Discussing Home Buyer’s Agent Commission Rebates

Up until a few years ago, the status quo was that the real estate agent who helps you buy your home get half of the 6% commission, so 3% of the sale price of your home. On an average (again, around here) $600,000 home, that’s $18,000. That may be split between the principal broker and the agent (unless you have an independent agent), but that’s still quite a pay day. Nowadays, there are several websites and agents who will offer you a cut of this 3% commission – often for a reduction in features. Here are a few of the more prominent ones:

(*Our eventual agent was found using this service.)

However, the National Association of Realtors is actively lobbying against this practice. Currently, these states ban buyer rebates: Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, Montana, New Jersey, New York, Oklahoma, Oregon, Tennessee, and Wyoming.

But should this practice be illegal? Many people – most real estate agents – sure think so. I disagree, and find this stance very anti-consumer. Hey, I can understand not wanting to lower my income. But that’s capitalism. If an agent can operate well without rebates, then they should do so and refuse to offer any such rebates. But if someone else is willing to negotiate their fee, what’s wrong with that? I feel that like for any service provided, both the price and the features should be negotiable. Imagine every car costing $20,000 no matter what, every computer costing $1,000, every haircut costing $50. Yes, a discount agent might offer discount service. But a full-price agent can also offer poor service. In the end, each home buyer should be able to make their own value judgments.

Even our current arrangement is primarily a result of legacy and tradition, not logic. Until the 1990s, in many states there were no “buyer’s agents” at all. All agents represented the seller, which means they had a fiduciary responsibility to the seller – and only the seller. Only within the last decade or so have agents who solely represent the buyer become widely accepted. I believe commission rebates are simply the next evolution in real estate practices.

In the end, not everyone has the same needs. If someone wants a full-service agent who works for a big company like REMAX or Century 21, who will interview the client and figure out the best neighborhood for them, call them with updates every day, and drive them to each house in their nice car (why do they all drive either a Benz or a Lexus?), then they should have the right to do so. On the other hand, my agent has almost 20 years of experience, and is her own principal broker. She drives a Honda Accord, and I’ve never been inside it. We get full MLS access and we e-mail her what houses we want to see. We already have a lawyer who reads real estate contracts all day long in the family.

In addition, if price is such a key ingredient to agent quality – why can’t I offer $5,000 plus the 3% commission to my buyer’s agent? By that logic, that should get me a sweet agent who’ll bargain the pants off the seller and get me a house 20% below market… right?

Comments

  1. You could offer an agent $5k+3%, but the market doesn’t really dictate that you have to in order to get a good agent.

    I am a Realtor, and I happen to support the concept of discounting. Seriously, not every client needs the same amount of handholding. Not every buyer wants to look at houses for a year before buying.

    If you are experienced in real estate transactions and are comfortable doing your own property searches, negotiating your own offer and complying with all laws yourself, why should you be forced to pay someone to do it for you? That makes no sense.

  2. Great points. Your purpose is to find and purchase what’s most desirable to you, and pay the least amount for doing so in the process, not to pay a set % on a negotiated purchase price. Due diligence on your part determines whether you have a good agent who will accept less than standard commission and will still help you find exactly what you’re looking for based on the terms you set. And if your due diligence from these posts are any indication (and of course they are) we should all be envious of your agent selection.

  3. Right on, and don’t forget to remind your readers that the 6% commission you mentioned is negotiable too.

  4. You should read Freakonomics, esp. the chapter on real estate.

  5. Finding an agent with experience is the key. I’m an agent myself. My first transaction was my own with the help of my broker. Just listening my broker negotiate was a learning experience and definitely something I could not have done at the time. For my first purchase, I never knew how much work was involved till I actually did it. Filling out paper work is pretty straight forward, but negotiating takes experience. Many factors are involved in getting a good deal, 20% below market, sure it’s possible. If I can make a strong offer, cash deal or even 40% down payment, close in 2 weeks, seller would really consider this. You never know, sometimes seller are in too much pain and want to sell fast.

  6. I found a very experienced realtor that offers 1.5% back to the buyer towards the closing cost and a broker who charges 1/2 point for doing the loan. It might be better though to find a full service agent because they can do the loan for free and often keep the closing cost below 5,000 for a 500k purchase.

  7. The amount I paid my realtor still irks me. She joked at the closing that this was the first house she had ever sold that she had never even been inside.

    I actually found the house. I did all the leg work, and the closing attorney did all the paperwork. I negotiated with the seller (he was a realtor, too). I handled the contractor and getting the punch list completed.

    My realtor didn’t earn her commission in my opinion and the only rebate I got was a lovely set of BBQ utensils . . .

  8. I feel like the buyer’s agent has become much less important with the tools available on the internet, and is therefore very overpriced. Keep in mind that their fees are % of sales price, and prices have gone way up in the past few years. I feel agents have much less value than a few years ago, and a much higher price!
    Unfortunately in Oregon there is no way to negotiate this price, and no way to buy a house that is being sold by a realtor (a large proportion of the homes) without paying that price. That seems very unamerican to me.
    I realize that a good agent is valuable, but I think their price is way out of line with their value. This is being maintained by the national association of realtors spending tons of money lobbying to get unfair laws like in oregon, and advertising to scare people into thinking that without a realtor they are sure to have a disaster when buying a house.
    Does anyone know what the usual seller’s agent commission was back in the 80′s and 90′s when there were no buyer’s agents?

  9. wow, I didn’t even know so many states banned commission rebates! If anything should be illegal, it should be banning the rebates. That doesn’t make any legal sense whatsoever.

    BTW, seller agents also give rebates too.

  10. “Does anyone know what the usual seller’s agent commission was back in the 80’s and 90’s when there were no buyer’s agents?”
    I bought and sold in 80′s and 90′s. The standard seller’s agent commission was 6%, and he shared it with the buyer’s agent with each getting 3%. Some real estates offered discounts on the fees to the seller. I don’t really understand what the difference is between today’s seller agent and the one in 80s and 90s other than the whole 6% was paid by the seller. What was mentioned above didn’t look any different than what the agents did in the 80s and 90s.

    I bought a couple of properties in the 90s and sold one in the early 2000s – all by-owner. I had a real estate agent when I was looking, but both times I found a cheaper and better property by owner. When I was selling, a real estate agent called me and asked if she could bring a customer. I asked her what it’d cost me, and she told 3% – so I imagine the customer wasn’t paying. I said – OK, then any offer I get through you should be 3% higher than what I can get other wise: this was in the middle of very high seller’s market, by the time she called me I already had a full asking price offer that I hadn’t accepted because another guy offered over asking, but needed to check something. So she brought an elderly couple who liked what they saw. A couple days later – why did they wait in that market when I told them I’d already had one offer? – she told me their offer – 7.5% below my asking price. She was actually surprised that my other offer was much higher. I didn’t even bother bargaining – just told to forget it and accepted the full asking price offer by owner. I thought that she failed her customers by not clearly explaining to them how hot the market was with bidding wars and offers at or above asking price; also in not telling the selling price for recently sold units in the same condo complex – something I investigated before setting my asking price.

    I’d never sign any kind of exclusive contract with a buyer’s agent. I don’t need an agent to show me properties that she found in a local Pennysaver (local magazine with ads), I can do it on my own. I want to keep my options open by both looking at by owner properties as well as properties sold by real estate.

  11. Stephen Graham says:

    Banning rebates is a violation of antitrust laws. Anyone who bans, disallows or restricts a rebate to a principle (buyer or seller) is price fixing. When a lender disallows a broker rebate, in my opinion they have fixed prices. How do they overcome this violation of antitrust laws?

  12. A bill has been introduced in Illinois banning rebates.
    IL residents should contact their state legislators and the governor urging opposition to it.

  13. Real estate competitors (or third parties) should not dictate what a buyer broker charges, this arrangement is between the buyer and the real estate broker. Because the buyer broker’s fees or commissions are typically paid by the seller and built-in to the sales price, cash back or rebates from your real estate broker are morally good because such rebates are the principal method by which a buyer’s broker can negotiate or discount their commissions. Buyer broker rebates are good for the consumer because these rebates reduces the cost of housing for the consumer and promotes healthy competition and innovation amongst real estate brokers. Any attempt to limit or restrict the way in which buyer brokers can negotiate or discount their fees would limit free trade and price competition.

    David Gorman/Broker
    CashbackRealty

  14. Montana has recently removed their rebate restrictions.

  15. Stephen Graham says:

    I would not suggest merely selecting an agent based on the best rebate, but rather a combination of the service to be provided as well as a buyer’s rebate. A good buyer’s agent will go to bat for the home buyer that potentially saves the home buyer thousands extra through strong negotiations in all aspects of the transaction; one can be “penny wise, pound foolish” when selecting an agent solely on the amount of the rebate. What’s most invaluable is when a buyer’s agent will contend on your behalf for the numerous issues that usually arise during a real estate transaction.

  16. Home Buyer Rebate - Atlanta, Georgia GA says:

    How is a rebate of commission to the buyer any different than taking a listing at a lower percentage rate?

    Both are a means to reduce commissions to buyers and sellers alike.

  17. Stuart Scholer says:

    I am a Realtor in Texas. I rebate 83% of all cash commissions paid by the Builder. Not all buyers that I talk to use me because they want a Realtor to accompany them to all the communities and builder’s offices. I don’t do that. The buyers that I represent are the ones that have done most of their homework on line and already have a good idea of what they want. They do most of the work… they get most of the money. I offer practical advice on how to shop builders and how to negotiate. If the buyer wants me a the negotiating and signing of the purchase contract then of course I am present. Most of the time though the buyer does not want me there but will negotiate over a period of time and will frequently call me for an opinion of the ongoing process. I find many of my clients to be very good negtiators. I strongly encourage my buyers to do independent inspections during the building process. I guide them on financing issues. I always get involved in any dispute or construction issues that may come up, I usually go to at least one of the walkthroughs and I always go to closing. Every builder is different and have different sales models and policies. Many times the rebate is 2.5% (that’s the minimum) of the sales price and many times it is more because I receive more than 3%. Most of the time the rebate is applied towards closing costs. Not all Realtors like me but ALL of my clients do!

  18. I am born and raised in a country where the concept of a buyers agent is something that has been invented for the people that really does not want to do any legwork themselves – Hardly even has any desire to go and check out the actual property they are buying… People that wants that luxury… Normal people do it themselves because it’s not a big deal!

    When i bought my first property, i checked out the market online(This even being 6 years ago). All brokers list properties with address details and everything because that is in the sellers interest! Most agents(my guess more than 95%) works as sellers agents and ONLY in the interest of the seller! That makes it very easy when you go out to see a piece of property – The agent would tell you the technical details of the property, but always as the sellers agent! The agent is educated(It’s a masters degree taking more than 4 years!!!) and knows about construction, heating, electrics, regulations and more or less everything. The agent is not a housewife that has taken a week long course and paid 100 USD for a certificate that allows them to tell a possible buyer where it would look nice to put the couch but not being able to talk to technical details of a property! Negotiating is handled with the sellers agent, which is fairly simple… Same as if you did it with a buyers agent! The paperwork is done by a lawyer, like over here and the mortgage is signed by a bank! Done deal! No buyers agents needed!

    I find it troubling with the conflict of interest these agents can have, both potentially being the same person or just from the same office. They simply will not be able to keep those two duties separated which should be illegal by law!

    I clearly see this as a rip-off! I do understand that in certain cases they can help a buyer on the way, but the amount of money we are talking about for driving the buyer around in a Mercedes is simply arrogant and is close to a down right scam!

    I think that the real estate business(Pardon me for generalizing – I know there are good guys out there too, unfortunately it’s only a fraction of these agents!!) as such have forgotten who they serve and what purpose they serve! A transaction needs to take place which starts with a sellers wanting to sell a piece of property as soon as possible and for the biggest amount as possible. This the sellers agent will help facilitate doing estimates, listing(Which should be a lot more public than keeping it “closed” on Listing Services only Agents can access), showings, negotiating and so forth. That is the job of the sellers agent! What value the buyers agent actually add to the transaction for people that knows what they want, I yet have to figure out. If one does a search on the matter, very few links to topics like this shows up – Most of them are real estate agents “drowning” the search results with why one SHOULD go with a buyers agent. They clearly have a lot of business to lose, but all in favor of the buyer, or ultimately the seller who is the one that really should pay less commission in the first place! Why buy property to get money back? That doesn’t make sense! It’s not a mail in rebate transaction, buying a house! It’s, for most people, the biggest money transaction they will ever do and for most, they will only do it once in their lives! Agents live WELL off by scaring people into believing they can not handle a transaction like that… That is wrong!

  19. gfreezman says:

    why is the consultancy model not being discussed?

  20. Tax Rebate says:

    Yea who needs a buyers agent who you see in person. I would rather try and get 10 or 15 grand out of the deal.

  21. Commission Rebate says:

    Just like any service, a discount model is not for everyone. It can however fit the right client just like glove.

  22. I am a Texas agent who rebates 1.5% of my commission on a resale home or condo purchase. Most of my clients have bought before and are not happy with their past agents as they did most of the work and they didn’t get a rebate or anything back. Maybe a plant or bottle of wine.
    I generally find that most buyers are very savvy and when they are ready to buy they just call me and I help them find a home.
    I feel rebates are great. I found a happy medium where I think the amount I rebate is one that make me and my clients happy. I think that is only fair.

  23. Great article! 3 years after you wrote this, we are the FIRST agency on Nantucket to offer commission rebates. In an age where people use the internet to research and purchase just about everything, most prospective buyers are comfortable doing at least some of the research themselves.

    In a market like Nantucket, where the average transaction is above $2 million, the idea that a facilitating agent’s role is worth $60,000 per sale is ridiculous. Commission rebates and selected services are the future in Nantucket and across the country.

  24. It is also important to point out that just because an agent charges less, that doesn’t mean that they have less experience, or aren’t as capable.

  25. STL Buyer says:

    I have found a house, and would like to make an offer on it. I am looking for an agent to represent me in the buying process. I need help with negotiation, and the paper work. Unfortunately rebates are not legal in Missouri. So, I guess the only way to get part of the buyers agent commission is to reduce it in sales price of the home or the closing costs.

    I would love to get recommendations about agents in St. Louis, MO

  26. Joan Bally says:

    I once used a Realtor to help me find a house. She drove me all over the spread-out city and showed me over 30 homes in three months. She earned every penny of that commission.

    But after buying three houses, I no longer need the help from a Realtor. I know the town, the market (from realtor.com and many other websites), the paper work, my requirements of the home; and I have enough cash to buy the house. So what added value can a Realtor provide?

    It irks me when I see a listing from realtor.com and click a button to request additional info. I want to discuss with the listing agent. But often a buyer’s agent would contact me, and this person may not have even set a foot in the house. Often that person would say, ‘I can find info about any house on the market’. And I would reply silently, ‘So can I’.

    The laws that prohibit buyers from getting the commission is an example of America’s corrupt political system. With money, you can lobby politicians to legislate laws that protect your interest.

Speak Your Mind

*