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
