The many high costs of buying a home can be discouraging for aspiring homeowners, but one way you can save money is by asking your real estate agent for a homebuyer rebate. Doing so can save you thousands of dollars when you buy a home — but not all agents offer them, and in some states, they’re prohibited.
Here’s a look at how homebuyer rebates work, and how to get one.
- A homebuyer rebate is when a real estate agent splits the commission they earn from a home sale with their client.
- If you want to get a homebuyer rebate, you’ll need to negotiate the details with your real estate agent and include it in the buyer-broker agreement.
- There are several factors to consider before getting a homebuyer rebate, including that there may be restrictions on what you can spend your rebate on.
A homebuyer rebate, sometimes called a commission refund, is when you receive a percentage of the commission a real estate agent earns from your home purchase. The refund can be applied in several ways, including cash back, closing cost credits, or discounted or free services.
Homebuyer rebates are common in competitive real estate markets. Advertising this type of rebate is one way for a buyer’s agent to set themselves apart, attract more clients, and close more deals.
“A homebuyer rebate is an opportunity for a buyer to save money on a real estate transaction by receiving a portion of the real estate agent’s commission,” says Jules Borbely, a strategic real estate advisor for New York-based Real Estate Bees. “Real estate agents receive a percentage of the sales price and part of this compensation could be given back to the buyer. This is a legal way for buyers to save money.”
To understand how homebuyer rebates work, it’s important to first understand a how real estate agent’s commission works. Sellers are typically responsible for paying the commissions for the buyer’s agent and the seller’s agent at closing, and the cost is usually factored into the asking price. The amount is typically 6% of the home’s purchase price, and the commission is split evenly between the two agents.
“The commission that’s earned is paid out at closing with half going to the buyer’s agent and half going to the seller’s agent,” says Alex Caras, a Realtor with Chicago-based Chicago Property Brothers. “The buyer’s agent — or their brokerage — when offering a rebate, will cut a check to the new homeowners.”
A homebuyer rebate returns a portion of your real estate agent’s commission back to you once the sale is finalized. To ensure that you receive your rebate, you’ll need to negotiate with your agent before you sign the buyer-broker agreement and make sure it’s approved by your lender. The buyer-broker agreement is a contract that outlines the terms of the partnership between you and your agent.
How much are homebuyer rebates?
Homebuyer rebates vary by real estate agents and the brokerage they work for. Some homebuyer rebates are paid as a flat fee. Others are paid as a percentage of the home’s purchase price, which can be 0.5% to 2.5% — although higher rebate amounts may come with conditions and only apply to specific home types. If your agent helps you buy a more expensive home, the percentage is likely to be less.
Here’s what a rebate of 0.75% would be based on, with these different purchase prices:
Homebuyer Rebate Savings for Different Home Prices
|Purchase Price||Savings With a 0.75% Rebate|
It’s important to know that homebuyer rebate amounts are rarely guaranteed, and lenders can veto them. Some homebuyer rebates are conditional, and are only paid if your agent receives a certain amount of commission.
How is a homebuyer rebate paid?
A homebuyer rebate can be provided in a few different ways, including:
- Cash-back refunds. A cash-back refund means that a check is given to the buyer at closing, or a few days after closing. You are free to spend the cash on anything you want, including moving costs and furniture.
- Closing cost credits. Instead of providing the buyer with a rebate check, the funds are used to pay for some of the closing costs of the home purchase. Closing cost credits from a homebuyer rebate must be approved by your lender.
You may be wondering, How do you get a homebuyer rebate? You can only get a homebuyer rebate if you’re buying a home in the 42 states where they’re legal.
The eight states that prohibit homebuyer rebates are:
In addition, you may need to ask your real estate agent whether they offer a homebuyer rebate, or specifically request one. If an agent agrees to offer you a rebate, it’s important to negotiate the terms and make sure the details are included in the buyer-broker agreement.
“Everything in real estate is up for negotiation,” Caras says. “Sometimes a rebate might not be advertised, but can be worked into the agreement between the client and agent. The amount can also be negotiated, but usually won’t exceed 2%.”
However, negotiating a rebate on your own can be challenging, and some real estate agents will be offended that you asked them to share a portion of their commission. What’s more, an agent who agrees to give up a portion of their commission in the form of a rebate may not provide as much attention or service as you need.
While a homebuyer rebate may sound like a win-win, there are many variables to consider before pursuing this type of agreement with a real estate agent. These include:
- Limited availability. Homebuyer rebates are relatively new, and not all agents or brokerages offer them. You may need to shop around and do your research to find this type of deal.
- Rebate amounts vary. The amount you’ll receive from a rebate varies depending on the agent and brokerage, and some come with limits on the amount you can receive. For instance, the real estate agency Prevu offers a 2% rebate to homebuyers, while SimpleShowing offers 1%.
- You typically can’t use a rebate credit on a down payment. Lenders have rules about the sources of money used for a down payment.
- Full rebate amounts are rarely guaranteed. If the rebate is provided in the form of a closing credit rather than cash, it will likely be subject to lender restrictions. This means you may not get the full rebate amount you were hoping for. There also may be state and local restrictions that apply to commission credits.
- Complicated eligibility criteria. Some homebuyer rebate programs may have complicated eligibility requirements. For example, your rebate amount may be reduced if you tour too many homes. It’s also not unusual for agencies to require that you use their mortgage and title companies to qualify for the rebate.
- You could be sacrificing personalized customer service. “Anytime someone offers something at a discount, you have to expect discounted service,” says Rick Albert, broker associate at LAMERICA Real Estate in Los Angeles. This also means you may work with more than one agent.
- Lenders may have restrictions on how your rebate can be spent. When you’re provided with a homebuyer’s credit, rather than cash back, the lender may have limits on how the credit can be used. For example, you might only be able to use the rebate for closing costs, and you likely can’t use the rebate for a down payment.
- Some agents may get offended if you ask for a homebuyer rebate. On occasion, an agent may be put off if you ask them to give up some of their commission. However, a real estate transaction is one of the most expensive purchases you will likely ever make, so it may be worth inquiring.
- Market conditions may influence whether you can get a rebate. Market conditions play a role in whether real estate agents or brokers are willing to offer a homebuyer rebate. In a particularly competitive real estate market, there is more incentive to attract clients by offering a rebate.
Homebuyer rebates aren’t for every buyer. However, a homebuyer rebate may appeal to buyers in specific situations, including:
- You’re buying a high-value home. A homebuyer rebate can help you afford a more expensive home. For instance, a 0.5% rebate on a $1 million home purchase amounts to $50,000. Additionally, some real estate agents are more incentivized to offer a rebate to a client buying an expensive home because they’ll still profit significantly, even after they share their commission.
- You already have in-depth real estate knowledge. If you’re comfortable doing a lot of the work involved in finding and buying a home, a real estate agent may be more willing to offer you a homebuyer rebate since it’s less work for them.
- You’re buying in a cool market. Real estate agents may be more willing to offer a rebate in a slow market to earn your business.
- You’re using the same agent to buy and sell. You’re a more valuable client to a real estate agent if you agree to use them to both sell your current home and buy your next home. In such cases, the agent may be more willing to offer a homebuyer rebate. However, if you’re using a dual agent, which is an agent that works for both you and the seller in a single real estate transaction, you’re required to let the seller know you’re using a rebate.
- You’re ready to make an offer. If you’re willing to do most of the work to find and buy a home, your agent won’t have to invest as much time to help you. A reduced workload for your agent means they may be more willing to offer you a rebate.
Here are answers to some common questions surrounding homebuyer credits.
No. Since the rebate is not included in a buyer’s gross income, it’s generally not taxed, according to the California Association of Realtors. The rebate is considered an adjustment to the buyer’s purchase price for the home.
In many cases, cash back will be the preferable option for the buyer, since you can use the money for whatever purpose you choose. Closing cost credits, on the other hand, are subject to limits and lender restrictions on how the credits can be used.
A first-time homebuyer credit is not something offered by a real estate agent, and is generally very different from a homebuyer rebate. A first-time homebuyer credit is a credit of assistance offered by the federal, state, or local government with the goal of helping first-time homebuyers. These programs vary, and many offer mortgage rate discounts or reduced payments, for instance.
It’s possible that a rebate will reduce some of the closing costs on your home purchase. This could lower the overall cost of your home purchase, which impacts your LTV ratio, or the amount you’re borrowing compared to what the home is worth. Communicate with your lender about using a homebuyer rebate to determine what your homebuyer rebate can be used for.
The Bottom Line on Homebuyer Rebates
A homebuyer rebate can be a valuable way to save thousands of dollars on the upfront costs of a home purchase. If you live in a state where homebuyer rebates are available, it’s worth looking into and comparing different programs to determine what’s best for you.