Commission Credits to Home Buyers

Should Agents Kickback Commissions as a Credit to Home Buyers?

Male real estate agent discussing with couple at home
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A while back a friend in Texas called me to say she was in the market to buy a home. Part of her strategy was to ask listing agents to give her part of their commission to help with her down payment. None of the agents whom she approached was willing to accommodate her request, and she was confused. Why won't listing agents help me out, she asked?

This request intrigued me. I wanted to know how she came up with such an idea. She is a paralegal. I wondered if perhaps one of her clients asked her to kick back some of her salary to help pay her employer's bill. It's one thing if a lawyer wants to take a case pro bono. It's another if the client expects the paralegal or lawyer to subsidize the client's obligations.

Listing Agents Who Credit Commissions to Buyers

This is a controversial subject among most residential agents because they don't do it as a normal way of practice. Some agents, though, will kickback all or part of a commission to a buyer or seller. Not very many agents are willing to part with what they see as their hard-earned money, but it doesn't hurt to ask.

Say an agent has signed a listing agreement with a seller. The seller agrees to pay the agent 7% commission. The agent then agrees, say, to split that commission with a buyer's agent. So the listing broker gets 3.5% and the buyer's broker gets 3.5%. Each agent represents a single party.

However, when a listing agent works in dual agency by representing both the seller and the buyer, typically that agent receives all of the commission or, in this case, a full 7%. Some buyers believe that since the listing agent is making more money, that agent should give some of it to them. They reason that if they hired their own buyer's agent, the listing agent would "lose" half of the commission.  They don't know that some agents will not work with both sellers and buyers, and in some states, it is against the law to do it.

Now, some agents will negotiate real estate commissions with the seller in advance. A seller might agree to a variable commission rate, meaning if the agent ends up bringing the buyer, the commission would be reduced from 7%, say, to 6%. This way the agent earns 6% for representing the seller and the buyer, and the seller benefits by paying a lower commission.

Some of the problems associated with variable commission agreements are:

  • Cooperating brokers are at a disadvantage when multiple offers are presented. Even if the purchase offers are identical to each other, the seller will take the offer presented by the listing agent because the seller will net more. Cooperating brokers can even the playing field, though. So, there is no reason to go directly to the listing agent.
  • Listing agents who agree to dual agency are accepting additional liability for buyer representation and doing twice the work without twice the compensation. Think about that for a minute. So, an unethical listing agent, motivated strictly by commissions, has an added incentive to sell the buyer a different property all together that pays a full buyer's agent commission. This is a reason why going directly to the listing agent can backfire.
  • If a buyer also demands a piece of the action, there's not enough leftover to go around. Not to mention, agents are not in the business of giving away their commission. Not yet, anyway. And clients can't receive commission without being licensed, as a general rule.

Buying Agents Who Credit Commissions to Buyers

Sometimes buyers don't have enough money to buy a home, so they ask their agent to help them out by rebating part of the commission. While agents cannot pay an unlicensed person a commission, they can decide to rebate a portion of their commission to the buyer as a closing cost credit or to pay part of the down payment, providing the buyer's lender will allow it.

A mother, for example, who holds a real estate license might offer to give her son her commission to help offset his closing costs.

A handful of real estate companies advertise that they will always rebate part of their commissions to a buyer because:

  • Rebaters believe real estate agents make too much money.
  • The discounters hope rebates will attract a volume of buyers to their company to compensate for their loss of income.
  • They can do less work. Often, they do not provide full service to a buyer.
  • They don't know how else to attract business.

Many of these types of discount brokers expect the buyer to do much of the legwork and to interact solely through email and by FAX. They often do not show property nor drive the buyer around. They generally do not attend home inspections nor explain paperwork. Typically, the first time they meet with a buyer is at closing, if they attend the home closing at all.

Do Commission Credits Benefit Buyers?

On the surface, you might think, "Well, that's a no-brainer!" If you are well versed in real estate and understand how to negotiate, you might not need an agent to represent you. However, understand that even under an arrangement where the seller is paying a 7% commission, the seller still gets 93% of the sales price.

The seller is making more money than the real estate agent. The seller has more money to distribute. Why try to pinch a few thousand from the agent when the seller has the deep pockets? It might make more sense to hire your own buyer's agent to fully represent you and aggressively negotiate on your behalf. An experienced agent often will get you:

Fortunately, my friend decided to hire her own agent and ask for seller concessions. Also, please realize that I'd list URLs of companies that credit commissions to buyers, but I'm afraid that by the time you read this, they might have gone out of business.

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.