| In today's tight housing market, many buyers are | | | | such as $1,000 in cash or a $1,000 gift certificate. |
| looking for ways to stretch their dollars far enough to | | | | Homebuyer rebates: To ban or not to ban? |
| make that dream home a reality. One little-known | | | | At the same time consumers are looking to rebates to |
| strategy that's gaining popularity with consumers is the | | | | help relieve the high cost of home buying, traditional |
| home buyer rebate. At the same time, rebates have | | | | real estate brokers are trying - and succeeding in |
| become a hot-button legal issue for the traditional real | | | | some cases - to prevent their use. Broker lobbying |
| estate industry and the U.S. Justice Department's | | | | groups around the nation, concerned about price |
| Antitrust Division. | | | | competition and downward pressure on commissions, |
| Buyer rebates are loved by consumers, at least those | | | | have successfully lobbied lawmakers in 10 states to |
| who know about them, because they can make | | | | make home buyer rebates illegal. Four more states limit |
| getting into a home more affordable. More and more | | | | home buyer rebates to credits at closing. Fortunately |
| so-called non-traditional real estate companies ¬- | | | | for Florida buyers enduring record-setting home prices, |
| those offering alternatives to full-service, | | | | rebates remain legal in the Sunshine State. |
| full-commission brokers - are offering to share their | | | | Industry watchers recently have looked to the state of |
| paydays with buyers. At the same time, many | | | | Kentucky to see where the rebate debate might lead. |
| traditional brokers around the nation are trying to block | | | | In March, the U.S. Department of Justice sued that |
| rebates because they threaten fat margins with price | | | | state's Real Estate Commission, alleging that its rebate |
| competition in the form of commission discounts. | | | | ban violated antitrust laws. The DOJ investigation |
| Since buyers pay the lion's share of closing costs in | | | | alleged that Kentucky's rebate ban may cost |
| addition to down payments, many are interested in | | | | consumers "several thousand dollars" extra for each |
| receiving rebates to ease the cash crunch of moving | | | | real estate transaction. In July, rebate fans received a |
| into a new home. This can be a real advantage for | | | | victory when the DOJ and the Kentucky Real Estate |
| buyers who have a solid income and credit history, but | | | | Commission reached an agreement permitting rebates |
| little cash up front. | | | | in that state. |
| In this case, the term "rebate" is little confusing | | | | If you're shopping for a rebate, get the facts: |
| because home buyers are not getting a portion of their | | | | Some points to keep in mind if you are a home buyer |
| cash outlay back. The buyer representative (agent, | | | | looking to take advantage of rebates: |
| broker or both) is rebating a portion of his or her | | | | - Shop around. Some rebate programs included other |
| commission back to the buyer. | | | | buyer services, such as contract preparation or |
| The rebate process seems confusing to some buyers | | | | review, or escrow services. Even in a sellers' market, |
| because it runs counter to the common belief that | | | | buyers have some leverage. After you have |
| home buyers don't pay real estate commissions. In | | | | established the rebate amount, ask what else is in the |
| fact, commission costs are passed on to buyers as | | | | package to help simplify your purchase and control |
| part of the home's sales price. Buyer-agents typically | | | | transaction costs. |
| are paid half the standard 5-6 percent of sales price | | | | - Consider your tax picture. Getting a rebate in the |
| commission. That money doesn't come from thin | | | | form of funds applied to closing can be double-win |
| air...chances are that the sellers have factored | | | | because that money may go untaxed when applied to |
| commission into their price. When traditional listing | | | | closing costs. If the rebate or a portion of the rebate is |
| agents tell sellers not to stress over commissions, | | | | not available until after closing, it may need to be |
| because they can recover the costs through a higher | | | | reported as taxable income. Of course, this isn't an |
| sales price, someone is paying the freight. | | | | issue if you have plans for your rebate other than |
| So how do home buyer rebates work, and what's in it | | | | closing costs. Be sure to consult your tax advisor for |
| for you? | | | | this and other tax consequences of home buying. |
| - In traditional real estate transactions, buyer | | | | - Rebates won't be available on many homes, including |
| representatives and seller representatives typically | | | | sale-by-owner homes and some homes sold by |
| share commissions of 5 to 6 percent. Selling brokers | | | | discount brokers. That's because in these cases, the |
| usually offer half this commission to a broker who | | | | traditional commission percentage and split - from |
| brings them a buyer. As an incentive to drum up | | | | which the rebate is derived - doesn't apply. Some real |
| business, some brokers now offer to rebate a portion | | | | estate companies don't offer buyer-agent |
| of their buyer-representative commission to home | | | | commissions, and owners selling their own homes |
| buyers. For example, suppose you buy a $400,000 | | | | probably are doing so to avoid commissions. |
| home on which the seller pays a six percent | | | | Finally, check to see if rebates are legal in your state. |
| commission. The buyer and seller representatives split | | | | Money Magazine's 2005 Real Estate Guide reported |
| the $24,000 commission evenly. In this case, a one | | | | that rebates were banned in Alaska, New Jersey, |
| percent rebate means that the buyer representative | | | | Kansas, Oklahoma, Rhode Island, Louisiana, South |
| receives $12,000 from which they pocket $8,000 and | | | | Carolina, Mississippi, West Virginia and Missouri. |
| "rebate" $4,000 back to the buyer. | | | | Rebates were reported as restricted to credits at |
| - Buyer rebates generally depend on the home's sales | | | | closing in Alabama, South Dakota, Oregon and |
| price, total amount of commission and the commission | | | | Tennessee. If rebates aren't available in your state, you |
| split. Some rebates may be advertised as a | | | | might ask your buyer agent what incentives are |
| percentage of the buyer-representatives commission. | | | | available. After all, for being a smart buyer in today's |
| In the example above, the rebate is $4,000, or about | | | | challenging real estate market, you deserve some |
| 33 percent of the $12,000 buyer-side commission. | | | | type of reward. |
| Other companies offer fixed-amount buyer rebates, | | | | |