Real Estate Insights

There is nothing new about “Realtor rebates;” which are merely a reduction in commission charged, or a credit to a client towards their closing costs. “Realtor rebates” have been around the real estate industry forever and are a necessary part of real estate practice. But what makes these “rebates” a “buzz word” depends on exactly how the commission rebate is handled by the crediting real estate professional and how they choose to advertise such a rebate.

First of all, there is no set “commission rate” in real estate, and every good real estate agent knows that everything in real estate is negotiable (part of the Realtor’s value), and the agent’s commissions is no exception. Added, each real estate transaction is different and there may be times when crediting a portion of a commission is the only way that an agent can help a buyer or seller successfully complete their sales transaction, which is a good reason behind hiring an agent to represent a buyer or seller in the first place.

Some practicing real estate agents do not like the idea of offering their services at “discounted rates” because it may leave their level of professional services at risk for being interpreted as less than “top notch.” Think about it this way…when you consider the cost of a really good attorney (not to put real estate agents in the same light) it is safe to assume that your pre-determined opinion of that attorney’s services can be based on the hourly rates they charge. Normally, the higher the hourly rate, the better the expectation of service, which I believe is true of a lot of professional services, real estate included.

Other agents, known as “discount agents” or “discount brokerages” (such as Help-U-Sell, RedFin, and Asante for example), advertise a large part of their service as providing a rebate to the consumer from their earned real estate commission as an incentive to gain their business. Sometimes this type of real estate service can workout great for the consumer, other times the consumer may prefer to work with an agent who can provide full services.

Whether the homebuyer, or home seller chooses a “discount brokerage” over a “full service brokerage,” should depend on their expectations of the level of professional service they will be receiving, and paying for. Part of a real estate agent’s duties is to provide valuable professional services to the consumer at a price that is agreeable to all parties. Such pricing will depend on many things - the real estate agent’s knowledge and expertise, the scope of work involved, the type of transaction, proposed advertising budgets, the real agent’s business model, etc.

I would like to suggest that before you hire the real estate professional who will be helping you with one of, if not, the largest purchase or sale of your lifetime that you fully discuss the services that your agent will provide. And if one of those added services is a “rebate”, then find out the terms of the “rebate” – exactly how much of a rebate can you expect to actually receive at closing?

Although “Realtor rebates” may sound specific enough, there are rules (both Federal and local laws) that govern how these rebates are handled:

          First of all, rebates are not referral fees - a licensed real estate agent cannot just give part of their commission to anyone (buyer, seller, or someone who may have referred the business to them) as this is considered a breach of the RESPA Act and can carry both civil and criminal penalties to those who break the rules. Only licensed real estate brokers can receive real estate commissions or referral fees associated with such commissions.

          Sellers may receive Realtor rebates in the form of commission reductions – in order to provide a rebate to a seller, listing brokerage will offer a reduction in the overall commission charged to sell their property

          Buyers may receive Realtor rebates in the form of credits towards their closing costs – a Realtor rebate to a buyer is handled by providing the buyer with a credit towards their closing costs, but such credit cannot exceed the buyer’s actual costs or exceed their lender’s guidelines for maximum allowable buyer credits (usually capped at 3% of the sales price).

Feel free to contact one of our agents if you’re interested in learning more about “Realtor rebates” or about the different levels of service that we can provide.