Over the past few years, real estate brokerages have been looking for innovative ways of selling and buying homes. Brokerages have also begun instituting new pricing models that offer consumers more incentives and options with every real estate transaction. One strategy commonly used to attract home buyers is the home buyer rebate. In this article, you will learn what a real estate commission rebate is and whether you qualify for one.
What Is a Home Buyer Rebate?
The home buyer rebate is when your real estate agent offers you a percentage of the commission fee they make from your purchase. At times, it is referred to as the buyer agent commission rebate, buyer agent rebate, or homebuyer refund. As mentioned earlier, some brokerages and agents offer these rebates as an incentive to attract more buyers. You could also attempt to negotiate real estate rebates on your own, though this could prove difficult. Even if your efforts were successful, your agent might only offer limited services.
When a realtor gives cash back, it could save you thousands when purchasing a home. However, rebates can be quite complex and are never guaranteed. To begin with, home buyer rebates are only legal in specific states and for specific types of purchases. Rebates also require lender approval and are often issued as closing credits which can only be used in specific ways, like to purchase mortgage points or cover closing costs.
What Types of Houses Qualify for a Home Buyer Rebate?
Typically, all types of homes qualify for homebuyer refunds. This includes townhomes, single family homes, condos, apartments, and multifamily homes. However, some brokerages might not allow a rebate for certain home types. Be sure to do your research to find out if the type of house you want to buy qualifies for a refund.
How Do Buyer Agent Rebates Work?
Agents or brokerages usually offer or advertise rebates as a proportion of the final sales price. For instance, a 0.5% rebate on a $300,000 house would equal $1,500.
At times, brokerages or agents offer rebates as a percentage of the commission they earn on the home sale, which makes it a little more complicated. For example, let’s say an agent earns a 6% commission and offers you a 25% rebate. This means that you would get back a quarter of their commission, which is 1.5% of the home sale price.
You will get the rebate at closing, often in form of a closing credit. You will be able to spend it on closing costs such as:
- Appraisal fees
- Transfer fees
- Loan origination fees
- Escrow fees
- Buying points on your mortgage
Whether your brokerage or agent offers a rebate or you choose to negotiate one yourself, the amount should be mentioned and agreed upon from the onset, before you begin looking for homes.
Benefits of Cash Back Over Commission Rebates
When looking for a real estate agent or brokerage, find one that offers cash back rather than commission rebates. Cash back is offered in form of a check after closing, unlike a commission rebate that comes in form of credit.
When you get cash back at the end of the transaction, you are free to spend it however you want without limitations. In addition, cash back is not subject to lender approval since it is being offered by a third-party outside the transaction. However, you should still inform your lender that you are getting cash back just to be safe.
How Much Can You Save With a Home Buyer Rebate?
Home buyer rebates can potentially save you several thousand dollars when you buy a new house. The amount you will save will be determined by the structure of the rebate and the purchase price. Here is a table that shows what you would save at different price points:
Purchase price Potential saving (with 1% home rebate)
$250,000 $2,500
$500,000 $5,000
$750,000 $7,500
$1,000,000 $10,000
You can use the rebate calculator on the U.S. Department of Justice website to calculate your exact rebate amount.
The sad reality is that there are no guarantees when it comes to home buyer rebates. Though a brokerage or agent might offer a certain percentage, the lender might lower that amount – or even reject the rebate outrightly!
On the other hand, cash back comes through a third party and is paid after the transaction. This means that the lender is not involved. If you qualify for a cash back scheme, you are more likely to get the full amount promised.
Are Rebates Available in Your State?
As of March 2021, home buyer rebates were banned entirely in the following states:
- Oklahoma
- Mississippi
- Louisiana
- Oregon
- Alaska
- Kansas
- Missouri
- Tennessee
In Iowa, home buyer rebates are allowed only in dual agency transactions (when a broker or agent represents both the buyer and the seller).
It is worth noting that the U.S. Department of Justice is keen on making buyer rebates legal in all 50 states. According to the DOJ, discouraging, restricting, or prohibiting commission negotiations violates established antitrust law. The federal government is spearheading a broad, ongoing effort to educate legislators and consumers about the advantages of price competition in real estate.
How to Get a Home Buyer Rebate
Assuming that rebates are legal in your state, here are the steps for securing a homebuyer refund:
- Do your research: You need to do your due diligence and weigh your options before agreeing to work with an agent. In real estate, once you sign a buyer agency agreement and start touring properties, you will probably be stuck with that agent. Before engaging an agent, be sure to find out what options are available in your area
- Read the rebate’s terms and conditions: Once you’ve identified a few potential agents, read the terms and conditions of the buyer rebate to understand how much you will actually receive. Some rebates require a minimum net commission, which means that you will only get a refund when the agent makes a certain amount. In other cases, the rebate decreases depending on the number of houses you tour. Take time to calculate the expected refund before settling for a company
- Sign a buyer broker agreement: This document will outline the terms of the rebate and mention that you have accepted to buy property with the broker offering the refund
- Get your buyer refund: Some brokers will direct the amount refunded to closing costs, while others will hand you a check at closing
How to Negotiate a Home Buyer Rebate With Your Agent
If your agent is not offering a rebate, you can negotiate one on your own. You will have a higher chance at success if you are:
- Buying a high-priced house because your agent will earn a large commission
- Selling and buying property with the same agent since they will get both commissions
- Working with a newer real estate agent who is likely to struggle to attract new customers
- Purchasing a home in a neighborhood where demand is low, meaning your agent might not have many clients
Conclusion
A realtor rebate to buyer can potentially save you lots of money, which is a great thing for any real estate investor. However, there is a lot of red tape involved with commission rebates. This is why it is a better idea to get cash back from a real estate agent. You will not need approval from your lender and you will be able to use the money for whatever you want.
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