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How Home Buyer Rebates Work
In today's tight housing market, many buyers are looking for ways to stretch their dollars far enough to make that dream home a reality. One little-known strategy that's gaining popularity with consumers is the home buyer rebate. At the same time, rebates have become a hot-button legal issue for the traditional real estate industry and the U.S. Justice Department's Antitrust Division. Buyer rebates are loved by consumers, at least those who know about them, because they can make getting into a home more affordable. More and more so-called non-traditional real estate companies Ź- those offering alternatives to full-service, full-commission brokers - are offering to share their paydays with buyers. At the same time, many traditional brokers around the nation are trying to block rebates because they threaten fat margins with price competition in the form of commission discounts. Since buyers pay the lion's share of closing costs in addition to down payments, many are interested in receiving rebates to ease the cash crunch of moving into a new home. This can be a real advantage for buyers who have a solid income and credit history, but little cash up front. In this case, the term "rebate" is little confusing because home buyers are not getting a portion of their cash outlay back. The buyer representative (agent, broker or both) is rebating a portion of his or her commission back to the buyer. The rebate process seems confusing to some buyers because it runs counter to the common belief that home buyers don't pay real estate commissions. In fact, commission costs are passed on to buyers as part of the home's sales price. Buyer-agents typically are paid half the standard 5-6 percent of sales price commission. That money doesn't come from thin air?chances are that the sellers have factored commission into their price. When traditional listing agents tell sellers not to stress over commissions, because they can recover the costs through a higher sales price, someone is paying the freight. So how do home buyer rebates work, and what's in it for you? - In traditional real estate transactions, buyer representatives and seller representatives typically share commissions of 5 to 6 percent. Selling brokers usually offer half this commission to a broker who brings them a buyer. As an incentive to drum up business, some brokers now offer to rebate a portion of their buyer-representative commission to home buyers. For example, suppose you buy a $400,000 home on which the seller pays a six percent commission. The buyer and seller representatives split the $24,000 commission evenly. In this case, a one percent rebate means that the buyer representative receives $12,000 from which they pocket $8,000 and "rebate" $4,000 back to the buyer. - Buyer rebates generally depend on the home's sales price, total amount of commission and the commission split. Some rebates may be advertised as a percentage of the buyer-representatives commission. In the example above, the rebate is $4,000, or about 33 percent of the $12,000 buyer-side commission. Other companies offer fixed-amount buyer rebates, such as $1,000 in cash or a $1,000 gift certificate. Homebuyer rebates: To ban or not to ban? At the same time consumers are looking to rebates to help relieve the high cost of home buying, traditional real estate brokers are trying - and succeeding in some cases - to prevent their use. Broker lobbying groups around the nation, concerned about price competition and downward pressure on commissions, have successfully lobbied lawmakers in 10 states to make home buyer rebates illegal. Four more states limit home buyer rebates to credits at closing. Fortunately for Florida buyers enduring record-setting home prices, rebates remain legal in the Sunshine State. Industry watchers recently have looked to the state of Kentucky to see where the rebate debate might lead. In March, the U.S. Department of Justice sued that state's Real Estate Commission, alleging that its rebate ban violated antitrust laws. The DOJ investigation alleged that Kentucky's rebate ban may cost consumers "several thousand dollars" extra for each real estate transaction. In July, rebate fans received a victory when the DOJ and the Kentucky Real Estate Commission reached an agreement permitting rebates in that state. If you're shopping for a rebate, get the facts: Some points to keep in mind if you are a home buyer looking to take advantage of rebates: - Shop around. Some rebate programs included other buyer services, such as contract preparation or review, or escrow services. Even in a sellers' market, buyers have some leverage. After you have established the rebate amount, ask what else is in the package to help simplify your purchase and control transaction costs. - Consider your tax picture. Getting a rebate in the form of funds applied to closing can be double-win because that money may go untaxed when applied to closing costs. If the rebate or a portion of the rebate is not available until after closing, it may need to be reported as taxable income. Of course, this isn't an issue if you have plans for your rebate other than closing costs. Be sure to consult your tax advisor for this and other tax consequences of home buying. - Rebates won't be available on many homes, including sale-by-owner homes and some homes sold by discount brokers. That's because in these cases, the traditional commission percentage and split - from which the rebate is derived - doesn't apply. Some real estate companies don't offer buyer-agent commissions, and owners selling their own homes probably are doing so to avoid commissions. Finally, check to see if rebates are legal in your state. Money Magazine's 2005 Real Estate Guide reported that rebates were banned in Alaska, New Jersey, Kansas, Oklahoma, Rhode Island, Louisiana, South Carolina, Mississippi, West Virginia and Missouri. Rebates were reported as restricted to credits at closing in Alabama, South Dakota, Oregon and Tennessee. If rebates aren't available in your state, you might ask your buyer agent what incentives are available. After all, for being a smart buyer in today's challenging real estate market, you deserve some type of reward. You can estimate your rebate savings at http://www.homekeys.net. Charles Warnock is Interactive Marketing Manager at Homexperts in Miami, Florida. Their Web site is http://www.homekeys.net. Charles writes frequently on real estate, finance, advertising and interactive marketing. This entire article can be reproduced without permission with author bio and link to author's Web site.
MORE RESOURCES: How Jordon Hudson, 24, amassed $8 million real estate portfolio within months of meeting Bill Belichick New York Post Hyderabad blues: Real estate sales in city see biggest drop The Financial Express Real estate transfers in Adams County from April 21-25, 2025 Muddy River News Real estate report: Three key factors are behind Louisianaâs surge in investment Baton Rouge Business Report Exclusive: Trump's first real estate project in Qatar to be announced by Qatari Diar, Dar Global Reuters Graham Nortonâs Manhattan Carriage House Is Listed for $5.595 Million The New York Times ArchCrest opens new real estate division Northern Nevada Business Weekly Advocacy Scoop: New NAR Poll UnveiledâTax Reform, Real Estate Policy and Voter Opinion National Association of REALTORSÂŽ Two key real estate bills take aim at industry regulations Real Estate News by RealEstateNews.com Downtime: Local real estate agents team up on âChasing Cambodiaâ cycling doc - Richmond BizSense Cattaraugus County: Ellicottville home, Machias property lead March real estate sales Olean Times Herald Licking County real estate transfers for April 14-18 reach $1.4 million in Newark The Newark Advocate Richland County property transfers recorded April 21-25 Mansfield News Journal Fond du Lac County property sold for $530K in latest real estate transfers for April 21-25 fdlreporter.com Ranking Arizona: Top real estate law firms for 2025 AZ Big Media Mid-America Real Estate closes sale of 34,431-square-foot shopping center in Midtown Detroit REJournals People on the Move: New execs at HomeServices, RE/MAX Real Estate News by RealEstateNews.com Property transfers: Nursing facility, rental complex sell for more than $1 million Canton Repository Alexandria Real Estate Equities Looks Juicy But Uncertainty Keeps Me Sidelined (NYSE:ARE) Seeking Alpha The Pipeline: Commercial real estate roundup for 5.2.25 Richmond BizSense Raith seeks to raise $700m for non-core US real estate fund IPE Real Assets Blackstream opens luxury office near Lake Keowee GSA Business Report April real estate transactions CraigDailyPress.com Franklin Real Estate Development finds inspiration in Greenvilleâs history upstate business journal 'Slow and steady': How a couple retired early by buying one rental property a year with 5% down payments Business Insider Solano Real Estate Scene: Slow down, buy a house Daily Republic Secluded estate near Ann Arbor is Washtenaw County's most expensive home. Price: $8.99M Detroit Free Press Job Market Defies Tariff Fears to Remain Strong in April, Offering Jolt of Confidence to Homebuyers Realtor.com Solano Real Estate Transactions: May 2, 2025 Daily Republic How the Dallas Commercial Real Estate Industry Could Fare in the New Tariff Environment - D Magazine Berkshire region real estate sales â May 2, 2025 The Berkshire Edge Here's what local experts say the Baton Rouge real estate market will look like in 2025 The Advocate Real estate performance in Quarter 1, and some perspective Garden City News CENTURY 21 Real Estate and Institute for Luxury Home Marketing Launch Collaboration With New Q1 2025 Luxury Market Report Franchising.com SDSU: SDSU Imperial Valley alumnus finds new meaning in real estate career Imperial Valley Press Online Abundant listings and stable prices not enough to drive April sales in the Fraser Valley GlobeNewswire What's the most expensive property sold in Rhode Island? May 2 real estate transactions The Providence Journal Tarek El Moussa Calls for 'Real Reform' in Real Estate Industry: 'I Saw Families Lose Everything' House Beautiful Report: Health care real estate gains greater favor in Twin Cities Finance & Commerce US Commercial Real Estate Leader Peachtree Group Launches 114-Room Residence Inn in Ocean Township, Tapping into Jersey Shoreâs Expanding Hospitality Market Travel And Tour World Real Estate Magnolia Reporter Real estate transactions: Week of May 2, 2025 Inside Tucson Business Status update: 7 Upstate commercial real estate projects upstate business journal When Donald Trump mocked a real estate icon for having a 'Trophy Wife' The Economic Times Real Estate: Market Pulse (April 2025) Seyfarth Shaw LLP Compass goes retro with launch of âPrivate Exclusives Bookâ Real Estate News by RealEstateNews.com How to Choose the Right Real Estate Broker Investopedia Real estate report: Industrial market remains âchronically underbuiltâ Baton Rouge Business Report Allied Properties Real Estate Investment Trust (APYRF) Q1 2025 Earnings Call Highlights: ... - Yahoo Inside the Family Office Advantage in Private Real Estate WealthManagement.com Windermere âconfusedâ about Compassâ claims of collusion Real Estate News by RealEstateNews.com NexPoint Real Estate Finance, Inc. 2025 Q1 - Results - Earnings Call Presentation (NYSE:NREF) Seeking Alpha Woman Arrested Again on Real Estate Forgery Charges Rural Radio Network 'We Are Going Into Winter': Boston Universities Brace For Real Estate Impacts Of Federal Cuts Bisnow This Weekâs Premier Real Estate Listings TysonsToday House for Sale by Owner RiverBender.com |
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