Buyer rebates. Good business or potential fraud?

Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

 On Friday, I had written a post, that facilitated quite a discussion about our commissions and how we justify what we charge. If you read my post and the 110+ comments, it generated, you saw that the consumer, Mr. CandiBags showed up. He asked a pretty good question, that I would like to expand upon here.

How do you feel about Buyer's Agents rebating a portion of their commission to the Buyer? Well my immediate answer was that I could not care less. I am a listing side Realtor and it does not effect me at all. But then I started thinking about it. My new questions are:


  • How is a Buyer's rebate handled without it becoming mortgage fraud?
  • What do you do if the rebate is not allowed by the Lender?
  • When and how do you disclose this rebate?
  • Is this rebate credited on the HUD-1 statement at closing or do you cut a separate check after closing?
  • How can companies like Zip Realty, that offer rebates, overcome the legal ramifications?
  • What do you do if you got the Buyer's business, by the promise of a rebate, only to find the Lender will not allow it?

In Florida the law states: According to Florida Administrative Code rule 61J2-10.028(2), the sharing of brokerage compensation by a licensee with a party to the real estate transaction with full disclosure to all interested parties is not considered a violation of Chapter 475, Part I, Florida Statutes

What does your State's laws say about this?

One more thing, as a Realtor working for the Seller, if I receive an offer for my listing and there is a disclosure stating the Buyer is going to get a rebate, should I know the amount of the rebate and make sure, the rebate plus any Seller concessions, that the Buyer may be asking for, do not exceed the maximum amount allowed by the Lender i.e. 3% or 6%. And, should I make sure that any rebate is fully disclosed on the HUD-1 statement? If not, could we, inadvertently, be involving our Seller in a fraudulent transaction?

Buyer rebates. Good business or potential for fraud?

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Comments (143)

Ton A. Ali
Realtor - Broker ABR, Eco Broker Certified
We have been talking about this more often.  I have looked at some models that do offer a buyers rebate, but they also limit the buyers access to an agent.  Buyers get a limited number of showings and after that they pay an hourly rate for the buyers' agent's time.  I am for bringing a value proposition to the table and not for giving away service.  Sometimes we do more work for some buyers than others, but charging them for the time spent would not go over.  Buyers don't feel that they are paying anyway. What are we rebating with?
Feb 19, 2008 05:07 AM

As a consumer I'm looking for the best deal.  Buyers and Sellers are at the mercy of realtors who try to manipulate and trap them into contracts.  Property values sore in part because realtor commissions remain the same while property value increase.  For me it is simple... I have the cash to buy a home and I do all the research. The realtor who gets my business will spend a couple of days and walk away with up to 2%.  The realtor who gives me 1% of MY MONEY back at closing has my business.  Come on! Do you know of a realtor who has NOT cut their family or friend a deal during their career?

Look at Obama.  He could not afford to buy the house and lot next door.  What does he do?  He gets a friend to pay full price for the lot so the realtor brokers a deal for Obama to get the house at a discount. Instead of his friend giving him a financial gift to buy the house (that Obama would have to claim on his taxes), he brokers a deal with the realtor and seller.  Where's the ethics there? And he wants to be our President.  Go figure. 

States passing legislation to stop the free market is not good for our country.  If a realtor offers free services, that's their business.  The realtors who complain about discount brokers are insecure and need to grow up and join the free market.

Feb 22, 2008 12:40 PM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Stephen, I actually have no problem with rebates as long as they are above board. I also agree it's an area that should NOT be regulated by "the man". Let the lenders decide if they are comfortable with it or not based on the each buyers individual finances.

There does of course have to be some kind of disclosure to the lender to prevent mortgage fraud. To me that's the biggest issue. If it's not fraud I should be able to give my money to whoever I choose.

Thanks for stopping by. All opinions are welcome. 

Feb 23, 2008 03:49 AM
Randy Barnes
Atlanta, GA
Seems to be a lot of legal oppinions here. Anyone an actual lawyer? hummmm
May 02, 2008 01:15 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Randy there is nothing wrong with giving opinions. It's giving legal advice to a customer/client that is wrong. On this post we are just having a discussion.
May 02, 2008 01:20 AM
Stephen Graham
Inactive - Atlanta, GA

Here is an attorney's opinion on this matter. Is he right? I do not know.... He is clearly an attorney who represents lenders. Are there any objective attorneys out there?

May 02, 2008 07:00 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Thanks for the link Stephen. In Florida rebates ARE legal as long as they are disclosed. In my opinion that disclosure needs to be done by having the rebate on the HUD1. Better safe than sorry.
May 02, 2008 07:55 AM
Stephen Graham
Inactive - Atlanta, GA

You're welcome. HUD-1 disclosure certainly removes any and all liability for the broker; however, with that said, can a lender disallow a rebate without violating antitrust laws? There could be liability for the lender since rebates are protected by the highest law in the land. It's a conundrum. 

May 02, 2008 08:42 AM

Fact: My wife owns a discount brokerage company in WI

Fact:  Nobody knows anything regarding to rebates here.

We called Hud, and Fannie mae....they both said rebates are illegal and we have the email to prove it.  We referred both fannie mae and Hud to the doj website..they both didtnt care.  We called DOJ they say its legal...We told doj  both Hud and fannie mae said the practice was illegal.  The DOJ wanted the names of the people at fannie mae and hud..We gave it to them.

Lenders dont want to put rebates on the HUD....they say its illegal and then call fannie mae to confirm its illegal. 

There is no official protocal here regarding rebates.  To put it on Hud or not,  does it need to be disclosed or not.  Is it considered mortgage fraud if you dont put it on the Hud.

The consensus from much reading and resarch is in my opinion:  If the lender lets you put it on HUD go for it..If you want the transaction to happen after closing it has nothing to do with the loan or need for disclosure....You can also let the lender know you are a rebate broker and not put it on the hud.  

I can not find any specific protocal that says otherwise in WI. 

I also can not find any instance of a broker or agent getting charged with fraud regarding buyer broker rebates.  

The DOJ is 100% for rebates....The IRS says they are not taxable also.    Who is going to charge you with fraud..? 

If a company does not allow rebates cant that be obstrucion of DOJ federal rebate laws? just a thought.

Jun 11, 2008 04:22 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Tony, I think that about sums it uo. No one knows and I don't think anyone cares. I have now posted twice on this and have recieved over 300 comments total and still no one has a definitive answer. So I think the only thing I would use as a guideline is individual State laws. Florida says they are legal as long as they are disclosed to all parties to the contract. Not approved....just disclosed.

Jun 11, 2008 04:42 AM

Another point is :  what does disclosure mean,  verbal, written, assumed etc.  When states say that rebates must be disclosed.  This does not mean it has to be on the HUD.  It usually has nothing to do with the HUD or closing.   Disclosure is a broad term used in real estate I see all over the state statutes.  It also could mean that you just disclose your rebate to your client...Unless it specifically states that you must disclose to lender, seller, other broker, world, etc...

Again who would enforce mortgage fraud?  Isnt that the DOJ territory.  And if its DOJ territory would it be State of Federal....from all the blogs everyone says its federal crime.......Repeating myself here....If the DOJ is all for rebates and they stated that is usually after opinion is that they would not see it as fraud or illegal in anyway regardless if its on the hud or not. 

As stated by Bryan above....I dont think anyone really cares at this point. 

 I cant believe such a simple concept to help buyers and sellers is so confusing to every govt and lending agency out there...even the realty associations..have conflicting opinions....

I also think its funny how many people think they know the answer to this question of rebates and are unwilling to accept that they could be wrong and make blatent statements like : Fraud, illegal, Must go on HUD, etc. 

Show me the LAW!   some states may be specific but most are not.  I Can not find a single federal law saying its illegal with disclosure on the HUD.  Yes you can pull statements and phrases from HUD and Fannie mae but who enforces those....I think its the DOJ. 

Enough ranting........I feel better now!


Jun 11, 2008 07:28 AM
Stephen Graham
Inactive - Atlanta, GA

"The DOJ wanted the names of the people at fannie mae and hud..We gave it to them."

So, what did the DOJ determine from their interaction with these entities?

Jun 19, 2008 09:51 AM
Beach Report
St. Augustine Reports - Saint Augustine, FL

It isn't any business of the seller or their broker if my agent rebates me some of the commission.

Aug 30, 2008 10:46 AM

It is the business of the seller and the broker if it affects your ability to purchase or not with this rebate.

Your lender will also have to know.

Aug 30, 2008 12:51 PM

I had a close friend use ziprealty for a home purchase a few years back (northern california), and from what I remember, they were quite shady. After my friend waited and waited to receive the "cash back" rebate and didn't receive it, he tried to contact his ziprealty agent. It wasn't after many many tries was he able to get an answer concerning his rebate. The answer he got from his agent was, "you didn't explicity ask for cash back, so we tacked it onto your closing costs".. but of course the closing costs seemed like the average amount and he didn't really see any deductions made in the paperwork, so it was like he never received a rebate at all. Anyhow, I hope Ziprealty's practices have changed regarding their rebates or perhaps the situation with my friend was just an "oversight", which I highly doubt. It seems to me to be just another scam.

Oct 23, 2008 08:12 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

SN, Thanks for sharing that story. That's incredible.

Oct 23, 2008 08:23 AM
Holly Johnson

I am pro buyer rebates. I believe seller's and lenders, including new home builders, refusing to allow an agent to apply part, or all, of her commission to the purchase price or towards closing costs violates anti trust laws.

Interestly, as a former employee of 2 new home builders, 1 allowed an agent to reduce the price of a home by her commission, if saying the agent was purchasing for herself.  However, a larger home builder I worked for would not allow any type of commission application or rebates to the buyer.

I find new home builders hippocritical in this regard.  I mean, they will tell you I am giving you $10,000 off the purchase price if you use our lender, but now where is this disclosed on the HUD.  We should all advocate consumer friendly services and not be against them.  If I want to list a house for a flat fee of 1%, so be it and if I want to represent a buyer for a flat fee of 1%, so be it.   Either way, the consumer ends up with more at the end.  

Jul 11, 2009 02:34 AM

Hi Marvin. I know you are reading this.

Jan 11, 2010 02:56 PM
David Prouty, Owner/Broker Get a Rebate Real Estate

Great questions...  The Department of Justice supports real estate rebates and New Jersey was the 40th state to change laws to allow them... see DOJ site here... 

My accountant issues 1099s for any rebates over $599 at the end of the year and the IRS can decide how to treat it.  The DOJ believes it is a part of the transaction and lowers the cost of the home for the buyer so no tax issue is created.

It can only go to a party to the transaction (buyer or seller) and is 100% legal (in 40 states)  Some states I believe allow the rebate to be on the HUD, most do not.

I did a transaction for my real estate attorney's mother in-law, with no issues:)

David Prouty
Get a Rebate Real Estate

Feb 28, 2010 04:35 PM
Marty and Laurie Gale
Utah Realty - South Jordan, UT
Utah Realty | 801-205-3500 |

I guess for those that fall short of real service a buyer rebate is an incitement to work with them. 

Jul 13, 2010 03:08 AM