Buyer rebates, on the HUD? It's clear as mud!

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

I wrote a post back in November related to buyer rebates. My question then and now is the same. "Are Buyer rebates, not disclosed on the HUD, legal?" Anyway, over the last few days my previous post has come back to life. We have been having a pretty good debate but still I have not been able to get my head around my initial question, "Are Buyer rebates, not disclosed on the HUD, legal?"

Now, during my research, on this question, I can't seem to get a definitive answer. State laws vary. Alabama, for example, explicitly prohibits "rebates" after a closing. Florida, allows rebates to a party of the contract as long as they are disclosed (not approved) to all interested parties to the transaction. What if I disclose it to the Lender and they so no? Can I still rebate since Florida law states I just have to disclose it? Or am I now breaking FED laws related to mortgage fraud?

In March of 2005, the Kentucky Real Estate Commission was sued by the US Department of Justice for not allowing rebates and lost. But it still doesn't answer the question, "Are Buyer rebates, not disclosed on the HUD, legal?"

The same thing happened in South Dakota in August of 2005.

According to Money magazine, in 2005 rebates were prohibited in the following Sates: Alaska, New Jersey, Kansas, Oklahoma, Rhode Island, Louisiana, South Carolina, Missouri, West Virginia and Mississippi. They also reported that in Alabama, Oregon, Tennessee and South Dakota rebates were limited to closing credits.

So, I'm still confused.

On the 1003 Universal Residential Loan Application: Paragraph VII Details of Transaction, Line L ask about "other credits". Shouldn't a rebate be considered an "other credit"?

My conclusion is...I don't know. If I were in the business of giving buyer rebates I would be real sure to check out my State's laws. I would be real sure that the rebate was disclosed to all interested parties of the transaction i.e buyer, seller, lender and the insurer (VA,FHA). And the best way to protect my license, in my opinion, is to only give rebates that are on the HUD 1. I may be confused about conflicting State laws and unclear FED laws but I do know, that if it is on the HUD and is legal in my State, then I will be able to enjoy my broker‘s license for many years to come. What say you?

By the way, did you know the DOJ has a website named "Competition in the Real Estate Market Place"?

Here are some links to additional information on this topic.

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Comments (81)

Nick Davis

From HUD's website:

Paid Outside Of Closing ("POC"): Some fees may be listed on the HUD-1 to the left of the borrower's column and marked "P.O.C." Fees such as those for credit reports and appraisals are usually paid by the borrower before closing/settlement. They are additional costs to you. Other fees such as those paid by the lender to a mortgage broker or other settlement service providers may be paid after closing/settlement. These fees are usually included in the interest rate or other settlement charge. They are not an additional cost to you. These types of fees will not be added into the total on Line 1400.

Notice how anything marked POC is for the borrower's information and protection. The purpose of the HUD-1 is to clearly show all charges imposed on borrowers and sellers in connection with the settlement, not the professionals.

Apr 02, 2007 06:35 AM

State of Illinois  

May compensation be paid to a principal to a transaction, even if the principal does not have a real estate license?

The Answer: Yes. Section 10-15(c) of the Act authorizes the offer or payment of compensation ("prizes, merchandise, services, rebates, discounts or other consideration") to an unlicensed person who is a party to a contract or lease. Of course, such compensation is not required. The payment of such compensation should be pursuant to the negotiations on the transactions. The payment of such compensation is not limited to payment by a licensee to the licensee's client - in other words, a seller's agent may pay compensation to an unlicensed buyer.

May a licensee offer compensation to solicit clients?

The Answer: Yes. Section 10-15(d) of the Act authorizes the offer or payment of compensation ("cash, gifts, prizes, awards, coupons, merchandise, rebates or chances to win a game of chance") to a consumer as an inducement to that consumer to use the services of a licensee, even if the consumer and licensee ultimately do not enter into a client relationship. Any advertisement under this Section must also comply with all requirements regarding real estate advertisements. Also, care should be taken not to offer compensation to unlicensed persons for referrals of clients - this is prohibited.

Apr 12, 2007 09:43 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
That's interesting . The first part is very similar to Florida law the second part is illegal in Florida(to the best of my knowledge). It just shows again how varies State laws are.
Apr 12, 2007 10:07 AM
SEO Expert: Michael George
Phoenix, AZ
Real Estate and Law Firm SEO
Interesting.  I found this article because I was searching for the topic in Google and guess what came up number one?  Unfortunately, I am still clear as mud! 
Apr 14, 2007 02:07 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Hi Karen, This does seem to be a very confusing topic. State laws vary and fed laws are decisve. For me, if it ain't on the HUD it ain't happening. I know that's legal:) 

Apr 14, 2007 02:13 AM

"If you are a buyer, you can receive a payment from your agent after the transaction closes. This comes from the commission paid by the seller and can give you thousands of dollars to get set up in your new home."

"After selling a home, real-estate agents often give clients a gift, such as a scented candle or decorative plate. Jeffrey D. Thomas received something more memorable: a check for more than $10,000."


Apr 14, 2007 02:21 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

SanFran, If they did that in Alabama, according to their State laws, their RE license could be revoked.


Apr 14, 2007 02:41 AM

Are real estate brokers operating the Alabama Real Estate Commission? Who is the commissioner? Those are the questions that might reveal a conflict of interest. States that don't allow members of the real estate industry to reside within the commission tend to be more for the "consumer".

Look At Georgia:

FAQ's : Offering Gifts, Rebates or Other Inducements

The third type of problem advertisements probably provokes the most calls and complaints to the Commission. Those are advertisements that promise a rebate or a gift to a prospective customer or client. In the 1970s the Commission had rules which prohibited advertisements which offered prizes, gifts, or rebates to prospects. Federal and state court rulings in the early 1980s overturned such rules. In rejecting such rules, the courts held that the first amendment to the Constitution protects what they termed "commercial free speech." Therefore, most advertisements which promise gifts, prizes, or other compensation to prospects or clients are acceptable as long as they are not misleading or inaccurate in any material fact and the licensee provides the item as promised. While giving gifts or other compensation directly to clients, customers, or prospective clients or customers is permissible, offering anything of value to unlicensed persons for providing leads to prospective clients or customers is not. (For additional information, please refer to, " SOLICITING PROSPECTS AND PAYING REFERRAL FEES .")

Apr 14, 2007 04:44 AM

Maryland Real Estate Commission

"Rebates/Cash Payments. Section 17-604 provides that a licensee may not pay compensation in any form for the provision of real estate brokerage services to an individual who is not licensed. A person who is simply a party to a real estate transaction is not providing real estate brokerage services within the definitions in Section 17-101, and therefore may receive monies from a licensee. If the monies are used to pay settlement charges, that should be reflected on the HUD-1 form.

The agreement to pay compensation to a buyer in the form of a rebate of commission, or to compensate the seller either through a cash payment or a reduction of the commission rate must be in writing as required by the Code of Ethics, COMAR The Real Estate Commission has also taken the position that financial payments by a licensee to a party should be disclosed to the other party to the transaction, even if they are not required to be recorded on the HUD-1 form."

According to my understanding of the aforementioned verbiage from the MREC, apparently only rebate money used for the closing is required to be on the HUD.

Apr 14, 2007 07:04 AM
B. Dunsworth

I don't know about the rest of you, but the statement above is as clear as the water in the Yucatan.

Apr 14, 2007 11:25 AM
B. Dunsworth

To answer the question that has been posed, we must first determine what the purpose of the HUD-1 is. Let's take a look at the information provided by NAR:

Question #3:

To provide consumers with cost information about the mortgage process, RESPA created the good faith estimate (GFE) and the HUD-1 closing document. RESPA requires that the HUD-1 form be provided to the:

1. Tax assessor
2. Next-door neighbor
3. Real estate salesperson
4. Buyer

Answer: Buyer

There you have it. RESPA created the HUD-1 form for the purchaser.

Apr 15, 2007 04:52 AM


A RESPA compliance officer told me that RESPA does not investigate broker rebates to buyers.  Anyhow, they say to fax the request to disclose rebate on the HUD-1 settlement statement to settlement attorney.  If settlement attorney does not comply because lender or builder will not allow, (any) liablity will rest with those parties.  Lenders and builders should not be preventing the HUD disclosure.  They would be in violation, not the real estate broker.

Irregardless, real estate brokers are not going to get in trouble with RESPA for giving rebate savings to buyers.    


Oct 12, 2007 04:23 PM
Stephen Graham
Inactive - Atlanta, GA

The above post seems to be a logical approach to an issue that is rarely understood by many within the real estate industry.

May 14, 2008 06:30 AM
Carl Pruitt
FHA Loan Advice - Buford, GA

I know this is an old post, but since someone has commented recently and it came up on a Google search I was doing to investigate how other people were handling real estate broker rebates, I can't keep myself from commenting.

I see several comments regarding getting the HUD-1 before closing, but they fail to take into account how many things are outside of the lender's control in regards to the timing of the closing package. Most of the time a lender will not send out the closing package until all conditions on the loan are cleared.

Sometimes this depends on items which the borrower or another 3rd party must provide and these items are not provided until the last minute. Sometimes it is due to lender underwriting times causing a loan which the broker submitted with all due haste being issued unpredictable last minute conditions or the loan simply not being cleared to close until just before the scheduled closing time. Sometimes this was due to setting unreasonable closing deadlines in the purchase contract.

More often it is caused by the borrower not having been completely upfront at the time of application or not getting documents to the lender in a timely manner. The alternative is to require that the closing time be moved to accomodate having everyone review the HUD within guidelines. Most of the time the parties do not want to do that.

After all, the HUD-1 is an incredibly simple document to understand for anyone with more than a couple of closings under their belt and a tiny bit of common sense. It is the rest of the documents that are difficult to understand, but that aren't required to be available ahead of time.

On the issue of lenders having stricter guidelines at times than the DOJ, or RESPA, or HUD - this is allowed. Lenders also have to comply with secondary market guidelines or risk having an unsalable loan. But rebates are completely ethical and legal in most states now. A few still ban them but would lose the lawsuit most likely if anyone challenged them.


Jun 19, 2008 09:30 AM
Ed Morzak TREC {Texas} broker 0383263

this is an old string but I'm re-researching some things now.  Been all over this with title companies and their attorneys, lenders, my own attorney and a former client who was a corp. lawyer, later became IRS research lawyer and gave me free, but sound advice.  Here in TX a Broker can always rebate his client and can also rebate the other party with all parties permission.  Rare, but their are some theoretical scenarios where it could come up. 

If the rebate is being used in connection with the closing and purchase, it goes on HUD.  If the rebate is rebate is post closing for post closing and/or non-purchase items, whether a $1,000 check two weeks later or your agreement to pay for one year's alarm system at $1,000; then it does not need to go on HUD.  If it's a top Maytag W/D costing $1,000 delivered a week after closing, that does not go on HUD. 

As for 1099 - any rebate is ABSOLUTELY not earned or unearned income.  To even consider that money, or goods, as income or payment for services would have you violating state and board law by paying a commission to an unlicensed person.  Or paying commission for no work done, or not procuring a sale, and so forth.  All sources who have researched for me or had issue come up agree that per IRS Publication {don't have file handy - you can go to and search for "rebate"} and other regulations, a rebate from a dealer / broker who received funds from the transaction and rebates some back to the client / customer should be considered as a reduction in the cost basis of the product / home. 

So a $6K Buyer Rep. commission with $1k cash/check rebated to Buyer will not generate a 1099, but will reduce purchase basis by $1K when they re-sell.  It should also come with a Hold Harmless agreement advising buyer to confirm tax treatment independently via IRS or CPA so that you aren't accused of giving tax advice.  

P.S. this has worked only when I already had captive client, so maybe it wasn't needed?  Difficult to sell to general public because they think that some how it's added on to sales price like car dealers, even though the economics of a Buyer's Rep don't work that way. They really do not see any extra value, believe it's all smoke and mirrors, and "kids" these days care more about decor than saving money!

Aug 16, 2008 05:28 PM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Good info Ed. Texas sounds very similar to Florida.I agree with every thing you wrote. BUT if you rebated in Alabama you'd be breaking their law. So I guess it just depends where you are at and how you handle the rebate.

Aug 17, 2008 12:09 AM
Robin Rogers
Robin Rogers, Silverbridge Realty, San Antonio, Texas - San Antonio, TX
CRS, TRC, MRP - Real Estate Investment Adviser

Hi, Bryant:

I've been researching this, too, since I recently agreed to rebate a builder's sales bonus back to my client. The builder has contributed the maximum to his closing costs, and he wants the rebate in cash, not as a reduction to the sales price. I checked with TREC and my MLS, and they seemed to think that I should just have my client sign a letter and I'd be good to go. I now have to figure out if I should issue a 1099; like you, I don't really feel like paying taxes on it!

Thanks for the great post and update!



Nov 08, 2008 10:21 AM
Stephen Graham
Inactive - Atlanta, GA

Now that Fannie Mae is fully under the control of the Federal Government, should there be anymore confusion over cash back rebates from buyer brokers to their clients? Not only Fannie Mae, but Freddie Mac, Ginnie Mae, FHA and VA are all under the control of the federal government. Therefore, since the USDOJ, which is a federal government entity, is in full support of these rebates, should there be any more problems recording them on the HUD-1?

Dec 31, 2008 04:30 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

If you have to ask whether or not it should be disclosed, it's always wiser to disclose.  That avoids any issues after the fact.

Jul 19, 2010 11:56 AM
Paul Davidson

In my opinion as long as buyer is not obtaining home loan then rebates are legal. You can also check instruction in filling out HUD forms from this site PDFFiller, Inc which I find useful. It also allows you to save, print or send to sign the form directly from the site. Here is the site where you can get the form

Oct 13, 2014 02:49 AM

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