Buyer Rebates Revisited.......again

Since I was accused of trying to discredit a business model because they are so consumer friendly and are a threat to me, I decided to do a little research. Both Redfin and Zip Realty offer buyer rebates. Perfectly legal in most states, if disclosed. On the Zip site, there’s a big paragraph about how the rebate will be on the HUD-1, etc. On Redfin’s site it says “Get a check for the whole amount: expect to get your check 7 - 10 days from the close of escrow. This option is subject to lender approval.” Ok, that’s good, but wait, an accountant for Redfin says on their discussion board “Hi, I'm Steve, the accountant here at Redfin. If you choose to have your entire rebate refunded directly to you and not applied at closing to either the closing costs or to the purchase price, your rebate would not be recorded on the HUD-1 at all. Redfin's sales commission would appear on the HUD-1. In a separate transaction, not appearing on the HUD-1 we would then refund to you 2/3 of that recorded commission (once our $4,000.00 minimum commission fee has been met).” How do you get lender approval if you don’t disclose it? So many questions….

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June 29 2008 - US
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continued....

As for the article I posted regarding the people that were arrested for cash back at closing, I was reprimanded about uniformed because it had nothing to do with rebate of commissions. No, it had to do with lying on a loan application. Is lying about getting cash back and omitting that you are getting cash back different? Only your attorney can advise you about that.

For anyone who is interested in what Fannie Mae has to say, here’s a link. I’m sure it will be interpreted 15 different ways. My strong advice would be to talk to an attorney if someone is telling you to hide something from your lender or the other parties involved in the transaction. 

Fannie Mae Guidelines

 

 

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June 29 2008
Profile picture for Alan May

Redfin has just opened a Chicago area office, on thursday of this week.

 

They have only had a total of 1,500 closed transactions in their two-year existence, and they show only 1 agent, on their website, currently working in the Chicago area.  They also note that a Redfin Jr. Field agent will show you a limited number of properties (no idea what "limited" means... 6, 12, 18?) and if you want to view more than that... their 2/3 rebate will be reduce (by how much??).

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June 29 2008

I know, great business model.  I'm hanging my head in shame. 

 

I have to say again, I have dealt with Zip and it was like a normal transaction.  I didn't have to show the properties to the buyers.  Their agents did everything they were supposed to do.

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June 29 2008
Profile picture for Alan May

I actually don't object to showing the properties for the buyer's agent.  I know it's not de rigeur for listing agents...but my main concern is the sell the listing, and if I can accomplish that by "accompanying" a buyer who is "represented" by Redfin or Zip... I'm going to do it.

 

I don't really feel it's my decision to make (as the listing agent), and that if I asked my seller (after educating them on the subject) if they wanted me to accompany the redfin or zip buyer, the overwhelming response would be "hell yeah!.... get my freakin' house sold!"... so I do it.

 

I haven't been called on to accompany zip clients much, yet... but I think that may change in the next few years.  I do know agents in our area who refuse, but I think they're fighting an uphill battle, and in the long run, it's the seller's decision, not ours.  (I would be okay with revising our listings to state "a showing fee may be required for those buyer's who need to be accompanied by the listing agent for showings'... but I still would not charge the fee.... I don't want to put any obstacles in the way of a potential buyer)

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June 29 2008

I have never dealt with Redfin.  My point was that Zip agents around here act like buyer's agents.  The buyers don't call the listing agent for showings, but if they did, of course I'd show it.  The issue is between the brokers, not buyer and seller. 

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June 29 2008
Profile picture for Mikal1

How do you get lender approval if you don’t disclose it? So many questions….

 

My strong advice would be to talk to an attorney if someone is telling you to hide something from your lender or the other parties involved in the transaction.

 

Good Morning Marci,

 

Is this your argument?  That the rebate is not disclosed to the lender?  Because Redfin has specifically stated that the lender is notified.  But I don't want to put words in your mouth, so please tell me if this is the basis of your argument?  If not, what is your argument?

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June 29 2008
Profile picture for Alan May

Mikal

 

Based on my reading of the other thread... that was her complaint all along... that the rebate needs to be disclosed on the HUD-1.  As long as it's disclosed, is should be legal.  If it's not on the HUD-1, and sent to the buyer in a separate undisclosed check...?

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June 29 2008

"your rebate would not be recorded on the HUD-1 at all", which means it has not been disclosed to the lender. 

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June 29 2008
Profile picture for Mikal1

Elvis,

 

Not to put too fine a point on it, but appearing on the HUD-1 and disclosure can be two different things, yes?  Appearance on the HUD-1 may constitute disclosure, but that doesn't mean that it's the only viable and legal disclosure mechanism.  That's why I asked if Marci viewed the issue as disclosure versus the HUD-1.

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June 29 2008
Profile picture for Mikal1

Any rebate check is sent after Redfin receives its full commission from the transaction and pursuant to the Buyer's Agency Agreement executed between Redfin and the Buyer.  In the event that a buyer elects to receive some or the entire rebate via a check after Redfin has received its full commission, Redfin notifies the lender's representative of the Buyer's election.  Most lenders have no issue with this process.  However, some do require that the Buyer receive the rebate via a decrease in the purchase price or as a credit to closing costs.  If a lender has these requirements, then Redfin complies with them and works to implement them prior to closing.

 

[deleted paragraph]

 

Scott Nagel | Redfin Vice President, Real Estate Operations

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June 29 2008

The 2% that allegedly goes to you, if not disclosed to all parties (including your lender), is illegal.

 

That was from my original post that started this nonsense.  If they aren't putting it on the HUD-1, it is undisclosed.  I don't know how else to put it.

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June 29 2008
Profile picture for Alan May

Mikal, it's a RESPA violation to rebate monies from a RE transaction (and here is the important part) that don't appear on the HUD-1.

 

So, if they're rebating (even if they say they're notifying the lender... which I don't believe, because the lender would REQUIRE that it appear on the HUD-1, otherwise they're risking their right to offer loans in that state, and potentially risking their charter nationally, too) without putting the rebate on the HUD, it's illegal.

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June 29 2008
Profile picture for Mikal1

So is the argument the HUD-1? 

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June 29 2008

Elvis, why do I feel another VALID nightmare coming on.....

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June 29 2008

This is from the Fannie Mae link that I posted.  IPC means Interested Party Contribution

 

Document Review Guidance
All loan and sales contract documents must be scrutinized with particular care when there is an IPC involved in the transaction. These documents include: the sales contract; Good Faith Estimate (GFE); the Uniform Residential Loan Application (Form 1003), particularly Section VII. DETAILS OF TRANSACTION; the appraisal report; and the HUD-1. All elements of the transaction must flow logically. In other words:
1.
The sales contract must summarize all of the financing arrangements negotiated between the buyers and sellers. When an IPC is part of the transaction, it must be included in the contract. All pages and addenda of the contract must be provided to the lender as well as the appraiser. In addition, the appraiser must be provided with IPC information associated with temporary or permanent interest rate buydowns that were funded through a standby commitment that has been provided by the originating lender to the seller/builder (see “Types of IPC’s” above).
2.
The GFE summarizes the lenders’ best estimate of expenses that the borrowers should expect to complete the transaction. The relevant financing elements from the sales contract and GFE must appear on Form 1003 in the Details of Transaction Section.
3.
The property appraisal must reflect that the appraiser included any and all financing terms and indicate whether the terms affected the property value.
4.
The HUD-1 must reflect the final fees and costs, and may not differ substantially from the sales contract, GFE, and Form 1003.

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June 29 2008
Profile picture for la457

Don't know about the HUDs and proper disclosure but I've worked with Zip before and they did everything I would expect an agent to do.  Also, just my opinion, but they have the best re site on the web.  Everything is at your fingertips.

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June 29 2008
Profile picture for Mikal1

Yes Marci, I know what an IPC is.

 

But give me something simple, give me something to work with.  I'm not trying to trap you, I'm actually interested in seeing what I can find out about whatever point you feel is illegal.

 

And the truth is, I really doubt that it's a winner take all situation - if I can't find legal precedence then we're all left interpreting a bunch of (often times fuzzy) rules, regulations and laws.  But I'd love the opportunity to try and state a case for buyer rebates.

 

We can use the Redfin model if you like, and we can even make it specific to CA.  I would think that the more specific your concern is the better chance that it's VALID.  The generalized case has already been made by the Department of Justice Antitrust Division.

 

I'm out for now.

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June 29 2008

Show me anywhere that I said they were illegal, if they are properly disclosed.   They are perfectly legal, if disclosed (in most states).  Just because the DOJ says they can happen, doesn't mean that they don't have to be disclosed.  Is there something in their ruling saying it can be hidden from the lender?  I missed that paragraph. 

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June 29 2008

Marci,

 

I am with you 100% on the rebates as long as they appear on the hud and they are willing "to receive the rebate via a decrease in the purchase price or as a credit to closing costs."  I have done a number of transactions with zip realtors and have never been notified how the buyers are electing to receive the rebate.

 

As long as it is on the hud and if the rebate exceeds the alowable limits for an IPC all parties are OK with reducing the purchase price then it's all good.  Essentially all it means is that the discount broker is working for less. 

 

you usually get what you pay for...not always but usually.

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June 29 2008

Thanks Andrew.  I guess all I can do is put the information out there.  If someone chooses to do something they shouldn't, that's not my problem.  Ignorance of the law is not a valid legal defense. 

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June 29 2008

Marci,

 

Eventually it will catch up to those that ignore the rules.  The guideline has a nice little bonus for lenders in that if they are not aware of the IPC's it falls back on the lender.  A few loans get kicked back from fannie/freddie and LO's won't be willing to look the other way. 

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June 29 2008

Ouch.  I don't know what else can be said. 

 

Mikal, Freddie, Fannie, FHA, etc. are all federal, so their laws won't vary by state.  Undisclosed cash at closing is illegal, whether it's a rebate from the seller or agent, it's a sales concession - I don't know how else to state it.   The DOJ says nothing about nondisclosure being legal.

 

Stay tuned, you'll see case after case in the next few months.

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June 29 2008
Profile picture for Clearpoint

I agree with AA and Marci, As a lender I would require it to be disclosed up front and shown as a reduction in purchase price or credited towards closing costs which is done often.

AA's point of the lender possibly buy back the loan is possible.  But I don't understand why you wouldn't disclose, or want to have the amount credited towards your closing costs or purchase price?

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June 29 2008

If the amount excees the allowable concessions then their is no benefit to the buyer.

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June 29 2008

well, as far as I know, the "getting a check back" thing would be problematic here in AZ. Maybe they have a way to do it, but I know I as the agent couldn't do that, so I can't see how another agency can do it.

 

I could A. pay closing costs with the rebate, buy a home warranty or such, or B. use it for principal reduction of the loan. Each of these would be on the hud-1, and a lender wouldn't complain.

 

I haven't had a closing with them in years, in AZ ZIP realty stands for Zero Income Potential!

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June 29 2008

Interesting about ZIP in AZ and MA.  The broker here must actually follow the law.  Imagine that....

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June 29 2008
Profile picture for PropertyHookup

[content removed by moderator for being self promotional]

 

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June 29 2008
Profile picture for wetdawgs

Propertyhookup: what part of "spam" don't you understand?  Market value is the price a buyer will pay.

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June 29 2008
Profile picture for Mikal1

OK, so Marci doesn't want to take a concrete stance, fine.

 

But if I'm reading everything correctly, I'm seeing 3 different objections being raised -

 

1.  A rebate can only be used to "to receive the rebate via a decrease in the purchase price or as a credit to closing costs." or "A. pay closing costs with the rebate, buy a home warranty or such, or B. use it for principal reduction of the loan."

 

I don't think that can be correct, not unless an awful lot of companies have been in blatant violation for a long time.  Ever hear of Coldwell Bankers REAP program?  It offers cash rebates, and it's nationwide (except where prohibited by state law), and is one of the benefits offered to employees at Arizona State University.  How about HomeZill?  It's a Redfin knockoff in the MD/VA/DC area owned and operated by a group of RE/MAX brokers.  Yep, cash rebates with the standard disclaimers.  Zip, Redfin, Buyside, all this and no lawsuits?  And the DoJ endorses and protects the right of consumers to have the option to receive a cash rebate after closing.

 

2.  Disclosure.  OK, not really an issue, everyone agrees that disclosure is a requirement.

 

3.  Inclusion on the HUD-1.  So we're back to the HUD-1?  Or is there something else that I'm missing? 

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June 29 2008
Profile picture for Alan May

OK, so Marci doesn't want to take a concrete stance, fine.

 

I think Marci's stance is very concrete:

 

Any rebate that is not disclosed on the HUD-1 is illegal.

 

If you're looking for more concrete than that, you'll have to dredge the East River.

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June 30 2008
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