- Find a Real Estate Professional
- Realtors®
- Mortgage Lenders
- Home Improvement Pros
- Other Real Estate Services
- Review an Agent, Lender or Pro
- Marketing on Zillow
- Real Estate Agent Advertising
- Join the Professional Directory
- Popular
- Real Estate Market Reports
- More
Replies (26)
- Grant Van Der Jagt, "Attorney and Realtor"
- Contributions:352
Great question!
In my law practice, I see this issue come up often.
The transaction does not concern the loan, thus it must be done after closing. The justification is that it can not be viewed as an inducement to enter into the loan. The buyer must qualify on his/her own credit.
The "rebate" is further problematic because the buyer does not pay the commission, thus a rebate should technically go to the seller or listing agent, who pays the commission. The IRS has been known to interpret these as gifts or valid rebates with no clear guidelines. If you are concerned about being paid the "rebate" I recommend that you request the funds in certified form or cash. This way, you can have some comfort that the money is at the closing. For it to be a rebate, the buyer must do something extra, like mail in an appreciation letter to the broker after closing. Otherwise, it is more likely to be interpreted as a gift. Rebates are not generally income for taxes, while gifts can be.
Alternatively, the broker can help pay your closing costs. However, because the seller often pays 3% of the buyer's costs, you end up just giving your money either to the seller as excess or to your lender as an increased origination fee.
[The content provided is not intended as legal advice. It is provided for informational purposes only and shall not imply an attorney-client relationship without a written retainer agreement.]
In my law practice, I see this issue come up often.
The transaction does not concern the loan, thus it must be done after closing. The justification is that it can not be viewed as an inducement to enter into the loan. The buyer must qualify on his/her own credit.
The "rebate" is further problematic because the buyer does not pay the commission, thus a rebate should technically go to the seller or listing agent, who pays the commission. The IRS has been known to interpret these as gifts or valid rebates with no clear guidelines. If you are concerned about being paid the "rebate" I recommend that you request the funds in certified form or cash. This way, you can have some comfort that the money is at the closing. For it to be a rebate, the buyer must do something extra, like mail in an appreciation letter to the broker after closing. Otherwise, it is more likely to be interpreted as a gift. Rebates are not generally income for taxes, while gifts can be.
Alternatively, the broker can help pay your closing costs. However, because the seller often pays 3% of the buyer's costs, you end up just giving your money either to the seller as excess or to your lender as an increased origination fee.
[The content provided is not intended as legal advice. It is provided for informational purposes only and shall not imply an attorney-client relationship without a written retainer agreement.]
- Alisa Hagner, "AlisaDenver"
- Contributions:381
Grant is right.
I think it's easier to get more off the price of the house than it is to get a commission rebate if you are getting a new loan.
All incentives mush be disclosed to the lender.
I think it's easier to get more off the price of the house than it is to get a commission rebate if you are getting a new loan.
All incentives mush be disclosed to the lender.
- Rudi Hofmann, "LUXURY HOME LOANS CA"
- Contributions:7435
I'm not an attorney. But, I've been told by my legal consul and others in the industry, that all transactions of value: rebate; gift; other concessions, must be disclosed in the HUD-1. Otherwise, you may be exposed to fines, suspension or another avenue of remedy. .... Happy funding, Rudi
- turbothree
- Contributions:4
That's an interesting view of rebates, and contrary to what I have read. Here's a statement from one of the big rebate brokers on tax consequences of rebates:
the rebate will be paid or credited to the party or parties named as the "buyer(s)" or "borrower(s)" on the HUD-1 Closing Statement or equivalent official closing statement. In the case of an IRC §1031 Tax Deferred Exchange ("Exchange"), the party named as the "buyer or borrower" is the Qualified Intermediary (the "Exchange Company") and the rebate will be paid or credited to the Exchange Company for the benefit of the party conducting the exchange (the "Exchanger").
Seems pretty clear cut to me.
In case it's still unclear, another big rebate broker received a ruling from the IRS. I'll summarize:
"..Taxpayer does not have an information reporting obligation under section 6041 for amounts paid to its customers, purchasers of real property. Specifically, you request a ruling that the amounts are not reportable under section under section 6041 because the amounts are not taxable income to the purchasers."
So not sure why you see this issue come up often.
the rebate will be paid or credited to the party or parties named as the "buyer(s)" or "borrower(s)" on the HUD-1 Closing Statement or equivalent official closing statement. In the case of an IRC §1031 Tax Deferred Exchange ("Exchange"), the party named as the "buyer or borrower" is the Qualified Intermediary (the "Exchange Company") and the rebate will be paid or credited to the Exchange Company for the benefit of the party conducting the exchange (the "Exchanger").
Seems pretty clear cut to me.
In case it's still unclear, another big rebate broker received a ruling from the IRS. I'll summarize:
"..Taxpayer does not have an information reporting obligation under section 6041 for amounts paid to its customers, purchasers of real property. Specifically, you request a ruling that the amounts are not reportable under section under section 6041 because the amounts are not taxable income to the purchasers."
So not sure why you see this issue come up often.
- Nic Netherton, "Colorado Lender"
- Contributions:7219
The transaction does not concern the loan, thus it must be done after closing. The justification is that it can not be viewed as an inducement to enter into the loan. The buyer must qualify on his/her own credit. ''
This is just patently false. Realtor's commision can be credit on HUD to cover your closing costs but not required minimum down payment.
{This content is meant to correct the lawyer's false info}
This is just patently false. Realtor's commision can be credit on HUD to cover your closing costs but not required minimum down payment.
{This content is meant to correct the lawyer's false info}
- Mark McClurg
- Contributions:22
The commission rebate can be given on the HUD as long as all concessions from 'interested parties' does not exceed the maximum allowed by the loan program. It can only be used towards closing costs and prepaid or escrow account items, not towards down payment.
All the best!
All the best!
- Tommy Lorden, "Tommy Lorden"
- Contributions:56
I do rebates exclusively...and have researched this through and through.
You are correct, the best/safest way for you is to have the rebate provided at closing. That is the only way I do business as a matter of fact.
However, it is perfectly legal to provide them post closing, BUT: it still MUST be disclosed on the HUD-1 and be identified as "P.O.C." (paid outside of closing).
Good for you for asking for a commission rebate!
You are correct, the best/safest way for you is to have the rebate provided at closing. That is the only way I do business as a matter of fact.
However, it is perfectly legal to provide them post closing, BUT: it still MUST be disclosed on the HUD-1 and be identified as "P.O.C." (paid outside of closing).
Good for you for asking for a commission rebate!
- Mike Hendrickson, "mikehendrickson"
- Contributions:1
Tommy,
What have been your biggest challenges in getting rebate on HUD 1 from lenders. Same question on POC--What are you calling the credit and what do lenders say about it. What is the largest cash rebate you have placed on a HUD and have you had any challenges because the rebate amount was too high.... You get my drift, What have been the biggest challenges period.
Thanx
Mike Hendrickson
What have been your biggest challenges in getting rebate on HUD 1 from lenders. Same question on POC--What are you calling the credit and what do lenders say about it. What is the largest cash rebate you have placed on a HUD and have you had any challenges because the rebate amount was too high.... You get my drift, What have been the biggest challenges period.
Thanx
Mike Hendrickson
- Tommy Lorden, "Tommy Lorden"
- Contributions:56
Mike,
Biggest potential "problem" from lender perspective is that, often, the rebate cannot exceed the total of buyer's prepaids and closing costs....but I haven't had a lender yet who had problem with it being on the HUD. We typically list it as a "partial rebate of commission from Buyers' Slice Realty, LLC" under "Amounts paid in on behalf of Borrower".
The biggest challenges overall are getting buyers to learn that this is even an option!
Of course, the biggest potential problem in my mind is if the rebate doesn't get to the HUD...so communication (early and often) with lender AND closing company is key.
Good luck.
Biggest potential "problem" from lender perspective is that, often, the rebate cannot exceed the total of buyer's prepaids and closing costs....but I haven't had a lender yet who had problem with it being on the HUD. We typically list it as a "partial rebate of commission from Buyers' Slice Realty, LLC" under "Amounts paid in on behalf of Borrower".
The biggest challenges overall are getting buyers to learn that this is even an option!
Of course, the biggest potential problem in my mind is if the rebate doesn't get to the HUD...so communication (early and often) with lender AND closing company is key.
Good luck.
- bajajr
- Contributions:4
Tommy,
I understand lenders having issues with the rebate being on HUD to pay for the close to lower the down payment. But will the lender have an issues with rebate being on the HUD but paid outside of the close?
I understand lenders having issues with the rebate being on HUD to pay for the close to lower the down payment. But will the lender have an issues with rebate being on the HUD but paid outside of the close?
- Norm D Plume, "America Needs Nixon!"
- Contributions:1670
well, old thread but the question remains current.
I see it a number of times each month, broker rebates.
It goes on the HUD and can be applied towards all closing costs. Any amount above the total closing costs just apply towards increasing the down payment.
I see it a number of times each month, broker rebates.
It goes on the HUD and can be applied towards all closing costs. Any amount above the total closing costs just apply towards increasing the down payment.
- bajajr
- Contributions:4
Norm, I am a day or two away from closing the loan. I never mentioned it to loan guy before, but a day ago I asked him to added it HUD and said he couldn't he would need to redo the loan. Is there a way to do it with out redoing the loan? I tried to get him to add to loan agreement and he didn't want to do it because he said it complicates and would have to redo the agreement and in this tough market rebates doesn't look good. But I didn't talk to him about adding it as paying outside the close, I am wondering if he will have less of an issue to do it as paying out side of close?
- Norm D Plume, "America Needs Nixon!"
- Contributions:1670
Therein lies the issue. It has to be accounted for in underwriting.
The rebates are so commonplace that I ask my clients the day they apply if they'll be getting one.
You're the client, ask him to redo the loan. However, understand that it isn't a fast thing to do and you'll have to move out your closing.
The rebates are so commonplace that I ask my clients the day they apply if they'll be getting one.
You're the client, ask him to redo the loan. However, understand that it isn't a fast thing to do and you'll have to move out your closing.
- bajajr
- Contributions:4
Does it have to be accounted for in the underwriting if it is in on the HUD as paying outside of the close?
- Norm D Plume, "America Needs Nixon!"
- Contributions:1670
yes.
- bajajr
- Contributions:4
Norm, The rebate when it is marked POC can the escrow directly give it to the buyer instead of the buyer's Agent? If so how can that be done?
- litning
- Contributions:3
fascinating thread. And how would a rebate work in the case of a cash sale?
- litning
- Contributions:3
EXCELLENT thread. How would the aforesaid rebate happen in the case of a cash sale/REO? Would the selling Bank have to approve it?
- Gordon Haraway, "1stTimebuySpecialist"
- Contributions:250
I realize this is an old thread but there are two issue here, one is RESPA and the other is the interested party contributions allowed by the particular laon program.
An interested party is anyone who has a vested interest in the settlemnt of the property, ie; seller, real estate agents, loan officer, ect. there is a hard percentage of the sales price that is allowable under different types of loans. Anything over the allowable percentage will be looked upon as an inducment to purchase. Here are the total percentages of allowable concessions for each loan type.
VA loans allow 4%
FHA loans allow 6%
RD/USDA loans No published limits by RD but most lenders I have seen have overlays limiting it to 6%
Conventional loans are a little different in that the allowable contribution is based on the amount of down payment.
Down payment under 10% = 3% allowable concessions
Down payment over 10% = 6% allowable concessions
Conventional loans on investment properties are 2% regardless of down payment.
Now lets talk about the oothe rissue RESPA, because rebatting the commission does in fact full under these allowable concessions it needs to be recorded on the HUD-1 settlement statment. These agent who are paying it after the settlement are outright breaking the law and should be reported. If someone is not above breaking one law what makes you think they are honest in their other dealing as well? Run, don't walk from these agents.
An interested party is anyone who has a vested interest in the settlemnt of the property, ie; seller, real estate agents, loan officer, ect. there is a hard percentage of the sales price that is allowable under different types of loans. Anything over the allowable percentage will be looked upon as an inducment to purchase. Here are the total percentages of allowable concessions for each loan type.
VA loans allow 4%
FHA loans allow 6%
RD/USDA loans No published limits by RD but most lenders I have seen have overlays limiting it to 6%
Conventional loans are a little different in that the allowable contribution is based on the amount of down payment.
Down payment under 10% = 3% allowable concessions
Down payment over 10% = 6% allowable concessions
Conventional loans on investment properties are 2% regardless of down payment.
Now lets talk about the oothe rissue RESPA, because rebatting the commission does in fact full under these allowable concessions it needs to be recorded on the HUD-1 settlement statment. These agent who are paying it after the settlement are outright breaking the law and should be reported. If someone is not above breaking one law what makes you think they are honest in their other dealing as well? Run, don't walk from these agents.
- Ron Rovtar, "Ron Rovtar"
- Contributions:53
I am not an attorney, but I would never suggest a rebate can be handled after closing. In all circumstances I know of the HUD-1 is the bible of the transaction and everything financial must be on it. Sometimes this means jumping through hoops with the lender and/or the closing company to make sure all the appropriate documentation is available. But, I would definitely talk to my own trusted attorney before doing anything financial involving the transaction off the HUD-1.
Kind regards,
Ron Rovtar
Prudential Real Estate of the Rockies
[contact information removed by Zillow moderator]
Kind regards,
Ron Rovtar
Prudential Real Estate of the Rockies
[contact information removed by Zillow moderator]
- litning
- Contributions:3
So, I'll try it again. Lots of info re RESPA and various flavors of loans. How about in the case of an REO/cash sale?
- Ron Rovtar, "Ron Rovtar"
- Contributions:53
A cash sale simplifies things, though many federal and state regulations involving disclosures still apply. The sellers bank should have no concerns since its only involvement is in getting paid off. The closing company will cut the check and send it to the bank, which usually ends that bank's involvement. The closing company will almost certainly still use the HUD-1 at closing, for convention, if for no other reason. Still, I would see no reason to keep the rebate off the HUD unless you feel the sellers will object, so I would play it safest and put it on the HUD. However, in this case, your agent's compensation agreement is with you and I see no reason why it cannot be kept private and handled later. But, as always, check with your lawyer. Anyone else have any thoughts about this?
Best,
Ron
Best,
Ron
- Mike Vazquez, Realtor at ERA, "Mike Vazquez"
- Contributions:62
I would think this is pretty obvious stuff, but from some previous responses I guess not. Here in Ohio:
1. We keep all rebates on the HUD.
2. Keep all agreements with the buyer in writing.
3. Disclose to the seller the buyer is getting a rebate and the amount.
4. Make lender aware upfront so no surprises down the road.
P.S.
1. The DOJ (dept of Justice) keeps a good tally on which states home buyer rebates are legal in and which ones are not, feel free to check it out at:
http://www.justice.gov/atr/public/real_estate/rebates-details.html
2. EmpoweredBuyer,com is network w agents that rebate up to 50% commission if you can't find one locally.
1. We keep all rebates on the HUD.
2. Keep all agreements with the buyer in writing.
3. Disclose to the seller the buyer is getting a rebate and the amount.
4. Make lender aware upfront so no surprises down the road.
P.S.
1. The DOJ (dept of Justice) keeps a good tally on which states home buyer rebates are legal in and which ones are not, feel free to check it out at:
http://www.justice.gov/atr/public/real_estate/rebates-details.html
2. EmpoweredBuyer,com is network w agents that rebate up to 50% commission if you can't find one locally.
- Lisa Jonsson, "lisajrealtor"
- Contributions:142
- Flavio Tejada, "Broker Realtor MBA"
- Contributions:10
Hi,
buyer rebates are legal in California and some of the other states, see
http://www.justice.gov/atr/public/real_estate/rebates.html
The rebate can be given after escrow or through escrow. If the buyer wants any part of it through escrow, he needs to ensure his lender will allow it as each lender has it's own internal policies to follow. Visit my website for more information.
[website removed by Zillow moderator]
buyer rebates are legal in California and some of the other states, see
http://www.justice.gov/atr/public/real_estate/rebates.html
The rebate can be given after escrow or through escrow. If the buyer wants any part of it through escrow, he needs to ensure his lender will allow it as each lender has it's own internal policies to follow. Visit my website for more information.
[website removed by Zillow moderator]
- Gordon Haraway, "1stTimebuySpecialist"
- Contributions:250
Not sure where Grant went to school but thjis would be loan fraud. All loan programs have limits on the total concessions allowed to the buyer with the exception of VA which is a separate animal unto itself.. These concessions can be from any interested party to the loan. Agent, Seller, Lender ect. Off HUD agreements constitute loan fraud.
Buyer Agent Commission Rebate
Stating a discriminatory preference in an advertisement for housing is illegal. If you think this content is discriminatory or otherwise inappropriate and feel it should be removed from Zillow, please let us know by completing the information above.
We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.