" to the concept of realtor rebates—even if they've bought real estate before!
This rarely-discussed concept can help you save a lot of money when you purchase a new home. If you've heard or read about realtors offering a buyer commission rebate, this guide will help you understand what that is and how it works.
What Is A Realtor Rebate?
A realtor rebate, or more accurately, a buyer commission rebate, is precisely what it sounds like: it's money that the buyer's agent will refund to you once you finish closing on a house. This isn't getting money back from closing costs or anything like that. Instead, it's a way for realtors to compete over your business. To make the rebate money available, the buyer agents who are offering the rebate take money out of their own home sales commission.
Can Realtors Give A Rebate To Sellers?
Since rebates are defined as cashback on a purchase, giving a realtor rebate to a home seller doesn't actually work out. A seller can negotiate a lower commission, but that wouldn't be a rebate. Buyer rebates are an exclusive perk of being a homebuyer.
Is Offering A Realtor Rebate Legal?
Believe it or not, offering a realtor rebate isn't legal in all states. Some states view rebates as an unfair advantage or a potential threat to the industry. As a result, there's resistance to the movement. Many states, including Alabama, Louisiana, and Missouri, have outlawed the practice. But in most states, buyer rebates are encouraged as a way to bring about more competition that is beneficial to consumers.
If you aren't sure whether realtor rebates are legal in your state, it's a good idea to check out what online legal sites say about your state.
Times, they are a-changing
Perhaps the most important reason for buyer rebates becoming more common is the change in buyer behavior. More and more buyers are finding their homes online, without the help of an agent. This trend means that buyer agents are spending less time with clients and doing less work, all while collecting the same fees. Commission rebates make sense as the agent knows they're doing less work, and offering a buyer rebate is a great way to attract new customers.
Basically, a realtor who offers a commission rebate is looking for motivated buyers that know what they want. They expect to spend far less time showing and "selling" you on the home. Instead, most realtors who rebate will provide you with a pressure-free environment and act more as advisors and transaction managers. That's not to say they're not experienced. Generally speaking, rebate agents do more transactions than traditional agents. This makes them great negotiators.
Why Would A Realtor Offer A Commission Rebate On A Home?
Agents do have to put food on the table too, don't they? So, why would they give a large portion of their commission to a home buyer?
Believe it or not, there are several smart reasons to do this as a realtor:
- It can give you an advantage over the competition in realtor-flooded markets. Getting clients as a realtor isn't easy. Rebates can prove to be a remarkably fast way to encourage people to work with you over others.
- You could be passing over real estate savings to clients. Technology has made it easier than ever to process paperwork, update listings, and work with people in the real estate world. This cuts down on work time and costs. Some realtors want to pass the savings to others.
- The home in question could be difficult to sell. Some buyer agents that specialize in ultra-upscale homes have a hard time finding clients wealthy enough to afford certain houses. A rebate is their way of trying to help gain notoriety as a buyer agent that puts consumers first.
- Offering a rebate makes the transaction more efficient. Buyer agents who provide rebates do so in part because the deals are more efficient. They spend less time showing homes to buyers, and the closing process generally moves quicker. Finally, a rebate is a great way to win over a buyer, so there's little risk of losing a buyer to another agent.
- Some realtors use it as a trade-off for other pricier services. Not all realtors care about wining and dining their buyers or driving them to showings in a $75,000 Mercedes. A rebate can be used as a way to leverage a realtor's services.
- Or, it could be a way to just offer a straight discount on the home. Some realtors genuinely want to help people who might be stretching their budget with their home prices.
How Does A Real Estate Rebate Help Homebuyers?
The way rebates help homebuyers is very simple. You get cash back at the end of your real estate transaction. This is money that would have been kept by the realtor, and it's not exactly "chump change," either.
Having a rebate can offer enough extra cash to cover moving costs, buy new furniture, or update a part of your new home. Besides, who doesn't like getting money back after they buy something? Buyer rebates are the ultimate "cash back" perk in real estate.
What Do People Use Buyers Rebates For?
Since you're getting cash back on a purchase, the rebate is yours to do whatever you want to do with it. It's your money, and there are no restrictions on what you can use it for. That said, many people use it for one of the following:
- Closing Costs- If you have to cover a certain extra portion of closing costs, then you can use your rebate for that purpose. However, you may need to talk it over with your title company and realtor first.
- Moving Costs- Those rental trucks can cost a pretty penny. Having a rebate can make a move easier on your wallet. Even if it doesn't cover the full price of moving, it still can be a great contributor to your costs.
- New Furniture- A common use for rebate money among new homeowners is to go furniture shopping with it. After all, new homes deserve new gear.
- Emergency Savings- Sometimes, padding your emergency savings account is the smartest thing to do. Homebuyers who worry about the future tend to use at least a portion of the rebate as a savings fund if they can afford to do so.
How Much Is A Typical Buyer Rebate?
The actual number varies based on the amount of money spent on the home's commission. But, in most cases, realtors will return between a third and two-thirds of their commission to the buyer if they choose to do a rebate.
Most buyers agents earn around three percent commission. This means that you can expect to get one to two percent of your home's price back if you get a home buyer rebate from your agent. On a $200,000 home, a one percent rebate equates to around $2,000. Agents who give out larger, two percent rebates usually have a minimum, so you might need to buy a $500,000 home to get the full rebate, but on a half-million-dollar house, you're looking at a $10,000 rebate. That's a serious amount of money!
Is A Buyers' Rebate Taxable?
You would think that real estate rebates would be taxable by IRS rules, but surprise, they're not! This is because a commission rebate, such as the ones offered by buyers' agents, is not actually a form of income. Instead, the IRS views it as a price adjustment. So, that's an added perk to consider.
Are There Any Drawbacks To Home Buyers' Rebates?
If you're a home buyer, chances are that you're wondering what the "catch" is. Believe it or not, there isn't a catch. You actually get to enjoy the rebate the same way you would for a smaller purchase.
How To Negotiate For A Buyer's Rebate
Buyers' rebates are negotiable, so you might have to get a little tactful to get the rebate you want. The easiest way to get a buyer's rebate is to work with a real estate agent known for offering the rebates. However, that's not always doable, especially if you're dealing with a market that has high demand.
If you want to work with an agent who doesn't usually offer them, simply ask if you could get a rebate from them if you agree to work with them. If you ask nicely and show them your preapproval, you might get what you want.
What Should You Do If You're Offered A Rebate When It isn't Legal?
The best thing you can do for yourself is to back away from the realtor and find someone else. There's a good chance that the realtor in question isn't legitimate, or if they are, may not be selling homes in a legal way.
Reporting them to their brokerage is an option you may want to consider. Who knows what other tricks they're pulling? It could be in the better interest for other buyers (and their brokerages) to be made aware what's going on.
A Quick Note About Choosing Your Realtor Via Rebates
It's worth pointing out that rebates aren't always going to be a guarantee of a good realtor. There are realtors out there who might be struggling with a public image issue or who have a bad reputation may choose to do rebates as a way to assuage the expectations buyers might have. But there are also plenty of tech-savvy agents and brokers who have built their business model around rebates.
When choosing a realtor, don't let the rebates become the be-all, end-all of your selection process. Look at their reviews and reputation, and speak with multiple agents before you decide on who you want to work with.
Realtor rebates are a unique way to get cash back after you close on a home purchase, and they're growing in popularity. It's easy to see why they're becoming popular, especially in a buyers' market. Tax-free cash back on your home makes moving easier, financially speaking.
Realtors who want to make more business happen have the option of giving back a portion of their commission to buyers, but not sellers. If you live in a state where real estate rebates are legal, you can expect up to two percent cash back, depending on the price of your new home. However, only 40 out of 50 states allow this practice. So before you assume it is doable, keep an eye out for your state laws.