Buyer Rebates

Ok, go easy on me, you know how sensitive I am.

This subject keeps coming up and it makes me curious. I haven’t had to deal much with this (unless it was undisclosed, which is a no no), but it seems to be the new fad. The couple times I have dealt with it, the deals closed 10-15K over what the next comp closed. Granted, this was only a couple of cases, but the buyers’ agents weren’t fighting that hard.

Wouldn’t you rather have saved that 10K on the purchase (assuming you were getting 2500 to 3000 back at closing)?
  • October 19 2007 - US
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Answers (34)

Profile picture for melanie777
I would definitely rather have the 10K off my mortgage! But with a good rate that would be around $60/month less on a mortage payment each month. If they offer you $3000 cash at closing, it would take just over 4 years to make up the difference, and I think most buyers want the instant gratification.
  • October 19 2007
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Profile picture for LongIslandBubble
Take the money off the price of the house and be done with it. Why would anyone want to borrow more money than they need to and have to pay interest on that money for the next 30 years?

...and if it isn't taken off the sale price; the one that goes down on the books, it is unethical; regardless of whether or not it's legal.
  • October 19 2007
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Profile picture for caliguy
I'd rather take no incentives and just slash it all off the sales price. That way you cut down on the interest you will be paying for the life of the loan (or until you sell), as well as property taxes.
  • October 19 2007
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You're right Cali, unless they wanted the cash because they had none, you know they just bought a house;) to make some improvements to the property of have a little cash in hand to I don't know help out with the mortgage payments for 6 months to a year. I've seen it all done, for me take it off the price because I don't want to pay the interest or the taxes on it!
  • October 19 2007
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I'd rather add the money onto the loan. Inflation will pay it off. I'd take the 'cash back' and get off the grid, which will further protect me from inflation.

--But I do finally understand what you are all saying!
  • October 19 2007
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Profile picture for LongIslandBubble
********
I'd rather add the money onto the loan. Inflation will pay it off. I'd take the 'cash back' and get off the grid, which will further protect me from inflation.
********
Debts,

I'd rather take the money off the price of the house and use it to buy foreign stocks with double-digit returns. Like Peter Schiff says, "Because there's a bull market somewhere."

But I could understand what you were thinking.

....Of course I would rather wait for the prices to collapse first and maybe by that time the dollar will stabilize.
  • October 19 2007
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Profile picture for Bette Defarm
"I'd rather take the money off the price of the house and use it to buy foreign stocks with double-digit returns."

Yep, that's my thinking.
  • October 19 2007
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Profile picture for CJLozano
when I sold my house, we offered a 2,000 rebate because the carpet was in horrible condition and it needed to be replaced. As we progressed with negotiations, the 2,000 rebate was removed because the buyer wanted a lower sales price.

I'm looking for a new home now and I would consider a rebate, but it all depends on the nature of fixes that have to be done to the house.
  • October 19 2007
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CJLozano, I was talking about the agencies that offer buyer's rebates if they use their agency. My point was they don't seem to fight very hard to get you a good deal. So if someone else can get you all your closing costs paid and 10-15K off the purchase price, isn't that a better deal?
  • October 19 2007
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Hello all. There seems to be an inaccurate assumption that agents that give rebates do not work hard for their client. In some cases, this is true. However, in most cases, the FULL SERVICE Buyer's agent fights hard for their client. Our company does just that. We negotiate agressively for our buyers, save them an average of 5-6% off List Price, PLUS get the seller to pay closing costs. AFTER all that is said and done, they receive 10-20% of our commission after settlement. So, we have plenty of satisfied clients and get tons of referrals. We do our job as professionals when working for our buyer clients.

Again, I cannot speak of ALL agents, just the 10 on my team. I also agree that places like redfin that send out buyers by themselves is an insane way to buy a house. Those are the ones that are not getting real representation, imo.
  • October 19 2007
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Thanks, Greg. I've been trying to make that point in another area, but doing a poor job. By the way, I don't do the rebates (smaller gifts, yes) but do know some good agents that do.

A major issue, at least locally and I suspect nationally, is the amount of agents in the business who aren't good...
  • October 19 2007
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Profile picture for Anita Crum
Marci,

I'm a little bit confused. Who is "paying" the rebate? Sellers, lender, listing agent/firm, buyers agent/firm? I see from some of the other posts that rebates mean different things in different areas.

I have worked with buyers who received a rebate from the lender. The actual amount of the rebate was prorated based on the sales price so the the lower their sales price, the lower the rebate (i.e. $200-$250,000 receive $1000 rebate, $250-$300,000 get $1,500 rebate, etc.). The thing that was really annoying was that the buyers went on and on at the closing about what a great lender they had because of this rebate they were getting but didn't realize that I was the one actually footing the bill, not the lender. I had to pay a hefty referral fee and agree to participate in the rebate program. BTW they did not pay more than the comps for the area and got closing costs assistance. I didn't stint on my services just because I wasn't getting my full commission.
  • October 19 2007
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Anita, I was talking about the rebates from the buyer's agent.
  • October 19 2007
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Profile picture for Angelique01
I think that the lower price would be usually be better for me, but I can think of some situations where the cash might be better. I think it would depend on the whole deal.
  • October 19 2007
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Profile picture for LongIslandBubble
Angelique,

The only reason someone would want cash is because they don't have any. If that is the case, they aren't ready to buy; this is part of the reason why so many people are losing their houses. Getting cash is basically taking out a cash advance on future equity in the house. Down payments are supposed to be saved money, not more borrowed money.

Anyone buying a house should have a reserve of at least 6 months of mortgage payments in the bank at all times. This was generally the rule before the media started to believe that houses were on the payroll.
  • October 19 2007
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thats the problem most people just want to haul off and buy a house. up untill now at any cost, not thinking it all the way through. i myself am semi guilty of that. i had a big money reserve to make sure there would be no strain making payments but now that forcasting would indicate longer holding time that reserve is in jeperdy. i have other sourses of income but not luiqid. so to answer the question lower purchase price is the most appealing to me.
  • October 19 2007
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Profile picture for LinusK
*** CJLozano, I was talking about the agencies that offer buyer's rebates if they use their agency. My point was they don't seem to fight very hard to get you a good deal. So if someone else can get you all your closing costs paid and 10-15K off the purchase price, isn't that a better deal?

Marci, of course if you knew ahead of time your choice was between getting a 2 or 3k rebate, or saving 10-15K off purchase price, you'd choose the 15K.

But I don't know that it really works like that.

I think the trick to getting a good deal is 1. knowing the market, 2. knowing the comps, 3. knowing whether the seller is motivated, and 4. (most importantly) being willing to walk away.

It seems like to me you could compensate a buyer's agent handsomely for her knowledge of those things with 1 or 2 percent, or even with a flat fee. Especially if you didn't need her to drive you around, and you could search the internet yourself.
  • October 19 2007
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Profile picture for LinusK
PS -- I think there's plenty of 3 percenters who drive their clients around, and sit in on the closing, and do zero to drive a hard bargain.

I mean, let's admit it - it's in their interest to see the deal close. Getting the best possible deal - at the risk of blowing it up - isn't really in their interest at all.
  • October 19 2007
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That's why you ask for everything up front. It's easier to negotiate backward than forward, you know?
  • October 19 2007
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Profile picture for mumbletypeg_mario
smart move and other programs like that rebate back some of the agents fees at closing. it is all disclosed...we used the money pay down the loan principal.
  • October 20 2007
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We're spinning all over the place here.

I agree that many agents do not have their clients best interest in mind and are only working for their 3%. And that is a downright shame, and a stigma for our entire industry. But this can easily be seen by simply INTERVIEWING them. Ask key questions... and ask for PROOF. How many houses have you sold in the last year? Show me examples of how much you saved them.. etc. etc.

However... a competent agent, that is truly working in their clients best interest, (by ethics, morals, and LAW) DOES get them the best deal. And then when they get cash rebate.. that is just a huge plus!

You cannot correlate good agents=no rebates to bad agents=rebates. It is simply assumptions with no substantial facts.

Now, I will concede... in Northern Virginia, the avg sales price is above 400,000... so, selling a home and getting 2.5% of $500,000 is better than 3% of $200,000.. yes? And when that client refers 2 more clients because "I got $3000 from Greg at settlement and saved over $40,000 off the house!".... that is even BETTER! Now I have 3 deals by giving away a couple thousand dollars on a $12,000 commission. It is, quite simply, a win-win for agents and clients. The KEY is getting the right agent.

It depends on your market, what the competition offers, and how to put your "business" in the forefront. After all, this IS a business. I will take 2.5% of $300,000 over 100% of "0" anytime.

Have a great day all!
  • October 20 2007
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Greg: you are spot on, I used that reasoning in selling my last home in NO-VA and I got a rebate on the % from the agent. She made double what she would have made if she was selling that property several years before since the price was so inflated.
  • October 20 2007
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Profile picture for LongIslandBubble
Greg,

Incentives are:

.....Good for the listing agent.

.....Good for the seller.

.....Good for the buyer's agent.

.....Bad for the buyer.
  • October 20 2007
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Like I said, unless it was undisclosed, I haven't dealt much with agents that give rebates. I am sure there are plenty of good agents that give rebates; however, if it was undisclosed to the seller, they weren't working within the law, so how good are they really? ;)
  • October 20 2007
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Profile picture for mumbletypeg_mario
@marci - look at the calpers smart move program. there is a rebate that is built in as part of the program. it is between .5-1.0% and is disclosed on the closing docs. they also do escrow rebates and rebates on the loan as well and all of it is disclosed. one can either use them towards the closing costs or to immediately pay down the principal.

the rub is that they have certified people that you get these with. we ended up working with Prudential, Mission Hills and Cal Land. The fees that were credited back were huge.
  • October 20 2007
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Profile picture for fugu
  • fugu
  • 47 contributions
  • October 20 2007
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If you want to know honestly, I bid 'as is'. I'd rather talk them down 50K to not have them lift a finger and do the work ourselves later. We can do it for free labor, only needing money for materials. Once I talk them down as far as I can, I go up, for cash to buy materials with if an important fix is needed.
  • October 20 2007
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potvaliant - I'm not against rebates, please don't get me wrong. I've only been in business for myself for a year, and with the market like it is, I am willing to change to what the consumers want. That's the beauty of these kinds of forums - you can get a feel for what people want.
  • October 20 2007
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Profile picture for mumbletypeg_mario
@ Marci- didn't think you were against them. I was just trying to point out that there are structured programs out there that offer rebates as one of the benefits of the program.

I think that CalPERS runs the program as a member benefit. They are the underwriter of the load and hand off the servicing to CitiBank. They have some amount of their $200 billion set aside to do this. The underwriting process is really, really strict, but they do take into account the member's retirement package without collateralizing any of the retirement benefits/dollars.

For first time buyers (like me), it was a tremendous program and was considerably more attractive than going out and getting those services in the open market.
  • October 20 2007
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Profile picture for mumbletypeg_mario
One other thing. An agent that was trying to get us to go with her, offered us these discounts AFTER I told her we were going with CalPERS. She even found a mortgage lender that would work a similar deal.

I found that to be really unappealing...she wanted to keep those fees until she realized that wasn't competitive.
  • October 20 2007
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