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Home Buyers: Make Sure to Ask Your Agent for a Rebate

Home Buyers: Make Sure to Ask Your Agent for a Rebate
(Bongkarn Thanyakij | Dreamstime.com)

By Wednesday, 15 July 2020 05:51 PM Current | Bio | Archive

With rents on the rise, it's no wonder home buyer demand remains strong in the midst of a pandemic, but buying a home is one of the largest purchases you'll make in your lifetime. It makes sense that you’d try to save money in any way possible, but it’s important not to sacrifice service while doing so.

A home buyer rebate can be an important part of the puzzle in saving money as a buyer while still working with an experienced, knowledgeable real estate agent. Here’s how it works.

What Is a Home Buyer Rebate?

A home buyer rebate is when a buyer’s agent offers to give a portion of the commissions they receive from the seller to the buyer — their client. This rebate is handed over to the buyer at closing. Typically, buyers put this rebate toward their closing costs to reduce the initial upfront costs of the home purchase.

Where Does the Rebate Come From?

When a listing agent sells a home for a client, they receive a commission of 5-6% of the selling price, on average. This commission is split — usually 50/50 — with the buyer’s agent. The home buyer rebate amount comes from the buyer’s agent’s commission.

For example, if a seller sells their home for $300,000 at a 6% commission, their listing agent would receive $9,000, and your buyer’s agent would receive $9,000 — or 3% each. Of that $9,000, if you had negotiated a 1% rebate with your agent, you would receive a home buyer rebate of $3,000 at closing.

How Much of a Rebate Can I Get Back?

Not all agents offer home buyer rebates, and if you’re just working with a run-of-the-mill real estate agent from a local brokerage, you’ll have to negotiate any rebate on your own. This can be a bit awkward and time-consuming for those who aren’t used to negotiating.

However, some companies — primarily those with their efforts focused mostly online — negotiate the home buyer rebate for you. For example, buyers who go through Redfin — a popular online referral company that matches buyers and sellers to agents — negotiate $1,500 back for buyers, on average, in what they call the Redfin Refund.

Why Do Agents Offer a Home Buyer Rebate?

Traditional agents with plenty of clients in a hot market may have little interest in providing a rebate to a home buyer. After all, a buyer seeking a rebate may take up their limited time that could go to another potential client willing to pay full price.

If the market is slower and the agent is actively searching for clients, you may be able to land at least a small rebate — but you’ll have to negotiate it on your own. You may even be cautious about a traditional agent who offers too much of a rebate — it could indicate they lack experience or are desperate for clients.

Agents spend a large portion of time and money securing buyers and sellers. Some online companies can get agents to agree to a lower commission — or provide a home buyer rebate to buyers — by offering to take off some of this pressure. They provide solid leads the agent wouldn’t have had otherwise and streamline the process through technology. This means less work for the agent and a discount for a buyer or seller.

Plus, with more and more buyers moving their search online, agents can work with more buyers at once, as the transactions may take less time than they normally would. In this scenario, agents would receive the same amount — or more — in commissions and be more willing to part with a home buyer refund as a result.

Are There Any Restrictions on How I Use Money From a Home Buyer Rebate?

You can use the rebate for nearly anything you wish, including putting the cash toward your down payment, your mortgage origination fees, your closing costs, or even take it as cash outright.

The one exception is that some mortgage lenders will not allow you to take the rebate as cash if you are using them to finance your home.

Will I Be Taxed on a Home Buyer Rebate?

In 2006, the IRS clarified that a home buyer rebate at closing is considered an adjustment to the purchase price of the home, instead of income. Thus, you do not need to pay taxes on the amount. Another reason to ask your buyer’s agent about them!

Are Home Buyer Rebates Legal in All States?

A buyer’s agent’s ability to give clients a rebate depends on the state in which the home was sold. Forty states allow for home buyer rebates. Ten states — Alabama, Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon, and Tennessee — prohibit them.

Bottom Line

As long as you’re getting the same great service that you would otherwise, home buyer rebates can save you thousands of dollars. This may allow you to offer more for a home and beat out another buyer.

Prioritize a great agent because you don't want to make one of countless home buyer mistakes, but don’t hesitate to ask about a home buyer rebate.

Dr. Francesca Ortegren, Ph.D. is a Research Associate at Clever Real Estate where she focuses on helping people understand complex data, real estate, finances, business, and the economy by researching various topics, analyzing data, and reporting useful insights for general consumption.

© 2020 Newsmax Finance. All rights reserved.


   
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DrFrancescaOrtegrenPhD
As long as you’re getting the same great service that you would otherwise, home buyer rebates can save you thousands of dollars. This may allow you to offer more for a home and beat out another buyer.
home buyers, agent, rebate, housing, real estate
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Wednesday, 15 July 2020 05:51 PM
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