In purchases where home buyer’s brokers offer 50% commission, buyers are often able to pay $0 in closing costs and have a better chance to get their offer accepted in a Sellers market. A 50% rebate on the median-priced home in California would save a homebuyer $7,875. This Commission Credit can be used to pay for closing costs, buy down an interest rate or even reduce the purchase price!
Commission Credit Rebates are paid through escrow from the real estate broker to his or her client upon closing. Incentives may include gift certificates, closing-cost payments, or free ancillary services such as free appraisals, home inspections or moving services.
Rebates can save consumers several thousand dollars in a single transaction. For example, if using a Homebate partner agent who offers to refund fifty percent of their commission to the homebuyer, the average buyer of a $500,000 home could save $6,250 to $7,500 (based on the 2.5% to 3% commission rates typically earned by the buyer’s broker).
Incentives, such as gift certificates for a home inspection, merchandise at a nearby hardware store, or moving services, give consumers monetary benefits from the transaction that they otherwise would not have obtained.
Some have argued that refunds and incentives can tempt consumers into closing on real estate transactions against their best interests. The Antitrust Division has found no evidence that refunds and incentives harm consumers. On the contrary, they can dramatically lower the price that consumers pay for brokerage services.
In most states brokers compete on price for consumers’ business. However, ten states have enacted laws that forbid brokers from offering refunds, denying consumers the benefits of price competition and driving prices higher than they would be in a more competitive market.
Some brokers support rebate bans as a means of reducing price competition. For example, when the Kentucky Real Estate Commission surveyed brokers about lifting that state’s rebate ban, here is what some of them said:
“If we give rebates and inducements, it would get out of control and all clients would be wanting something. The present law keeps it under control.”
“This would turn into a bidding war, lessen our profits and cheapen our ‘so-called’ profession.”
“If inducements were allowed, they could lead to competitive behavior, which would make us look unprofessional in the eyes of the public.”
“I think this would just take money right out of our pocket.”
Ten states currently have laws that ban rebates. Nine states have a full ban on broker rebates: Alabama, Alaska, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon, and Tennessee. In addition, Iowa prohibits rebates when the consumers use the services of two or more real estate brokers during a transaction.