In the business of real estate, the BIG D doesn't refer to Dallas… it refers to DISCLOSURE.
Sellers have plenty to worry about when they list a home. Selecting the right Listing Broker goes a long way toward protecting a Seller's interests before, during, and after a sale. A savvy, experienced Listing Agent will strategically work to reduce factors which can create conflict between parties. From property condition to title issues, full disclosure is always the best policy.
WHAT ABOUT THE BUYER?
Consumers are slower to realize that there are disclosure obligations on the Buyer's side as well. Many states prompt a Buyer to minimally disclose the details & terms of their planned financing program, any relationships with their agents or third party vendors, and even their own status in the industry if they hold (or have held) a real estate license themselves.
There's one more disclosure item that should trigger Seller's concern… and that's commission rebates.
ARE BUYER COMMISSION REBATES A CONCERN FOR A SELLER?
Every industry has a handful of competitors that choose to compete on price. Real estate is no different. Discount brokers pop up like gophers, and tend to have short-lived ventures because what most consumers truly value is the knowledge and wisdom that comes with full-service business models.
When evaluating offers, most seasoned Listing Agents will coach a Seller to consider the Buyer's Agent as a factor in the decision making process. Reputation, professionalism, and demeanor can affect the successful outcome of a transaction. But be warned... Sellers should also take note if the Buyer's Broker advertises as a "rebate" broker.
"Mortgages with undisclosed IPCs are not eligible for delivery to Fannie Mae. Examples of these types of contributions include, but are not limited to, moving expenses, payment of various fees on the borrower’s behalf, “silent” second mortgages held by the property seller, and other contributions that are given to the borrower outside of closing and are not disclosed on the settlement statement."
Simply stated, Buyer rebates are subject to lender approval. There are rules and laws that govern the amounts and methods that a Buyer might receive a contribution from any interested party in a transaction -- and above all, any contribution must be fully disclosed to the Lender and appear on the settlement statement in conjunction with closing.
Concessions that are not fully disclosed on the final settlement statement constitute mortgage fraud, and both of the Agent / Broker parties, as well as Buyer and Seller parties, could be at risk for legal trouble, including significant penalties of monetary fines and/or imprisonment (Texas).
The better known and established discount brokerage brands openly condition their advertised buyer rebates as being subject to disclosure requirements and Lender approval. The DANGER is in the upstart shops that that promote unconditional kickbacks over a set fee amount -- even going so far as to imply that they will pay outside of closing, like this one:
WHAT'S THAT AGAIN?
The bottom line is that if the Buyer is being represented by a Broker who publicly holds themselves out to give buyer rebates, Sellers and their Agents need to be aware of the Buyer's disclosure requirements, as plausible deniability may be a weak defense after closing. No Seller has time to get tangled up or implicated in some rookie kickback scheme.
Any contribution from the Buyer's Broker / Agent to the Buyer should be openly disclosed to the Seller, approved by the Buyer's Lender, and appear on the settlement statement prior to closing. Get there by asking the following questions:
- Is the Buyer's Broker / Agent offering a commission rebate?
- If so, what amount?
- Where is it the rebate amount documented?
- Has the Buyer's Lender approved this contribution?
- Is the Buyer also asking the Seller to contribute toward closing costs?
- Has the Buyer's Lender approved the total amount of contributions (Seller + Buyer's Broker) being given to the Buyer?