Let’s face it. Most of the things that occur in our lives are out of our control. We can’t control the day of the week, the weather, or how much money we wish we had in our bank account. While the week and weather are harder to impact, maybe we could do something about making more money.
As a REALTOR® or a real estate investor, you’re constantly bombarded with decisions that impact your bottom line. How can I most effectively spend my time, should I invest on the North or South side of town, and a question that is becoming increasingly more common…
Should I offer, or accept, a buyer commission rebate?
In the abundance of the information era, investors and agents alike could be misled about the reality behind buyer commission rebates. This is because no matter what your opinion is, on any given topic, you can find an article, a news source, or data, to support any preconceived notions.
Investors and traditional buyers are currently more empowered, progressive, and educated than ever before. By being flexible and offering a buyer commission rebate, as a backup, or supplement to a seller concession, it allows the new and most aggressive agents to stay not only competitive but relevant.
The reality is that while buyer agent commission rebates have been traditionally frowned upon in the agent community, due to receiving less money at closing, they actually are a great way to grow your business. This is especially true for new agents looking to set themselves apart from the most successful agents and increase lead generation at the start of their careers.
Today we’ll examine the ins and outs of Buyer Agent Commission Rebates with the goal of educating both agents and investors.
What Is a Buyer Agent Commission Rebate?
Buyer agent commission rebates can go by many names that all essentially mean the same thing. You might also hear them called: a buyer commission rebate, realtor rebate, or buyer rebate. Basically, this all boils down to non-taxable money given by the buyer’s agent to the buyer at closing.
Since buyers are not licensed REALTORS®, they cannot be paid a commission. So how does this work? Agents, when serving buyers, can rebate a portion of their commission to the buyer as motivation for the buyer to choose them over another agent. Why would someone choose Agent A, when Agent B provides the same quality service and gives money back at closing?
Am I Eligible for a Buyer Agent Commission Rebate?
Do you qualify? Well, that all depends. Where do you live?
Currently, as of March 2019, buyer commission rebates can be provided in 40 out of 50 states in the US. If you live in: AK, AL, IA, KS, MO, MS, OK, OR, TN, or LA – simply put – you’re out of luck because the law prevents it.
However, if you’re still looking for ways to be competitive and relevant, you could negotiate a seller concession in place of a buyer commission rebate.
What Does a Buyer Agent Commission Rebate Look Like?
Here’s an example. Let’s assume a buyer purchases a property for $300,000, and the buyer agent commission is 3%.
Property Purchase = $300,000
Total Buyer Side Commission (if 3%) = $9,000
1% of $300,000 to Buyer at Closing = $3,000
2% of remaining 3% to Buyer Agent = $6,000
Benefits & Drawbacks for Agents
As an agent, there is one major benefit to offering a commission rebate to a buyer: it helps set you apart, so you are more competitive and win more buyer agency agreements. Over time, as you look to increase your Zillow profile, and build your sphere of influence, you’ll have more deals more often because of your reputation.
Conversely, the drawback to offering a buyer commission rebate is that it is less money for you, the agent, at the closing table. When a potential client, or referral service, asks if you’re able and willing to offer a buyer commission rebate, you might be unhappy that someone is asking you to work for less. Some agents, driven by pride and ego, may argue, “I’m worth more than that”, “I value my time”, or “Rebates devalue our work and industry”. However, would you obtain more business over time and make more money if you were known as the agent who regularly gives back? Your reputation matters.
Benefits & Drawbacks for Clients
As an investor or traditional buyer, the benefits are clear. More money for you at the closing table. Ultimately, this helps you because now you have the ability to spend or invest money wisely, in projects that you previously didn’t have the funds for. Simply put – more money for you is a good thing.
When considering drawbacks, a client would face when specifically choosing a realtor who offers rebates, there really aren’t many – if any. When you work with a realtor who offers a rebate, they might be a younger agent trying to make a name for themselves, so they do the same work as others for less. But, there are no clear detrimental drawbacks. Let’s face it, as a real estate investor, the ultimate goal is learning how to get a good return on your investment. What better way to guarantee a better return than doing your homework upfront and choosing an agent who you know offers rebates.
Negotiating Buyer Rebates as a Client
The easiest way to negotiate a rebate, as a client, is to work with a free service that does the negotiations for you. These companies find out which agents offer realtor rebates and then the agents compete for your business.
All agents are not made equal. Because of this, make sure that the company you choose highlights their agents based on more than just a commission rebate. A bad agent, with a rebate, could still cost you far more than an agent who doesn’t offer a realtor rebate.
Negotiating Buyer Rebates as an Agent
Legally, agents can’t pay their commission to a person who is unlicensed. However, agents are able to provide a credit, or rebate, to a client. If you are unable, or unwilling, to offer a buyer commission rebate, but still want to stay competitive, there is hope. You could also negotiate a seller’s concession/contribution with the listing agent.
This is what I call: The Great Negotiator Guarantee.
When speaking with buyers, you could say, “The benefit of choosing me is that I guarantee up to 1% of the property’s purchase price as cash back to you at closing.” To go one step further, you might say, “If I am unable to negotiate a seller’s concession, I will personally provide you a buyer commission rebate instead, so choosing me is a guaranteed win-win.”
In the end, when in negotiations of commission rebates or a seller’s concession, keep in mind, there are a number of elements at play that influence the amount: location, purchase price, etc. Different states have different requirements, so before you guarantee, check with the powers that be.
This article has been contributed by Clayton Sanders from Transactly.