There a lot of misconceptions out there amongst the agent population regarding the rebating of commissions and whether or not this is allowed.
Now, there are different types of rebates that that can be arranged, some with buyers, some with sellers. The bottom line and the broad interpretation of this according to the Texas Real Estate Commission are as follows. The Texas Real Estate Commission says that according to TRELA, according to their bylaws, rebating of commissions is indeed allowed to happen for agents rebating their commission to a party to the transaction. In other words, a buyer or the seller.
Now, whether it’s a buyer or a seller, that is going to dictate how that rebate of the commission likely will and should go down.
So let’s start with the most typical scenario to unfold, which is with a buyer. A buyer comes along and says hey, I have a property that I’m interested in purchasing. I’d like you to represent me, but I want you to kick back 1% of the 3% buyer’s agent commission to me. Yes indeed, this is allowed per the TREC mandate. However, the tricky part with regards to that is with the lender.
So most lenders are not going to allow an agent to kick back cash at closing or even after closing to the buyer if they’re loaning money to that buyer for the house, because that can be construed as loan fraud. And that’s really what you have to be the most careful about.
Now, one way to alleviate that would be to have it on the HUD as being paid for as closing costs. Or you could reduce the sales price. You’d have to take care of the commission part with the seller as well and have that reflected on the contract. Because keep in mind, it’s the seller typically whose funds are being debited and that commission is being paid from the seller.
So in terms of a buyer rebate of cash, you’ve got to run that by the loan officer, by the lender, and the underwriter to make sure that that is allowed. Obviously, in a cash transaction, it shouldn’t be a problem to rebate that money.
Now, to rebate money to a seller. The easiest way for this to take place is obviously to reduce the commission in the initial agreement. Because you’re doing perhaps a move up program where you’re going to list their home for 5% total, three to the buyer’s agent, two to the listing agent instead of perhaps 3% as occurs a lot in our market. Then you can just obviously take that and put it on the HUD as 2% commission instead of three being paid to the listing agent.
But what if you need to kick some money in to make the repair negotiations work? Well, that can be a different story, but you can also go back and amend that listing agreement and do it the same way. Put it on the HUD as a reduced commission. You’re just going to have to amend that listing agreement that perhaps initially said a total of 6%, 3% to the buyer’s agent, 3% to the listing agent.
So there are a lot of different nuances, a lot of layers, a lot of different ways that this can work. And what I would encourage you to do is to talk to your broker if you have questions about it. If all else fails, you know you’ve heard me say it before. Here at All City, we are big believers in a collaborative agent world, a world where information and knowledge can crossover broker boundaries such that we’re all better agents for it and for our clients that fiduciary at the highest possible level.