By Mateusz Cieslak,
AyAMi Group
Published: March 7,
2022
Are Real
Estate Commission Rebates Legal?
Short Answer
The short answer is: Yes!
Commission rebates, buyer rebates, or as AyAMi coins it Savvy Home Buyer
Cash Bonuses are most certainly legal.
Now, taking a step back – real estate commission rebates
have been gaining popularity in recent years, as homebuyers and sellers look
for ways to save money on their real estate transactions. However, many people
are still unsure whether these rebates are legal or not. In this article, we
will explore the legality of real estate commission rebates in detail.
Before we dive deeper into the issue, we first need to
answer the question of “what exactly is a commission rebate?”
What is a commission rebate?
Simply put, a commission rebate is a portion of the real
estate agent's commission that is returned to the homebuyer or seller at
closing. In a common real estate
transaction, the seller pays the full commission for both the buyer's agent and
the seller's agent (aka listing agent). This commission is usually around 5% to 6% of
the sale price of the home (there is no standard or market fixed commission
rate), and is split between the two agents.
The entire commission is paid by the seller and the split is not always
even, for example 2.5% for buyer’s agent and 3.5% for the listing agent is
common in CT. In a commission rebate
situation, the buyer's agent agrees to give the buyer a portion of their
commission as a rebate.
Are commission
rebates legal everywhere?
The
legality of commission rebates varies by state. As of 2023, there are only eight states that
prohibit commission rebates and they include:
Alabama, Alaska, Kansas, Mississippi, Missouri, Oklahoma, Oregon, and
Tennessee. With the ongoing real estate
commission law suits across the country, the number of states prohibiting
commission rebates is likely to decrease.
In most states, commission rebates are completely legal and are a common
practice. In other states, commission rebates are prohibited by law.
Additionally, some states have certain restrictions or regulations regarding
commission rebates. Therefore, it is important to research the laws and
regulations in your state before entering into any real estate transaction.
In states where commission rebates are legal, they are
typically allowed as long as certain conditions are met. For example, some
states require that the rebate be disclosed in writing to all parties involved
in the transaction. Other states may
require that the rebate be paid to the buyer at closing, rather than after the
transaction has been completed. Some
states also prohibit real estate agents from offering rebates to both buyers
and sellers in the same transaction.
Are commission
rebates good for those involved and for the market?
Yes, they are. One of
the primary arguments in favor of commission rebates is that they allow
homebuyers and sellers to save money on their real estate transactions. In a
typical home sale, the seller pays the full commission for both the buyer's
agent and the seller's agent. By
offering a commission rebate, the buyer's agent is essentially reducing the
purchase price for the buyer while keeping the proceeds from the sale the same
for the seller. This can be particularly
attractive to savvy homebuyers who are trying to save money on their home
purchase.
Opponents of commission rebates argue that they can create
conflicts of interest for real estate agents. For example, if a buyer's agent
is offering a commission rebate to their client, they may be more inclined to
recommend homes that offer higher commissions, rather than homes that are the
best fit for the buyer's needs. This is
true regardless of whether commission rebate is offered. Buyer agents may be inclined to recommend
homes that offer higher commissions as it means higher compensation for the
agent. AyAMi eliminates this conflict of
interest 1st by paying its agents a salary as opposed to traditional
model where agents’ compensation is commission only and 2nd by
passing on the rebate in form of cash to its clients. This way clients stay in control of their
decision. For example, if the clients
are willing to forgo a home that fits their needs best in order to receive a
higher cash bonus from a home that offers higher commission, it is their
decision. And AyAMi Agent won’t try to
stir them away from that decision because they receive a salary and not
commission only.
Despite these concerns, many homebuyers and sellers continue
to take advantage of commission rebates. In fact, some companies have even
launched rebate programs that allow homebuyers to receive a portion of the
agent's commission as a cash rebate. These programs typically work by
connecting homebuyers with real estate agents who are willing to offer rebates,
and then taking a portion of the commission for themselves. AyAMi Group takes even a step further and
offers such commission rebate upfront to all its clients no matter, which AyAMi
agent they work with. All of AyAMi
agents offer the same client-favorable terms and high quality level of service.
Commission rates
racing to the bottom?
Additionally, some argue that commission rebates could lead
to a race to the bottom in terms of commission rates, which could ultimately
hurt the traditional real estate agents and brokerages. AyAMi does not deny that this is a
possibility; however, it is important to focus on the industry as a whole,
which includes not only agents and brokerages, but also their clients, buyers
and sellers. If cash bonus practices
ultimately lower costs of housing, make the industry more efficient, and reduce
the number of agents in the industry, it is only for the better.
Are there any
additional benefits that come with commission rebates?
One potential benefit of commission
rebates is improved market liquidity.
The rebates help to make housing more affordable, especially for the
first-time homebuyers who may not have a large down payment or other financial
resources. Commission rebates help to
reduce the overall cost of the transaction, making housing more accessible to a
wider range of homebuyers. By improving
affordability, commission rebates increase housing demand and improve market
liquidity.
Another benefit of commission rebates is improved
transparency in the real estate industry.
By allowing homebuyers to see exactly how much their agent is making on
the transaction, commission rebates could help to reduce the potential for
conflicts of interest and further ensure that agents are acting in their
clients' best interests.
Why does AyAMi Group
care about this?
This is exactly what AyAMi is all about: giving back to the
community at its core through lowering the housing costs and helping you become
a home-owner or transition into a better housing situation. AyAMi’s approach is in line with the United
States Department of Justice, which is encouraging the commission rebates as
they are consumer friendly and they make housing more affordable. You can further read about DOJ’s position on
commission rebates here. There are only ten states that prohibit
commission rebates and they include:
Alabama, Alaska, Kansas, Louisiana, Mississippi, Missouri, New Jersey,
North Dakota, Oklahoma, and Oregon.
Commission rebates or cash bonuses are illegal in Iowa in certain
situations. All of New England,
including Connecticut supports such rebates or cash bonuses. In addition, former New York Attorney General
Eric T. Schneiderman initiated a law allowing for commission rebates in NY and
he encouraged the same practice – writing “I Urge The Real Estate Industry To
Embrace This Opportunity And Encourage Buyers And Sellers To Take Advantage Of
Your Right To Bargain” in his open
letter.
Conclusion
In the 42 states and Washington, D.C. where commission
rebates are legal, they can be a valuable way for homebuyers and sellers to
save money on their real estate transactions without sacrificing the level of
service and in many cases even receiving better attention. Commission rebates are a great way to save
money on your real estate transaction, and they are a completely legal and
ethical way to do so. At our brokerage, we're committed to providing the
highest level of service and value to our clients, and we believe that
commission rebates are just one way we demonstrate that commitment. If you're
looking to buy or sell a home, we encourage you to consider working with us and
taking advantage of our commission rebate program.
For any questions, reach out to us at the below.
AyAMi
Group, Licensed in the State of Connecticut
800
Village Walk #787, Guilford, CT 06437
Phone:
(203) 533-9781
