According to the U.S. Department of Justice, forty states, including California, allow real estate agents to give rebates to their clients. The DOJ even condones negotiating rebates to increase competition among real estate agents. If you sign up with ABB, you can compare buyer rebates for free.
The biggest benefit from rebates? It makes buying a home less expensive! You get to do whatever you want with the money; put it in savings, use it towards new counter tops, or go on a ski trip.
Typically, a buyer’s agent gets half of the 6% commission that the seller pays in order to sell a home, and then splits their proceeds with their managing broker. And for buyer’s agents, they can compete for home buyer business by refunding a portion of this commission to the home buyer. For example, a modest 0.5% rebate on a $430,000 home, roughly the median price for a California home as of July 2015, would save the home buyer $2,150.
Moreover, the Internal Revenue Service has ruled that a rebate isn’t taxable, but rather is an adjustment to the buyer’s basis in the house, which effectively lowers the home’s purchase price.
Agents offer rebates as a way to stand out and gain new clients. It’s no different than a rebate offer you might see at a store, except in this case, you could be saving a lot more money. These brokers offer home buyers cash refunds or non-cash incentives to entice them to use their service.
Many times the rebates are cash payments from the broker to home buyers after closing. They can take the form of a gift certificate, closing-cost payment, or free services like home inspections of moving services. In some cases, the lender might even allow this to be used as part of the down payment. The Department of Justice’s article has a great diagram (below) showing how the savings can break down based on a hypothetical $300,000 priced home purchase with a 1% buyer rebate.
How do real estate agents feel about rebates?
There are agents on both sides of the spectrum. On one hand, some agents are personally offended by buyers even asking for a rebate. In an article titled “Home Buyer Asks Real Estate Agents about Buyer’s Rebates” posted on Trulia’s blog back in 2009, one such agent had responded to a buyer asking about rebates by saying “what is typical is that Buyer’s Agents do not rebate commissions; at least those that offer full service. Why? Well, would you choose a heart surgeon based on his rebate? Perhaps a stretch in comparing two professions, however, useful to make a point.”
On the other hand, more buyer’s agents have embraced the idea of rebates due to demand and services making rebates more accessible. In fact, the ability to get a rebate is one of many great reasons to even work with a buyer’s agent. An agents willingness to offer a rebate is often dependent on market conditions and home prices. If an agent works in a high priced market, such as San Francisco, they are able to rebate a portion of their commission and still have a significant profit margin.
On top of finding an agent that is a great negotiator in the neighborhood you want to purchase, these agents realize that a rebate is a way to competitively gain a new client that they otherwise would not have gotten. This is a way of thinking that is slowly being adopted by some of the top Realtors out there.
There are primarily two ways for you to negotiate this offer.
1) 1 on 1 negotiation (the hard way) – If you’ve already identified an agent or set of agents you like, you can simply ask them if they could offer you a rebate. In the world of negotiation, however, you have to offer something to get something. You can tell them that you’ll do more of the home search on your own, and primarily hire them for getting their advice and deep negotiating expertise. You could also try playing hardball by reaching out to several random agents and mention a rebate. When agents respond with interest, you can tell them that you’ll go with an agent that can give you the best rebate deal. This might cause friction with an agent you hope to work with, though.
So what’s a better alternative?
2) Use a service that has agents compete – If you use our service at ABB, top agents that are willing to rebate will compete to work for you. We’ve pre-selected experienced local agents, read their reviews, talked to them on the phone, and met many of them in person. You can easily select your city, preferred price range, and compare proposals from several top notch agents.
No awkward negotiating, we keep your information private until you choose an agent, you get to see exactly how the commission is broken down, and you get to save money. You can interview more in depth with any agents you’re interested in hiring.
With ABB, you’re GUARANTEED to receive at least $300 on a rebate, even if a partner agent doesn’t offer you a rebate in your price range.
Keep in mind that in a seller’s market such as the market in the San Francisco Bay Area, where inventory is at all time low, a buying agent may need to help you tour many homes and submit multiple proposals before they can earn their commission. To be an attractive buyer, below are a few recommendations to maximize the number of proposals you will receive and the amount of rebates:
1) Be pre-approved by a reputable lender
2) Narrow your home search – of course, you may not know the exact home you want to buy, but this is all about negotiation. If you’ve done more of the home searching yourself, and have identified a property you’re ready to put an offer for, the chances of you getting a bigger rebate is higher
Getting a good rebate may be important to you, but we firmly believe that an experienced agent on your side is worth more than a rebate in your pocket. Top agents can bring invaluable market knowledge and negotiating skills to ensure that you never overpay for a home.