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July 14, 2020 by Thomas O'Shaughnessy Leave a Comment

Here’s How to Get a Home Buyer Rebate (And Save Thousands)

Here’s How to Get a Home Buyer Rebate (And Save Thousands)

Most incentives offered by real estate companies are aimed at sellers— reduced agent commission fees, concierge service, etc. But for buyers, one of the biggest enticements out there is the home buyer rebate. 

A home buyer rebate is when the buyer’s agent refunds a portion of their commission from the sale back to the buyer. For the buyer, it’s a great way to put serious cash back in their pockets, at a time when they need it most. And for buyer’s agents, it’s one of the most effective ways to secure clients in a competitive market.

The only caveat is that, because of the way the money is rerouted, some states frown on the practice, and it’s not legal in every state— which we’ll cover in more detail below. We’ll also go into what, exactly, a home buyer rebate is, how it’s related to traditional buyer agent fees, how to negotiate with an agent for a buyer rebate, first time buyer home rebates, and much more.

  • What is a Home Buyer Rebate?
  • Buyer’s Agent Fees Explained
  • How to Negotiate With Your Agent for a Rebate
  • Are Home Buyer Rebates Legal?
  • States Where Home Buyer Rebates Are Banned
  • Are Home Buyer Rebates Taxable?
  • First-Time Home Buyer Rebates
  • Redfin Buyer Rebate vs. Clever Buyer Rebate

What is a Home Buyer Rebate?

Home buyer rebates – which, for the purposes of this piece, we’ll also call buyer agent commission rebates – are a term for when a buyer’s agent refunds a percentage of their commission to the buyer. Typically, these home buyer rebates are limited to 1% of the sale price, or less.

So what can a buyer do with their rebate? Well, that’s usually up to the lender. Generally, buyers use their buyer agent commission rebates on things like closing costs, points on their mortgage, or their down payment. Occasionally, the lender will allow a buyer to take the home buyer rebate as cash, but this isn’t common. 

A 1% home buyer rebate is a substantial amount to get back in a transaction. Let’s say you’re buying a $300,000 home; if you put 20% down, that’s $60,000. A 1% buyer’s agent commission rebate comes to $3,000— which is 5% of your down payment. As any home buyer can tell you, getting your down payment together can be one of the most challenging parts of the process, so 5% right off the top is a great benefit, and represents real purchasing power.

Buyer’s Agent Fees Explained

To understand how a home buyer rebate works, we have to zoom out and look at how buyer’s agent fees are calculated, and where the money comes from.

In a conventional real estate transaction, the buyer (or, in most cases, the buyer’s bank) pays the seller the sale price of the home. The seller then pays a full 6% commission to their listing agent, who gives the buyer’s agent half, or 3%, of that full commission.

If the buyer has arranged with their agent to receive a commission rebate, the buyer’s agent will then pay the agreed-upon percentage back to the buyer. So in essence, the money has come full circle, from the buyer, to the seller, to the agents, and back to the buyer.

You can see why this is a great deal for the buyer. The seller paid the commission out of their own pocket, and yet a substantial chunk of that money is finding its way back to the buyer. 

Why do buyer’s agents offer to give a portion of their paycheck back to the client? To secure a client in a competitive market. If an agent knows a buyer is looking at high-priced properties, or is going to be an easy client to work with, they’re probably going to be more open to working for a smaller commission. In the right circumstances, a buyer’s agent commission rebate is truly a win-win.

How to Negotiate With Your Agent for a Rebate

It can be tough to get a home buyer rebate by just asking for it. Ideally, you want to make a strong argument to persuade your agent that it’s in their best interests to give you the rebate you’re asking for. 

How do you do that? Well, like anyone else, buyer’s agents want to be paid for the amount of work they do. So if you’re trying to convince them to take less pay, you should convince them that they’ll be doing less work. 

To that end, you should come to the table as a fully prepared buyer. That means you should be pre-approved by a reputable lender, so the agent knows that your transaction won’t hit a brick wall at the last minute. It also shows that you’re serious about buying a home.

Second, you should come to them with specific preferences, and a narrowed-down list of properties you’re interested in. One of a buyer’s agent’s primary responsibilities is to act as a matchmaker between their client and houses they could potentially be interested in. This is usually the longest and most labor intensive stage of the buying process. If your agent knows they won’t have to spend weeks or months escorting you to various open houses, they’ll be more inclined to give up a portion of their commission.

If you’re looking at expensive homes, you might not even have to do that much persuading. Agents know that there’s a lot of competition out there, and they understand that 2% of a $1 million home is better than 3% of a $300,000 home.

Some brokerages offer buyer rebates as part of their business model. Real Estate Witch has partnered with Clever Real Estate to help buyers in eligible states receive guaranteed commission rebates of $1,000, if the home you purchase is over $150,000, and up to 1% if you buy a home priced at $500,000 and up. 

Get a Home Buyer Rebate WITHOUT Negotiating!

Our friends at Clever Real Estate negotiate with top-performing agents so you don’t have to. Start saving thousands today.

Learn More

And that’s standard practice at Clever, meaning you won’t have to negotiate with your agent at all.

Are Home Buyer Rebates Legal?

Home buyer rebates are legal in 40 states. While a handful of states do ban them, the Department of Justice’s official position is that home buyer rebates are a positive innovation, and that they should be legalized nationally. 

States Where Home Buyer Rebates Are Banned

If you live in the following states, you won’t be able to legally receive a buyer’s agent commission rebate:

  • Oregon
  • Iowa
  • Missouri
  • Kansas 
  • Oklahoma
  • Alaska
  • Tennessee
  • Mississippi
  • Alabama
  • Louisiana

Are Home Buyer Rebates Taxable?

Since a home buyer rebate can seem like a cash payment, it’s fair to wonder if it’s taxable. After some debate, the IRS announced in 2006 that buyer’s agent commission rebates are not taxable.

The relevant text reads as follows:

“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.”

While this is a welcome clarification, the logic here hints at why lenders can be so restrictive when it comes to the home buyer rebate, and why some states still ban it entirely. Though it seems like a cash rebate, a buyer’s agent commission rebate is technically an adjustment to the cost basis of the property, which can seriously throw off a lender’s profitability calculations if it’s simply cashed out by the buyer. 

Point being, talk with your agent and lender long before closing to ensure you can get a buyer agent commission rebate. 

First-Time Home Buyer Rebates

If you’re a first time home buyer, the buyer agent commission rebate isn’t your only option to save money at close. 

In 2008, in the wake of the financial crash, the Housing and Economic Recovery Act created a federal tax credit of $7,500 for first time home buyers. Congress later increased this credit to $8,000 but, in 2010, as the economic recovery began to pick up steam, they let the tax credit expire. That’s the bad news.

The good news is that this defunct federal program has been replaced, in many parts of the U.S., by state programs offering identical first time buyer tax credits. Many of these programs offer low- or no-interest loans, or grants, to first-time home buyers, which they can use on everything from closing costs to the down payment. This list from Nerdwallet is a great place to start. 

Redfin Buyer Rebate vs. Clever Buyer Rebate

Redfin’s Refund and Clever Real Estate’s Buyer Rebate are two of the most popular home buyer rebate programs on the market. So how do they compare?

The Redfin Refund

Redfin offers an average home buyer rebate of $1,500— if you work with an in-house Redfin agent, and if you’re buying in one of their major coverage areas. If you’re buying outside of their main markets, or you’re using one of their partner agents, you won’t be eligible for a Redfin Refund.

Redfin Refunds can only be applied to closing costs. While it’s relatively uncommon for a lender to allow a buyer to take a commission rebate as cash, it does happen; with Redfin, though, you won’t have that option, even if your lender allows it.

There are also some minimum numbers that have to be met before a buyer qualifies for a commission rebate. Redfin states that a buyer’s agent commission must be at least 1%, or $6,500, whichever is higher, to be eligible for a refund. 

This means that, for a 3% commission, you’d have to buy a home for at least $216,666 to get a refund; if the agent was working for a 2% commission, that home price gets bumped up to $325,000.

This can be a difficult price threshold to meet, especially for first-time buyers in non-major markets. You can read Redfin’s complete disclaimer here.

Clever Real Estate Buyer Rebate

Clever’s buyer rebate works like this: $1,000 back, guaranteed, on purchases between $150,000 and $500,000, and up to 1% back on home purchases over $500,000. There are no other minimums or conditions that have to be met (as long as buyer’s agent commissions are legal in your state) and no fine print to review. It’s a simple, transparent process.

Clever Real Estate has another advantage, too. Redfin uses in-house, salaried agents, which means the incentive of a percentage-based commission has been removed for them. While most Redfin agents are definitely professional, the fact is they’ll be paid the same amount of money no matter how your home purchase goes. 

Clever, on the other hand, pairs buyers with elite local agents who have proven track records. Because they’re working on a traditional commission model, you can be sure they’re going to pursue your best interests with maximum enthusiasm. Coupled with their more straightforward, transparent buyer rebate program, Clever Real Estate seems to have the slight edge here.

The Real Estate Witch has partnered with Clever Real Estate to help buyers get a gold standard buying experience, and a substantial $1,000 (or more) home buyer rebate at closing. Contact Clever today to start looking for your dream home!

Get a Home Buyer Rebate WITHOUT Negotiating!

Our friends at Clever Real Estate negotiate with top-performing agents so you don’t have to. Start saving thousands today.

Learn More

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