"I will rebate half of my commission back to you at closing...... because, otherwise, I couldn't get a listing if it saved my life"

*source unknown, hiding under a paper bag*

I'm glad I haven't come across this scheme yet.  I've seen the end results but not the ongoing deal.

The Cash back that I see you talking about being illegal is one that the seller gives money to the buyer at closing.  This is illegal from everything I see and in IL they are cracking down on this.

 The Rebate a Realtor gives to the buyer is not illegal if done correctly.  It is not based on any loan and must go through the Broker.  So it is not given to the buyer at the closing table, but afterwards.

I hope the illegal cash back will stop.

I get asked by buyers if they can get cash back at closing a few times a year.  They are just shocked at how illegal it really is.

I amazed that even the attorney did not know this.  In Hawaii it is also a state licensing law violation to be party to the naming of a false consideration, unless it is obvious like stating $1 plus a monetary amount.

Dave Cheatham,

Thank You for the clarification. Many disingenuous agents are trying to blend illegal cash back schemes and broker rebates together to suit their agenda. Broker rebates are a form of price competition among agents and is protected by the Sherman Antitrust Act.

Per the Antitrust Division of the U.S. Department of Justice:

"Rebate" means a payment of monies or anything of value by, or on behalf of, a Licensee to a client or customer (or to a third party authorized by the client or customer to receive the payment) that is in connection with the provision of Real Estate Brokerage Services. Examples of Rebates directed to third parties include, but are not limited to, payments to charities, home inspectors, and moving services. A Rebate does not include compensation paid for Real Estate Brokerage Services to any third party who is not licensed in Kentucky to perform such services; this Amended Final Judgment does not authorize a client or customer to permit or direct such payments to an unlicensed third party for performing such services.

Now, this might be of concern: http://activerain.com/blogsview/86421/Builder-s-Closeout

Great Article in Raltor Magazine about a Mortgage Broker going to jail for this and losing everything, due to the FBI freezing her assets

I have first hand experience with this sort of fraud. Last year I had to back down from receiving a nice paycheck that I more than earned because my buyer just days before closing decided to do a cash back scheme with the seller.

My broker brought the cash back scheme to the attention of the seller's Realtor (Realtor was related to the seller)and the title company (the seller's title company). The loan officer doing the loan would not return our calls (she was dating buyer). Get the picture? Oh did I forget to mention, the seller of the home was a mortgage broker as well and knew better! What they decided to do was change the original purchase price 45,000 more because the appraisal came in higher and the seller would give the buyer the 45,000 after closing. To my surprise, the title company and the seller's Realtor decided to go along with the transaction because they said it was just "hear say."

Everyone went along with the transaction and got paid except for me :( I know I did the right thing but it is still a hard pill to swallow when all parties involved decided to look the other way with no regard to me as the buyer's Realtor or the lender being defrauded.

What about if the money does not come directly from the Seller but via an OPTION Holder?  Case: My friend wanted to buy a house that was advertised as being reduced $100k (list price is $900k).  The Seller was a builder in trouble, needed to sell quick & had a year old appraisal for approx. $995k.  The buyers were approached by their mortgage broker to let him offer the builder an Option on the house for $850k.  If the builder were to accept, this guy wanted their Buyer's Agent to write an offer for them to purchase for $1M.  He was sure he could get it to appraise.  Simple math:  Difference between the Option price & final sales price = $150k.  The Optionholder's "payoff" is disclosed on the HUD1 & closed at a Title Company of his choice.  However, AFTER the closing...he was going to give $125k back to the my friends (buyers) - keeping $25k for doing the option.  He contended that since he was NOT the Seller, this was completely legal.  Is it?  Note:  if they decided to do this, he was going to have his girlfriend write the loan so that he wouldn't be on the financing end, on paper anyway.  They really wanted the money to pay off some debt, buy some new furnishings for the new house, and put some in savings.  They ultimately decided not to do it and bought the home for $850k.  Did they avoid a possible BIG no no?  What if all the agents knew they were getting money back?  Could they have gotten in trouble too?  Thanks!

Nilsa - It is better to sleep well.  This could still come back on them.  You did the right thing.

Those are two scary stories.  I wouldn't be involved with either of them.

It is NOT illegal to receive money from the seller if the property appraises out.  Raising the price or not.  The seller can do whatever they want with their equity - give it to the poor, buy a Harley, buy a freaking pony if they want.  The bank CAN NOT dictate what the seller does with their equity, period.  By the way, it's not the bank that gives cash back on a car purchase genius, it's the car dealer.  The SELLER is giving cash back.

Realtors refunding part of their commission is not the same thing as a seller doing so huh?  Think that the commission for the sale just might possibly be built into the price of the house?  Of course it is numskulls.  If you refund part or all of your commission the bank CAN NOT control what you want to do with the money.  Ever heard of Redfin and others....look it up.  It's the SELLERS refunding the money.

Options are given all of the time and, when not exercised, cash can be given back to the purchaser.  This is (was I should say) very prevelant in condo speculators being given an Option on purchasing another unit of their choice because the frenzy of first-to-purchase buyers was out of control in 04 through late 06.  But, there is a premium for an Option.  You choose not to exercise your Option, you get your money back.  Ever invest in the stock market geniuses?  Do you know what an Option is?   

If any bank tells you that they have a say in who you choose to give your money to.  Their full of shit.  Move on to the next bank who would love your business.