How a Rebate Makes Buying a Home Less Expensive

You can save thousands when buying a home if you work with a real estate agent who agrees to pay a rebate. (See our tutorial: Buying a Home.)

Rebates can be in the form of a cash refund after you close on the home, or they can be non-cash incentives to encourage the use of that broker’s services. Incentives can include gift certificates, closing-cost payments or other services, such as home inspection or paying the cost of movers. 

Let’s say the home sells for $200,000 and there is a 6% commission. The total commission on the sale of the home would be $12,000. Typically, the broker representing the buyer would get half and the broker representing the seller would get half – or $6,000 apiece. Some buyer’s brokers agree to give up as much as one-third of their commission as a rebate. In this scenario, the buyer would receive $2,000 (1/3 x $6,000).

There is one caveat. Rebates are not allowed in nine states: Alabama, Alaska, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon and Tennessee. Plus, Iowa limits the use of rebates if you work with more than one real estate broker during a transaction. 

Benefits to Buyers

Real estate brokers use rebates to attract new customers, in the same way that a retail store uses rebates.  By offering rebates, brokers can help buyers: 

  • Purchase a bigger home. Cash rebates may enable buyers to get the home they want because they can use more money at closing for a down payment, knowing they will get a rebate after closing.
  • Get settled in their new home. Cash rebates can help with moving expenses, repairs or new furniture.
  • Cover expenses such as a home inspection, closing costs and surveys.

In addition to these benefits, a real estate broker who gives a rebate is making less money and therefore will likely seek to close the deal faster to reduce the time spent on the transaction.

Why Agents Don’t Agree to Rebates

Not all agents will agree to a rebate, and some may even be insulted if you ask. The Kentucky Real Estate Commission surveyed its members prior to lifting the ban on rebates and these are some of the comments from brokers opposing the ban: 

 “If we give rebates and inducements, it would get out of control and all clients would be wanting something. The present law keeps it under control.”

“This would turn into a bidding war, lessen our profits and cheapen our ‘so-called’ profession.”

“If inducements were allowed, they could lead to competitive behavior, which would make us look unprofessional in the eyes of the public.”

“I think this would just take money right out of our pocket.”

How to Find a Willing Agent

You have three options: Look for an advertisement that mentions rebates (not common), negotiate one-on-one with agents before you choose one to help you buy a house or use an online service that connects you with real estate agents in the area where you want to buy. One such website is UpNest.com, where brokers compete for new clients. 

This search tool is free and you can compare options when searching by city, state or ZIP code. You will get proposals from several brokers and pick the one you like best. Sometimes you won’t find a broker willing to give a rebate – for example, if the price of home you are seeking is too low for the broker to offer a rebate and still make an adequate commission. (See also: What are the differences among a real estate agent, a broker and a realtor?)

The Bottom Line

Rebates can save you money when you are buying a home. The key is to find a good agent who is willing to negotiate a rebate with you. For more tips, see How to Find the Best Real Estate Agent.