Getting a Buyer Agent Commission Rebate Explained

A buyer agent commission rebate can cover your closing costs and more; better yet, commission rebates are generally considered non-taxable. Buyer agent commission rebates are legal in New York and dozens of other states.

Essentially, the buyer’s agent splits some of the commission he or she earns on the deal with the buyer.

A buyer agent commission rebate goes by many names: buyer closing credit, home buyer rebate, buyer rebate, Realtor rebate, home buyer cash back etc.

Sometimes, a buyer agent commission rebate will be called a commission kickback or some other form of kickback scheme in an effort to de-legitimize the concept.

The buyer agent’s fee is typically paid by the seller. Most sellers agree to pay 6% in total commission per their listing agreement with the seller’s agent, regardless of whether the buyer is represented by another agent or not.

What typically happens is the listing agent will split the 6% in commission with the buyer’s agent, typically equally per local MLS broker association rules. This means the buyer’s agent will usually receive 3% in commission for bringing a buyer and being the “selling agent.”

If the buyer doesn’t have their own agent, the listing agent is in luck and will collect both sides of the commission, or all 6%.

This doesn’t actually happen very often because 90% of home buyers end up being represented by their own agent.

After all, it’s hard to turn down an offer of assistance from an industry professional when you don’t have to pay out of pocket.

Buyer rebates are legal in 40 US states as of this writing, including New York State where our company was started.

9 states have an outright ban on commission rebates due to strong lobbying efforts by the real estate community: Alabama, Alaska, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon, and Tennessee. The 10^th state, Iowa, prohibits rebates when there are two or more real estate brokers on a transaction.

In states where commission rebates are legal, you’ll easily be able to find press releases and published legislation allowing and encouraging innovative commission structures and customer incentives.

For example, former NY State Attorney General Eric Schneiderman published a press release in April 2015 encouraging the real estate community and New Yorkers in general to take advantage of changes in state law allowing commission rebates.

Yes, if you’d prefer to get the commission rebate prior to closing, our traditional partner brokers can negotiate with listing agents to reduce the contract price after an offer has been negotiated and accepted.

For example, say your buyer’s agent has negotiated an accepted offer for you of $1,200,000 on a co-op apartment in NYC. After the price is agreed upon, your buyer’s agent can then ask the listing agent to modify the deal sheet to reduce the price and the buyer agent commission by the rebate amount.

Your lawyer can also negotiate this for you during the contract review and negotiation period. Your lawyer could contact the seller’s attorney to negotiate a reduction in the contract price by the rebate amount, and to also reduce the buyer agent’s commission accordingly.

Your lawyer may be able to arrange this even if you’ve already signed a contract. He or she can coordinate with the seller’s lawyer to re-arrange the flow of funds at closing such that the rebate is applied as a credit to you. You may even be able to entirely cover your closing costs with the rebate!

No. The IRS released a private letter ruling in 2007 regarding the taxability of buyer agent commission rebates. The IRS ruled that a rebate made through a payment or credit at closing is not includible in a purchaser’s gross income, but rather represents an adjustment to the purchase price of the home. Please keep in mind that this means the cost basis for your home is lowered by the amount of the rebate.

Furthermore, you shouldn’t expect to receive a Form 1099 from the broker who provide you with the rebate because “a payment or credit at closing represents an adjustment to the purchase price of the home and generally is not included in a purchaser’s gross income.”