All You Need to Know About Real Estate Commission Rebates

Homebuyers in most states can get a real estate commission rebate by working with an agent who offers a homebuyer commission rebate. I offer a buyer agent rebate to homebuyers in Northwest Indiana.

Here, you’ll learn what you need to know about real estate commission rebates including:

• What is a real estate commission rebate?
• How does a real estate commission rebate work?
• How to find a rebating REALTOR?
• How to negotiate to get a real estate commission rebate?
• Is a real estate commission rebate taxable?
• Are real estate commission rebates legal?

What Is A Real Estate Commission Rebate?

A real estate commission rebate is an offer of payment from a real estate agent to a homebuyer. Think of it as your agent giving you a portion of their paycheck. Understanding where the money comes from can better illustrate this.

Home sellers often place their homes in a multiple listing service (MLS). The MLS is a database of homes for sale regulated by a local real estate association. Most of these real estate associations require an agent listing a home in the MLS to offer some amount of compensation to cooperating, buyer’s agents who are members of that same MLS. Your rebate comes from that compensation.

How Does A Real Estate Commission Rebate Work?

A real estate agent commission rebate can come in two forms. The first form is to include the rebate as a buyer’s agent commission credit with the rebate amount coming into the transaction as a credit to the homebuyer to offset the buyer’s closing costs. The other method is a payment to the buyer from the real estate agent or brokerage company after the home purchase has closed.

The amount of the rebate depends on what an agent is willing to offer. First, agents are not required to offer any of their commission as a rebate. Instead, some agents offer a homebuyer commission rebate to compete for more business. Here are some common methods:

• Max Percentage Rate: The agent will earn a maximum commission as a percentage of the home purchase. Anything offered in the MLS above the agent’s stated maximum will be rebated to the homebuyer.
• Max Dollar Amount: This is similar to the maximum percentage amount but is stated in the terms of a maximum dollar among the agent will earn. Anything offered in the MLS above the agent’s stated maximum will be rebated to the homebuyer.
• Portion of Commission: This is when the real estate agent rebates a portion of the commission earned. This is the real estate rebate type I offer. I provide a 20% REALTOR rebate to buyers in Northwest Indiana who join the Quadwalls Real Estate Rewards Program.
  How to Negotiate for a Real Estate Commission Rebate?

First, search for a buyer rebate REALTOR or a real estate agent who offers a real estate commission rebate to homebuyers in your area. This saves you from a conversation you might be reluctant to have.

If you are looking for a home in Northwest Indiana you can start with us. The Quadwalls Real Estate Team offers a 20% REALTOR commission rebate to homebuyers who sign up for our real estate rewards program.

If you can not find a real estate agent advertising a real estate commission rebate you’ll need to negotiate with a real estate agent to get one. Here are the steps to negotiating to get a real estate agent commission rebate.

Steps to Negotiating for a Real Estate Commission Rebate

1. Ask About It Sooner than Later

You should request a REALTOR commission rebate early in the process of working with a real estate agent. I recommend doing so before the agent even shows you a single home. You definitely want to have this cleared up before finding the home you actually want to purchase. If not, there could be a procuring cause dispute.

2. Show Them You Are A Real Homebuyer

Illustrate that you are ready to buy a home. Be pre-approved or ask for a recommendation from the agent for a loan originator. An agent who doesn’t regularly give a real estate commission rebate is even less likely to agree to offering one to a tire kicker who is not ready to make a purchase.

3. Offer to Agreeing to an Exclusive Buyer Agency Agreement

An exclusive buyer agency agreement is a contractual agreement you make with an agent stating if you purchase a home within the term of the agency agreement that you will buy that home with that agent. It’s a great way to demonstrate your commitment to a specific real estate agent. It’s as if you’re money in the bank to them. Also, confirm there is a buyer agent commission rebate agreement included in the exclusive buyer agent agreement.

4. Be A Great Client

Demonstrate you will be easy to work with. There are several steps which make anyone stand out as a great client. Again, get pre-approved for a mortgage. Secondly, clearly provide exactly what you are looking for in a home. Also, be realistic and open to the agent’s advice.

Are Real Estate Commission Rebates Taxable?

First and foremost, do not interpret the following answer as tax advice because I am not a tax professional. However, I do know how to read.

No, real estate commission rebates are not taxable at the federal level. The IRS does not view a rebate as taxable income. Instead, the value of the rebate will reduce your cost basis in the home. That will become a concern upon selling your property. Let’s look at an example to illustrate this.

Holly Homebuyer purchases a $300,000 home. Holly’s real estate agent gives her a 1% real estate agent rebate. 1% of $300,000 is $3,000, so Holly gets a check for $3,000. Holly does not need to report the $3,000 as income. Instead, when she sells her home instead of starting with a basis of $300,000 Holly will have a basis of $297,000. This adjusted basis is what is used when calculating any capital gains taxes upon selling the home.

Remember, there are state and local taxing authorities, too. I can’t provide an answer for every state and local area. It is likely many have adopted a stance similar to what the IRS has done at the federal level. A tax professional in your area could help you with additional real estate commission rebate questions.

Are Commission Rebates Legal?

Real estate commission rebates are legal in 40 of the 50 U.S. states. Real estate agent commission rebates are illegal in:

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

The Quadwalls Real Estate Team offers Indiana homebuyers a commission rebate. Real estate commission rebates to homebuyers are legal in Indiana. The Indiana Administrative Code simply requires the parties to the transaction are informed at the time of making the offer or acceptance.

Wrapping Up Real Estate Commission Rebates

REALTOR commission rebates do exist. Some real estate agents offer a rebate in order to attract new clients. Homebuyers can search for rebating real estate agent in their area or negotiate for a homebuyer rebate. You can follow my advice to increase your likelihood of successfully getting your agent to agree to providing a rebate. Real estate commission rebates are not taxable at the federal level, but might be at the state or local level. Real estate agent commission rebates are legal in 40 of the 50 states.

If you are buying a home for sale in Northwest Indiana and would like a homebuyer commission rebate sign up for our Quadwalls Real Estate Rewards Program. We offer homebuyers who join a 20% real estate commission rebate.

FAQ

What Is A Buyer’s Agent Commission Credit?

A realtor commission credit to buyers is similar to a real estate commission rebate. The difference is if it is a credit that means the buyer is getting to pull the value of the rebate into the transaction and utilize it to offset the homebuyer’s costs to close on the home purchase.\

What is a real estate commission rebate to seller?

I have had people ask about a real estate commission rebate to a seller. Honestly, that doesn’t make any sense. The home seller agrees to a commission with the listing agent. If the seller wants to pay less in commission they should renegotiate the terms of their listing agreement with the listing agent. A real estate commission rebate to the seller isn’t really a thing.