Realtor Rebates. Free Money or Expensive Savings?

This blog is supposed to be about the inside scoop on real estate right?

Well lets talk about a huge hush hush: Realtor Rebates!

Wow, I said it, and I put it in writing. A non-Rebate firm educating their customers and readers about something that we don't do*... REBATES.

A fellow Realtor who hates rebaters told me "You've got some brass ones to talk about that."

I say thanks!

Will this be suicide for my business? Shouldn't that be kept secret? Why tell potential clients about your competition, which might be a better deal that they didn't know existed? Why? Because I think buyers should know about all their options, and decide what is best for them.

(*Regarding the "we don't do Rebates" comment earlier, tell me you want to pay full price for a particular $1M home , and sure I'll give you a rebate. But what if I can find you a neighbor's house for $20k less?)

Rebating is not bad. It is NOT the devil, it is just another business model.

First of all, what is rebating, isn't it illegal?
Rebating is when a Realtor gives back part of their commission to their client, the buyer. This is done above the board on the HUD1 at closing. This is 100% legal in Virginia (4 or 5 states don't allow it, the DOJ is working on them).

Why would a Realtor be stupid enough to do this?
(others say that, I don't agree with that comment)

Lets take the following scenario:

1. Agent #1 might get 2 deals and not rebate
2. Agent #2 uses rebating as a marketing tool and as a result might do 4 deals within the same amount of time.
   

Lets say each commission is $10,000.

1. Agent #1 "makes" $20,000 (* another blog will go over what they REALLY make, which is far lower)
   
2. Agent #2 brings in $40,000 but "gives" back lets say 1% of each deal (1/3rd of their commission)
   
3. Agent #2 "makes" $26,000.

Who is the dumb one? The rebater makes 30% more! That doesn't sound too stupid to me!

Confession... When I first started I used to almost always rebate!

Why not? I was brand new, FranklyRealty.com just started (long story) and I had to find a competitive advantage. I didn't have a good reason why the heck Joey should use me over his Mother's cousin who has been in the business for 20 years?
Tell me what other industry doesn't first compete on price to break into the market?

My rebating techniques got me in , and on the Discovery Channel's Double Agents reality show. They mentioned my rebating including my "REBATE" license plate. I got a ton of deals from that. And my Internet marketing was hot. Heck, look to see who owns RebateRealtors.com and RebateAgents.com. Yeah I made less per deal, but I was doing just fine, I made it up with quantity. I was also named 2003 Northern Virginia Association of Realtors Rookie of the Year, out of 1,000 new agents, and I did that in just 6 months, even though Rookie agents were given 18 months.

Why did I stop rebating?
I kinda got good. (I'm not saying rebaters are bad). I finally had a reason why people should use me over Joey's Mother's cousin.

• This story was my tipping point:
  I had one client that wanted to buy a house listed at $600,000. They were ready to pay full price. I ran through my dozen proprietary how-to-price techniques (that I can't publish in my blog, just email me for more info). I call it a CRA report (patent pending). Not a CMA, Comparative Market Analysis (which everyone does), but a CRA, Comparative Realtor Analysis. This is a background analysis of the agent's past performance (not a bad idea heah? Imagine what else I have up my sleeve, the CRA was featured in Smart Money magazine).
  I saw that this listing agent in 5 recent listings dropped her price by $25,000 after exactly 30 days. Obviously this was how she got deals. She would convince sellers to use her because she said she could get a high price, and after 30 days would drop the price and sell it fast. So there was a good chance they would do that with this listing. With 28 days on the market we offered $30,000 under and... they took it.
  My client was super excited about the $30,000 discount, and didn't really care that they were also getting 1/3rd of my commission. At that point my focus changed to helping the client save as much money possible, without having to sacrifice my pay.

So are you saying that we should or should NOT use a Rebate agent?
I'm saying you definitely SHOULD use them if you think all Realtors are just overpaid paper pushers. However if you read my entire "insider scoop" blog and see that there is more to it, you should pick the best agent, and if perhaps you find one that also rebates, good for you!

Think of it another way. They have to make money some how, right? Either they are new and need this marketing technique to get more business (ask yourself whether a new agent is going to help you negotiate a lower price vs a 20 year veteran) or they have to do a higher volume to make the same pay (they claim to be more "efficient," and maybe they are). With that volume does any service get left out? Maybe, maybe not. Will they search for deals that are off the market? FSBOs? Recently expires? Did they send out 100 letters on your behalf to see if a particular neighborhood that you loved had potential sellers in it (yes that works with my letter)? Will they take 3 weeks to negotiate a contract with a $100,000 price drop, or will they want the deal to close fast and try to push you to close faster/higher? (Heck that can happen just as frequently with a non-discount Realtor too!)

I recently had a buyer that said "Well I have a friend's friend that will give me 1% back if we buy with her." I said in return, "Really, I can find somebody that might give you 1.5% back." I had a new agent in mind that would love to make a quick $10,000, but will the buyer get the lowest net possible? In the end is that cash back worth it if the agent isn't as good at getting you the lowest net possible or giving you the time, dedication and hand holding that you might need? I got the deal and it took 4 weeks after we found a home they liked. We offered on 2 homes, one $300k below list, and I found them 2 off the market properties from my letters. I don't know if a rebater would have been as patient and aggressive. Maybe they would be. My clients were very happy in the end.

I'm excited. What a brilliant idea! I ran an analysis comparing the negotiating abilities of one discount firm's closings to another well known firm (not mine). What I was hoping to show was how a rebater might give you money back, but if they didn't fight to get you that last $5k or $15k, how much do you really save with a rebater? Your NET is what should matter, right?!

But guess what?! My numbers showed that the rebating firm was a better deal! Ha! Oh no! Do I ditch my blog? Nah.

Here is what I found in my non-scientific study:

• Rebate firm closed an average 96.7% below list (including seller subsidy)
• Brandname firm closed an average 96.2% below list
  
• Rebate firm gives .75% back
• Rebate firm on AVERAGE did .5% "worse",
  but with the .75% rebate, you'd be ahead by .25% or
  $1,250 on a $500k home, ... on average.
• But you need to ask, what would an above average agent have been able to net you?

• Disclaimer: For those statistic majors out there, I know, I know, this is nowhere near a scientific report, just treat it as food for thought . It was hard to get a large enough sample (20 for the rebate firm and 65 for the brandname firm). Also buyers should not just be looking for the biggest discount off list. I'd rather buy a properly priced listing at full price, than get a $50k discount on a $100k overpriced home. I just used that as one way to measure a "good deal."

So before you decide on your agent, whether it be a rebate agent, or another agent, make sure you read the following blogs so you know what type of agent to avoid (that is if you agree with the blogs):

1. I Need A Buyer's Agent! But For My Car.?
2. Stockbrokers Can't Predict Stocks, Realtors Can't Either!
3. Leverage, The Untold Risks With Buying.
4. Tip #1 From Mom: Don't Trust Realtors That "Sell" You On Buying.
5. Shady Realtor Bonuses? 10%!! Free Cruise? Be Aware.

Also ask yourself whether the agent you are considering will give you this type of information (including telling you about rebates) and whether they put you first or their commission first. Ultimately if they mesh with your style, great. If they also rebate, great, go for it.

And for you Realtors that hate rebaters, don't. Get over it. It is just another business model, here to stay. Instead hate the "weekend warrior" who does 2 deals a year and is clueless. Once as a listing agent, I literally had a buyer agent say something to me that lost his client $10,000. He said "Don't worry, I know they will go up, they really need to get this under contract this week." Maybe he was playing me, but I don't think so.

Will your agent (rebater or not):

• Push you into buying. Or do they tell you the real-life downside risks with buying? (risks sub-blog)
  
• Expose Shady Agent Tricks. 10% buyer agent bribes, MLS fudging, etc (shady sub- blog) or will they participate and accept those legal bribes (rebater or not)
  
• Acquisition approach. Do they treat your purchase like an acquisition of a company? With research on all parties involved, (including once going to the courthouse to find the existing loan amount) or do they just run a CMA and tell you it is a great deal?
  
• CRA Reports Run a CRA report (as seen earlier in blog) or do they not even know what it is or why it would be important?
• Off Market and FSBOs. Look and find properties off the market. Lowering those darn Realtor fees can net you a better deal. But it takes 3 times the work for a Realtor.
  
• Willing to lose deals. Will your Realtor be as aggressive as you want and lose deals left and right until you find a seller that needs to sell at your price? (Ask them the last time they LOST a deal because they tried to get a great price. I know one agent that bragged about wining 90% of her contracts during the bidding war days. Hoorraay! Her clients probably always overpaid! Losing a deal can DOUBLE an agents time with a client, but you get a better deal when you finally get one.)
  
• Give you a rebate. Some will, some won't (we don't).
• Get you the lowest negotiated price. This is what matters (along with service).

 

Thanks for reading! Love to hear your comments!

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don't like looking stupid. If you like this post, sign up for new blogs daily.
 

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