Why do we offer commission discounts and rebates?

When our 8 year old asked us why we were celebrating, we told him we had just given our client a rebate check that brought us over our $4MM rebate and discount mark. His response, “why would you do that?!?!”

It was pretty funny coming from an 8 year old.  But then we got a similar response from a bunch of our friends and clients after we sent out our announcement: “congrats on giving away money!” and “You could have retired by now dude lol.”

So, why do we offer rebates and discounts to our clients? And we does it make us happy to do so?

We are doers.

We don’t like to sit idle. Our commission rebates and discounts are attractive to many people, so we generally have a higher volume than the average real estate agent. We make less per transaction, but we don’t care because we are keeping busy, learning our craft and getting better at what we do with every transaction.

We appreciate fiscal responsibility.

We are savers, and we love to save – it makes us feel good. We also love to help people save money! We know how expensive it is to buy and sell real estate in NYC, and we want to help reduce transaction costs as much as possible (while still saving some for ourselves). It may sound cheesy, but it really brings us joy to hand our clients a big check at closing.

We are a little less greedy.

It isn’t easy to give away 67% of our commission, but on a $3MM home purchase, we recognize that, in almost every circumstance, it seems a bit crazy for us to make $90,000. Don’t get me wrong, we do A LOT for our clients, and our clients really do appreciate us – in fact, they often tell us they would work with us even without the rebate or discount – but with home values so high, the 3% commission just no longer makes sense.

We are confident that we are good at what we do.

We do not worry that people will think we aren’t as good because we cost less. Our reputation in the industry and with our clients speaks for itself.

How do real estate broker commission rebates work?

When you buy a home with Digs Realty, we pay you up to 67% of our commission at closing (that’s up to 2% of your purchase price, or 10% of your down payment if you’re financing 80%).

Take the following example:

• You buy a home for $2,000,000
• The seller pays a 6% commission = $120,000
• The commission is split 50%/50% between the buyer’s and seller’s agents = $60,000 to Digs Realty
• Digs keeps 1/3 of the commission received = $20,000
• Digs pays you 2/3 of the commission received = $40,000

Yes, this is 100% legal in New York State. Not only are real estate rebates legal, but, in 2015, the Attorney General encouraged it in a press release:  A.G. Schneiderman Urges Brokers and Home Buyers in New York to Take Advantage of Law Allowing Lower Commissions

In addition to being legal, the IRS issued a private letter ruling stating that commission rebates are generally not taxable as ordinary income, but rather reduce the buyer’s cost basis in the property. In the example above, the buyer received a $40,000 rebate on a $2,000,000 purchase.  The IRS sees the buyer as only having paid $1,960,000 for the property. Since we are not accountants or tax professionals, we advise you to consult with a tax professional with respect to the tax implications of the rebate. You can find the IRS ruling here.

How do real estate broker commission discounts work?

If you’re selling a home with Digs Realty, we charge you far less than the standard broker commission, saving you as much as 4% of your sale price.

Take the following example for illustrative purposes:

Selling with a Traditional Agent

• You sell your home for $2,000,000
• You hire a traditional broker and pay a 6% commission = $120,000
• Your broker keeps 3% = $60,000
• The buyer’s broker keeps 3% = $60,000
• If the buyer is not represented by an agent, your broker keeps 6% = $120,000

Selling with Digs Realty

• You sell your home for $2,000,000
• You hire Digs Realty and pay a 4% commission = $80,000
• You pay Digs 1.5% = $30,000
• You pay the buyer’s agent 2.5% (otherwise, your potential buyer pool will be much smaller) = $50,000
• OR, if the buyer is not represented, you pay Digs Realty a 2.5% total commission = $50,000
• Savings = $40,000-$70,000 off the traditional 6% commission

For a more complete explanation of how our commission sharing model works, take a look at our whiteboard video.

 

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Digs Realty is a residential real estate brokerage in NYC that provides full service at a discount. The Digs Mission: Saving you money without compromising service. We give our home buyers up to 67% of our commission and charge our sellers up to 4% less than traditional brokerages.