In today’s real estate market, home prices are increasing rapidly. It’s common for homes to sell for above-asking price with multiple offers on the first day.
In a seller’s market, home buyers need to use every tool at their disposal to make a competitive offer and stand out from the rest.
There is one tool that most buyers don’t know about, that lets you lower the effective price for any home you want to buy, allowing you to make a more competitive offer, with a smaller down payment than other buyers. In some cases, buyers have saved over $10,000 on the price of their home.
That tool is called a commission rebate.
What Is A Commission Rebate?
Home buyer rebates, also known as commission rebates, are when a real estate agent that’s helping their client buy a home gives a portion of the commission they receive from the seller back to their client.
The buyer can use this rebate for their down payment, closing costs, to buy points on their mortgage, and in some cases, can even take the rebate as cash at closing. It’s important to note that if you’re using a mortgage lender to finance your home, they have to approve how you use the rebate. Many lenders won’t let you take the rebate as cash at closing.
Commission rebates allow you to afford a more expensive home, or to save on your down payment for your dream home.
In a seller’s market, a commission rebate is a powerful tool that savvy buyers can use to stand out from their competitors. If a home is listed at $400,000, a buyer that’s receiving a rebate could potentially offer $406,000 — and pay the exact same amount as another buyer that offered $400,000.
For homes that receive multiple offers, this could be the difference between your offer being accepted, and months of searching for another home.
How Do Home Buyer Rebates Actually Work?
The graphic below shows an example how the rebate process works.
In a traditional real estate sale, the seller hires an agent and offers between 4-6% to their agent to sell the home. Their agent then offer half of that to another real estate agent that brings the buyer.
If the buyer has hired an agent that offers a commission rebate, the agent will give them a portion of the commission offered by the sellers agent. This amount varies based on the agent you select, and can even vary based on how many homes you tour.
Where Are Home Buyer Rebates Legal?
Commission rebates are legal in 40 states, and the US Department of Justice supports making rebates legal in all 10 states.
In fact, the Department of Justice actively investigates any organization that tries to regulate real estate commissions, and is leading a broad effort to educate states about the benefits of competitive real estate commissions in an effort to legalize rebates in all 50 states.
The graphic below was created by the Department Of Justice, and will let you know if home buyer rebates are legal in your state.
Are Commission Rebates Taxable?
If you’re wondering if a commission rebate is taxed as regular income, we have good news for you – they aren’t!
After much speculation among real estate brokers across the country, the IRS released confirmation on November 30th, 2006 that stated:
“In the present case, Taxpayer does not have an information reporting obligation under
section 6041 of the Code because, as concluded above, a payment or credit at closing
represents an adjustment to the purchase price of the home and generally is not
includible in a purchaser’s gross income.”
In the eyes of the IRS, your rebate is part of the settlement from purchasing the home. Since it’s treated as one small part of a real estate transaction — instead of as an independent payment afterwards — it’s not taxed as a source of income.
How Much Of A Rebate Can I Expect To Receive?
Typically, rebates are negotiated on a 1-to-1 basis between you and your agent. Your ability to negotiate ultimately determines the rebate that you receive.
In order to receive a higher rebate it’s smart to shop around, and interview multiple agents to compare quotes until you find an agent that’s willing to give you a large rebate.
However, you don’t want to sacrifice on quality — and it can be hard to find a top agent that’s willing to offer a rebate.
The process of searching for an agent who is great on both price and quality can take many hours of interviews and negotiations.
And while it’s important to push for the best terms for yourself, remember that long and unpleasant negotiation isn’t the best way to start a relationship with your agent.
Clever Takes The Negotiating Out Of Commission Rebates
Getting a commission rebate doesn’t have to be difficult.
Clever has a nationwide network of top rated real estate agents who have already agreed to offer a commission rebate, up to 1% of the purchase price of your home. No negotiation necessary.
When agents work with Clever, they know that we send them a constant stream of business. While they might not normally offer such a large rebate to an individual client, we’re able to send them enough business to make it worth their time.
Our partner agents know that if the buyers we send don’t have an incredible experience working with them, we won’t send any more referrals.
Our partner agents are experienced helping buyers find the home of their dreams, making a competitive offer, and helping you through inspections, paperwork, final walk through, and any unforeseen hiccups.
Clever has partners from every major brand, and top rated local brokerages across the country.
If you’re thinking of buying a home, click here to get in touch with a top rated local agent. They will provide a free, no obligation consultation, answer all of your questions, and show you the best way to use a commission rebate to be more competitive than other buyer.
If you’re selling a home, Clever also offers agents that will list your home for a flat fee of $3,000 or 1%, drastically lowering your seller commission.