Real estate investing involves a wide array of concepts. One particular concept that is worth noting is home buyer rebates. So what exactly does this entail? Read on to find out everything real estate investors should know.
What is a Home Buyer Rebate?
A home buyer rebate, also known as a commission rebate, is when your real estate agent shares a percentage of the commission fee they earn on a transaction with a buyer. Some real estate agents or brokers will offer home buyer rebates as an incentive for them to get your business. This would benefit both parties, as the agents and brokers have you and your property as a new client, and you receive a part of the commission fee for giving them your business. If a broker or agent doesn’t offer home buyer rebates from the start, you could try to negotiate one from any brokerage. Although this may be difficult, it still is possible. Be aware though that if the agent accepts, they may not perform as many services as they would have before, as they are essentially making less of a commission in the end.
Home buyer rebates or any sort of cash reward incentive can help you save thousands on your home. Realtors giving cashback incentives are fantastic ways to generate business. You should be aware though that home buyer rebates or certain types of cash rewards can sometimes get complicated, and are not always guaranteed. One thing that makes home buyer rebates tricky is that they are not legal in every state, or not allowed on certain types of purchases. These rebates also require approval from the lender. Lenders will typically only issue home buyer rebates as closing credits and put regulations on them on how they can be spent. For example, they may only allow you to spend them on mortgage payments or closing costs.
If you are an investor seeking to sell your investment property, you should consider working with a real estate agent to sell your property. Mashvisor’s Real Estate Agent Directory is a great tool to find agents in your area. This tool helps you locate agents in any city who can provide help selling any type of property.
How Does a Home Buyer Rebate Work?
Home buyer rebates allow brokers and real estate agents to help buyers save money when purchasing a property. This is all done without the agent needing to negotiate with the sellers to sell the property at a lower price. Often, these rebates are advertised as a percentage back of the final sale of a property. For example, if a property sells for $100,000, and the agent offers a 1% home buyer rebate, then they would get a home buyer rebate for $1,000.
The percentage back that could be offered on a home buyer rebate can change depending on the agent or broker offering it. There is never a set percentage across all real estate agents. This is because all agents and brokers make a different commission depending on every property they sell. On average, agents and brokers make around 5.50% of the purchase price, and that money is put towards their commission fee. Then, as properties usually have 2 different agents, one for selling the property and one representing the buyer of the property, that commission fee is split down the middle, so each agent makes around 2.75% of the purchase price.
Agents will then offer a percentage of their commission fee to get more clients and buyers of a property. For example, if an agent is making 2.75% of the sale price of $100,000 and is offering a 25% home buyer rebate, then that buyer would receive $687.5. This rebate though typically has regulations on it. This means the money you receive can only be spent in a certain way. Some ways that are typically approved to spend the rebate money are:
- Towards your mortgage payment or mortgage points
- Escrow fees
- Appraisal fees
- Transfer fees
- Loan origination fees
If your agent or broker offers a home buyer rebate from the start as an incentive, or if you negotiate one while working with them, the amount of the rebate should be clearly specified before you and your agent start to look at properties in order to prevent confusion or problems after a property is found.
Be Aware of How a Home Buyer Rebate is Being Advertised
There are two typical ways a home buyer rebate is advertised to potential clients and buyers. They are either a percentage of your agent’s commission or a percentage of the purchase price. It is important to be aware of which percentage you will be getting on your rebate, as they both could produce completely different prices.
If it is a percentage of the purchase price, then your rebate could potentially have a much higher percentage than if it was just a percentage of the agent’s commission fee. In any instance where your rebate is coming from your agent’s commission, your rebate can only be as high as half of their commission fee, and it is likely agents won’t offer that much.
Full Rebates are Never Guaranteed
In most cases, a real estate commission rebate is never 100% guaranteed. Some agents or brokers offer cash refunds, which would be the promised amount of your rebate in full quantity, but most brokers and agents do not offer any refunds. Instead, these rebates are issued as commission credits rather than your money back. These commission credits also have regulations on how they can be issued. Typically these commission credits have to be approved by the lender and the seller. Additionally, these credits are also subject to different regulations set by the state or city they are being issued in.
All of these regulations are why agents and brokers are unable to guarantee you the final amount you will receive after a purchase is completed. When these are being advertised, you will commonly see phrases such as “up to x%”, rather than an official price or number percentage. Always check with your broker or agent about the final rebate percentage or commission credits before agreeing to work with them. This will save problems in the long run.
Why Do Agents and Brokers Offer Home Buyer Rebates?
There are many reasons in which your agent or broker would offer a home buyer rebate as an incentive for you to work with them. Below are the top 3 reasons in which home buyer rebates are offered:
To Make a Transaction More Affordable to Buyers
Some potential buyers of a property are worried because they think they may be spending too much on purchasing a property. In order to alleviate some of this stress, agents and brokers offer home buyer rebates so buyers get a percentage back on their purchase. Depending on the final sale of the property, these rebates can be high in price and save the buyer thousands on their purchase. This benefits the buyer as they save additional money when buying a property, and the agent as they gain more business and a new client.
To Attract New Clients
Offering home buyer rebates is a great incentive to get new clients. People want to work with an agent who says they will save them a lot of money on their purchase of a property. Buying a new property can be an expensive purchase, so any money saved can be beneficial to the client. This just means as an agent you must fulfill your promise to save your client money or else they will be less incentivized to work with you in the future. Additionally, since people don’t sign contracts with their agent until an asking price is submitted, offering a home buyer rebate makes someone want to work with you rather than shopping around with other agents.
To Remain Competitive
Agents and brokers offer home buyer rebates to potential buyers as it creates business for the brokerage. Also, if other brokerages in the area offer home buyer rebates, customers are more included to work with them rather than an agency that doesn’t offer a rebate. This makes other agents feel as though they need to offer a rebate to stay competitive in their area.
How Do I Negotiate a Home Buyer Rebate With my Agent?
There are many reasons why a buyer would want a rebate on their purchase. Not all agents offer this rebate though. You could try to negotiate it with an agent but it is usually difficult to do so. Therefore, always look for an agent who offers them from the start if you are looking for a home buyer rebate. If you want to work with an agent who doesn’t offer one though, here are some instances in which negotiating a rebate may be possible:
- If you are working with an agent who is newer in their position, they have difficulties finding new clients. You can negotiate a rebate with them in order for them to gain your business.
- If you are looking to purchase a large property with a high commission, it is possible your agent would be open to a home buyer rebate. This is because they are already making a high commission, so losing a little to gain a new client could be worth it in the long run.
- If you are looking to buy a property in an area in which there is low demand and not many people looking to buy in the area, an agent may work with you to generate business and accept your proposal of a rebate.
- If you are selling and buying a property and using the same agent to do so, they are more likely to accept your negotiation for a rebate because they are receiving both commissions.
Is a Home Buyer Rebate Worth It?
For most people, a home buyer rebate is definitely worth it. It has the potential to save you thousands on your property purchase. Even if the rebate has regulations, you are still saving money that would have had to be spent at some point.
If you are a real estate investor, you may always be on the lookout for a home buyer rebate. Real estate investors want to ensure they are making as much profit as they can on properties they are buying. Buying investment properties can get quite expensive, so home buyer rebates allow for some of this money to be returned to the investor.
Home buyer rebates are incentives offered by real estate agents and brokers to gain new clients and business at their brokerage. These rebates are advertised as a percent back of the final selling price of a property, or a percentage of the agent’s commission fee. Either way, this buyer agent commission rebate offers some money back to the buyer, they could potentially save them thousands on their purchase.
In some cases, these rebates have regulations on them which impact how they can be spent. This may mean the rebate can only be spent to cover closing fees or to put towards points on your mortgage. No matter if your rebate has regulations or not, it is still saving you some amount of money in the long run.
You should always establish how much this home buyer rebate will be before working with an agent. This is because the amount of money you receive on a rebate or percentage back can vary depending on the agent or the property being sold. There is no set home buyer rebate for any agent. Make sure both you and your agent agree to the home buyer rebate percentage before you find a property to purchase. Being upfront with each other will save problems in the future.
It is especially important for real estate investors to find agents who offer home buyer rebates so they are able to get some return on their investment upfront. Investors should always try to negotiate a rebate with their agent, even if one is not being offered.
If you are interested in buying a property, visit Mashvisor to look for real estate agents in your area. Scroll through the profiles of agents in your specific location to find one that fits all of your wants and needs.