Buyer's agent rebate - what method?

Question

Hello everyone. I am in a state that lets the buyer's agent give a rebate to the buyer. In fact, most buyers' agents will advertise this because there is so much competition.

I found a house from a builder 6 months ago and have done 99% of the work. My agent probably put about 1 hour of work into it. Therefore, he said he will give me back 1% of the purchase price back (his commission is 3% of the price).

- Please, I am not here to discuss if should the agent give rebates back or not. That can be for another thread :)

This is his method of figuring out what I get. Is this method the norm?

1. Let's say he gets 10k in commission (the 3%)

2. He paid his broker 1k (now we have 9k left)

3. He gives me 1/3 of 9k. So I get 3k.

4. He says he has to pay tax on the commission so he deducts 25% from 3k. Now I get $2,250.

Russell Brazil · Answer

It is mortgage fraud. Both the agent and the buyer would be guilty of it. All funds related to the transaction must be reflected on the Alta/hud1. Additionally for the agent its a violation of license law.

Russell Brazil · Answer

Taxes shouldn't be playing a part here as whatever he is giving you needs to be done as a credit within the transaction. If he is paying you outside of the transaction, that is illegal.

Tim Johnson · Answer

As everyone else has said - whatever your contract with the agent says - holds. On the face of it - 1% of the purchase price is just that - makes no difference what his splits with the brokerage are - the amount you should be rebated is $3,000. And as @Russell Brazil has stated, if this is a legitimate rebate, it's got to happen inside the transaction.

There's no way to actually analyze this agent from your comments, but your "1 hour assessment" of the agent's work sounds fishy to me. Do you know how much time he may have spent looking for properties? Has he prepared your offer for this transaction? Will he guide you through negotiations, inspections, and appraisal? Again, we don't know.... just asking.....

Russell Brazil · Answer

The only agent that might do that is because their broker has not given them permission to do a commission rebate.  The commission does not belong to the agent to do with as they please, the commission belongs to their broker.

It's also important to keep in mind maximum allowable credits per Fannie Mae.  3% owner occupied conventional, 2% investor. This includes total credits from all sources. So say you were getting a 1% rebate from the buyers agent, then you could only get 2% from the seller in an owner occupied situation. If you were getting 3% from the seller, you could not get any commission rebate from the buyers agent.

Jonathan Greene · Answer

Just keep in mind that your agent splits with their broker, they do not get the whole commission that you are reducing. So if they are on a 50-50 split, they are only getting half, or less with how much sneaky pulls brokerages take off the top. Putting aside the notion of the rebates altogether, taking 1 percent off seems fair. It doesn't sound like you did much work to find something from a builder and you need to guidance on the way through the transaction.

Scott M. · Answer

I don't really follow the logic of the tax part, everything else makes sense as you laid it out.  Meaning, if he has 10K of income and has expenses of 1K to the broker and 3K to you to offset that income he would be paying tax on only the 6K he is keeping.

That said, this should all be part of a contract that you and he signed and regardless if it makes sense now you did sign a contract (I think/hope) to follow the math as you laid it out...right>?

Theresa Harris · Answer

If it is 1% of the purchase price, it is exactly that.  So if he gets 10K, you get 1/3 of that.  If it is 1/3 of his commission, then you need to look at the wording to see if it is 1/3 of what he nets, what he grosses, etc.

Nathan Gesner · Answer

I would have to see your written agreement (I hope you have one). I would expect the 1% to come from the total commission. You're calculating it after the Broker keeps his portion. And you also shouldn't be paying taxes on your rebate because it's not a payment to you; it's a reduction in your purchase price (you are basically paying less for the home).

Purchase price is $300,000

3% commission = $9,000

1% commission = $3,000

Broker keeps 2%, $6,000. They give you 1%, $3,000. You've bought the house for $297,000 (in the eye of the IRS).

Think of it this way. You hand me three dollars and I hand you one dollar back. You haven't been paid anything; I just gave you a discount and that $1 is still your money.

Dan Marl · Answer

Hi Tim,

I found the house on the builder's site and have been in communication directly with the builder. However, the builder needed an agent in the contract so someone recommended the agent to me. He didn't negotiate and I got the inspection and everything else. I am not dissing on his value or his work. Agents do add value. I am just stating the fact. Literally, it's has been me working with the builder 99% for the last 6 months.

Dan Marl · Answer

Thank you so much, Russell!

Buyer's agent rebate - what method?

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