Buyer’s rebates! Call Now to Redeem Yours when Buying a Home! — If you are as confused as I was about the arrival of coupons and ads that tout “Buyer’s Rebate” you really need to know how these work. Supposedly many buyer’s felt that Real Estate Agents “make too much money” and they should be the ones to get paid less to save their buyer’s some money! When research is done for the average United States Agent that considers themselves successful at making a living to support their middle income family, the average annual income after an agent’s license fees, Realtor membership fees, MlS Fees, liability insurance, automotive costs, continued education classes, website fees, and monthly marketing expenses and supplies is a mere $35,000 to $45,000 per year. Another small percentage of upper-middle income agents average $45,000 to $60,000 annually. I for one as a Real Estate agent was a bit surprised at even the suggestion of a “Buyer’s Rebate” because it stands to reason that in many states money kick-backs to ANYONE in a real estate sales transaction is usually questionable or illegal. Further where do the funds come from for the rebate, how and when are they dispersed presents another question that needed to be answered. So what are these so called “buyer’s rebates” and how do they work? I did a little research because as an active professional in the real estate industry, I definitely need to understand it’s legality. In the state of Georgia the notion of a buyer’s rebate doesn’t appear to be illegal as a matter of fact thus far since this new gimmick has begun there appears to be only a few state’s that have stepped up to make the practice unacceptable. The best way to understanding what the rebate is should be easy to determine when viewing the meaning of “rebate” – the word implicates either a refund of money that has been overpaid for a rent, service, or good; and in most commonly used retail businesses, a refund of moneys back by a manufacturer is often used as a sales incentive to a consumer to pick their product and buy it over others. To me what this immediately indicates is the product must not be selling well and the manufacturer has decided that giving an incentive by way of rebate will lure more consumer’s to buy the product and in turn increase the sale of the item. In effect this would mean the quality of the product is eliminated or lowered to no importance and cost has become the primary reason placed at the forefront! Being a Real Estate Agent that has a motto of “Quality, Excellence, and Loyalty in Service” I immediately knew this type of promotion definitely would not fit my way of doing business. Still, I needed to see how it works to make sure this may or may not be something helpful or harmful for my clients. For starters the rebate is not on the house as I had assumed, but instead on the salary of the Real Estate Agent!! Imagine that! An individual goes to work 40 to 50 hours a week and then is presented with a “rebate” on their rate of pay for doing their job to the best of their ability for a consumer! Definitely sounds like what most American Worker’s would go for when accepting a pay check agreement from their employer!….Right?
Truth be told this new “rebate promotion” trend is NOT exactly what it seems! Here are some of the most common terms of the rebate agreements that I have examined offered by some real estate agents that use the “Rebate Promotion Program”.
Obviously the first term is to lessen the work of the agent and move the responsibility of finding a feasible house for the client to them without any effort of the agent. Meaning, the buyer is left to go online or ride around the areas they like and spend hours looking from one site to the next to locate their own housing possibilities with potential of buying. Looking at condition one, I as an agent committed to my buyer’s best interest, would not be able honor this policy since my goal is to make sure my buyer get’s the best property for the funds and lending options they have. When I first meet with a client I make sure I understand what they seek in a home and how much they have both to spend in cash for the down-payment and closing along with the most the lender will spend within the terms of which they approved. Also discussed is what their maximum monthly budget can support in a house note for 30 years. So for example, if a client has very little cash and must use FHA lending, this eliminates many homes that are on the market since many homes do not qualify for FHA or VA lending! In general a buyer when looking online has no idea what to look for as the listings rarely give the details of what type of lending the house qualifies for. Other things, such as, how long has the current owner been in the house? Was it purchased cash or is there a loan involved? Why is this important? An agent such as myself looks at this 1st because if a BUYER doesn’t have all the closing cost and down-payment available then assistance needs to be gotten from the SELLER. This can only happen if the seller has enough equity to cover the pay-off of their mortgage, cover the sales expenses of the house, net enough to buy another house for themselves, and if there is enough cash left, pay some cost for a buyer to make the deal happen! Most buyers have no idea on calculating the amortization of a loan to eliminate houses that are on the market for sale which wouldn’t have enough equity to support the type of offer they will need to get accepted. So although the house may be listed it may not meet the buyers financial needs thus saving them time and disappointment on offers that can’t meet their requests in negotiations. After narrowing down the houses available for my clients BEFORE I suggest we look at them I also determine the estimated out of pocket cost needed to close as well as what the monthly note will be as close as can be calculated on averages for each house. Most buyer’s when looking online DO NOT CHECK the annual property taxes, nor do they calculate the monthly cost of PMI, or the monthly insurance escrow, and worse the estimated property tax increase that will kick in at the end of the current tax year if the property is bought at a higher value than the currently assessed value. In most cases these can significantly increase the house note the first year of a home purchase. By examining these items again it makes it possible for me the agent to eliminate a few more houses from the list saving the buyer time, before I even suggest houses to my client to go look at. The reason? Who wants to look at a house only to find in the end that the house is not one they can actually buy based on the final net cost of its purchase both at the closing table and within the first year of ownership! When an agent does his job at selecting houses that match all the buyer’s requirements usually within the first 6 to 8 houses a good fit at the best value can be presented for the buyer to actually close on when selected. MOST agents know this, which means the stipulation that a maximum of 10 houses can be shown before the rebate is diminished to nothing is basically moot since a buyer looking online has no way of knowing all the basic information needed to eliminate properties that they can’t buy! That said, they will exceed that minimum amount of showings in no time and the agent then will get the full commission EVEN though they lured the buyer to select them as an agent with the promised rebate knowing full well, chances are, the rebate terms will be voided within the terms set forth.
In regard to item 2 in the common terms I found mentioned, buyer must agree to no less than 4 months agent agreement terms. To me, as an agent getting my client to agree to let me work for them with a promised term of 2 or 3 months max gives me incentive to work hard to find them a house in the time they have agreed to give me. If i haven’t gotten them a house in this time it means I have to give them reason why I didn’t get them in a house and get their approval to renew my agreement to try again for another specified period of time. Basically a Buyer should keep in mind that the average sales transaction takes approximately 45 to 60 days to complete a closing. Hence about two months agency agreement should be a fair amount of time to see if your buyer’s agent will work hard for you before considering another agent. Remember this time frame is based on a buyer that is ALREADY PRE-APPROVED and ready to buy if presented with a house that matches their needs.
Item 3 in the terms of the rebate offer also is one I am unsure I would feel comfortable with. I personally as an Agent work diligently to accomplish the goal of my client’s home purchase showing them houses that I present to them after doing the research to get only the ones they would be able to purchase in front of them to look at. Then comes legal documents that bind a seller to the negotiations if present and get accepted based on the best I can get for the money my client can spend. After which I make sure I attend the inspection so my Buyer doesn’t have to take off work or I be there with them to make sure they ask the inspector all the right questions to make sure the house is something they can take over and afford the needed maintenance items done once they own it. Not to mention avoid house purchase that has latent defects! Once all preliminaries are done I the agent get documents in place with all parties to ensure a closing is set up and give frequent reports to the buyer on the progress as these occur so the buyer can go about their normal activities with no worries as I am paid for this convenience as their agent. So as an agent I do not have a minimum time of agency agreement but leave that right to my buyer to exercise as long as it gives me fair amount of time to accomplish what they ask of me. Interestingly this restriction on the “rebate offer” basically ensures the agent can take their time if they wanted to use more of their time on clients that do not ask for a “rebate” and you they attend to occasionally since you are a discounted client!
Term Items 3, 4, and 6 in most “rebate offers” clearly are to ensure that the agent makes the largest commission on the largest priced selling property possible since both of these terms limit the minimum commission percentage they will process for a home lower than a price of $150,000 in most cases. Also, this term also says you can’t take advantage of any short sales, or discounted home purchases basically. So what would happen if you only qualified for $149,000 does that mean the agent will turn you away since they can’t make enough money off your sale? What does this type of term say about the agent…..are they truly interested in the buyer’s best interest or the size of the sale and money to be made? Again this type logic is less than the ethics I wish to live by as an Agent seeking to get the best for my clients. It would seem a buyer would have more self worth than to lower themselves to less than what is due them in investing their money. Saving money by way of the rebate could be at the cost of most likely having to settle for something that isn’t your first choice with all the limitations now placed on what you have to choose from just to stay within the restrictions to qualify for the “rebate” discount. Remember the terms also state that home selections can only be within a certain radius of the agents office!
Term number 5 listed above says that the lender must be aware of the “rebate” and has to be approved by them to utilize the offered rebate. This is because any funds that are in connection with a sale must be disclosed to all parties ESPECIALLY the lender as they have the right to determine the risk factors that are acceptable when lending their funds. Hence as in the case of FHA, VA, and many federal and state funded programs to help buyers limits are placed on how much money can be contributed by outside parties that will have no interest in the property. Since the largest number of buyer’s today have to use these programs to obtain lending this means most of the buyer’s that qualify to buy would be eliminated from the offer of the “rebate” since the lender most likely will not allow the added amount from the rebate to be applied to the sale. In many cases attempting to use such a “rebate” could void the loan approval. Once again most agents are aware of this and after having using the “rebate offer” to get themselves selected as the buyer’s agent for a minimum of 4 months based on that anticipated return of money…….see where I am going with this? Definitely a gray area and definitely not a tactic I as an agent could do to a consumer / client based on my ethics and morals!
Lastly to qualify for the rebate most that offer this promotion indicate that the rebate funds will not be dispersed between 10 and 15 days after the date of the closing. The term finally states that terms and conditions may apply and the agent may discontinue the offer without notice! So here’s a scenario based on those terms. The agent says the rebate will be issued between the 10th and 15th day after the closing occurs. What if the lender’s funds aren’t released until the 16th day after the closing due to title complications that arise that hinders the new mortgage lien to be completed. Technically the agent doesn’t have to pay the rebate since the funds were not available between the dates he agreed to deliver to the buyer. Hence, the agent could deny payment if he or she didn’t have good morals or ethics. The buyer then would have to seek legal assistance to sue for the rebate funds or just walk away with a bitter taste from a choice they made based on “saving” some money while getting diminished service from their agent!
In the words of an old cliche, “You Get What YOU Pay for!” — My ethics and determination dictates that I as an agent would not promote myself by this “Rebate” tactic to get a client to choose my services! Further I would NOT encourage a Buyer to be pulled into this scheme but choose an agent based on integrity and loyalty to their best interest!