How Home Buyer Rebates Work

Do you know 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. A little-known strategy that is gaining popularity with consumers is the home buyer discount. At the same time, rebates have become a hot-button legal issue for the traditional real estate industry and the antitrust division of the US Department of Justice. Home Buyer Rebates Work

How Home Buyer Rebates Work

Since buyers pay the lion’s share of closing costs in addition to the down payments, many are interested in receiving rebates to alleviate the cash shortage when moving to a new home. This can be a real advantage for buyers with solid income and credit history, but little cash upfront.

In this case, the term ‘discount’ is not very confusing, because homebuyers do not get part of their money back. The buyer’s representative (agent, broker, or both) returns a portion of his or her commission to the buyer. How Home Buyer Rebates Work.

That money doesn’t come out of the blue… chances are the sellers have included commission in their price. When traditional listing agents tell sellers not to worry about commissions because they can recover the cost through a higher selling price, someone pays the freight.

So how do the home buyer discounts work and what does it get you?

– In traditional real estate transactions, buyer and seller representatives typically share commissions of 5 to 6 percent. Selling brokers usually offer half of this commission to a broker who brings them a buyer. As an incentive to boost business, some real estate agents are now offering to refund home buyers a portion of their buyer’s representative commission.

Let’s say you buy a $400,000 home on which the seller pays a six percent commission. The buyer’s and seller’s representatives divide the $24,000 commission evenly. In this case, a one percent discount means that the buyer’s representative will receive $12,000, of which they will collect $8,000 and return $4,000 to the buyer.

Some discounts may be advertised as a percentage of the buyer’s representative’s commission. In the example above, the discount is $4,000, or about 33 percent of the $12,000 buyer’s commission. Other companies offer fixed-value buyer discounts, such as $1,000 in cash or a $1,000 gift card.

Homebuyer discount: to ban or not?

Four more states limit homebuyer discounts to closing credits. Fortunately for Florida buyers enduring record home prices, discounts remain legal in the Sunshine State.

Industry watchers recently looked to the state of Kentucky to see where the discount debate could lead. In March, the U.S. Department of Justice sued the state’s Real Estate Commission, alleging the rebate ban violated antitrust laws.