Real estate agents are allowed under New York State law to give home buyer rebates to their clients. The New York State Attorney General encourages buyers and brokers to take advantage of commission rebates as noted here. Since 2014, Digs Realty Group has given huge broker commission rebates (over $3.25 million) to its clients. Digs has done this without ever compromising on service, honesty or professionalism. You should expect a broker commission rebate from your real estate agent. With transaction costs so high in NYC, your agent should kick in a bit to help reduce the pain and your purchase price.
Typical Real Estate Broker Commission Structure of Residential Real Estate Deals in NYC
In New York City residential real estate deals, the seller typically pays 6% of the purchase price to his or her broker. The seller’s broker and buyer’s broker split the 6% if the buyer has a broker. Buyers do not pay commissions or fees to their brokers. With a homebuyer rebate, as a buyer, you can use the money you get back at closing however you want. You can negotiate a higher purchase price for your home to get a deal done in a competitive bidding situation. Perhaps you put the money towards a renovation you might not otherwise do or splurge on expensive furniture. Maybe you put the money in the bank for a rainy day, or simply smile knowing that you paid less for your property than you otherwise would have if you had not gotten that rebate check at closing.
The Basics to Home Buyer Rebates
Most real estate brokers do not offer rebates to their clients. Brokers who work for big real estate companies are less likely to give rebates because they share large percentages of their commissions with the house. This leaves them a much smaller chunk to share with their clients. At Digs Realty, we don’t work for a big brokerage company. We work for our clients, and, so, we share our commissions with our clients.
For example, on a property with a $1,000,000 purchase price and a 6% commission paid by the seller, Digs will receive 3% ($30,000) at the closing. Digs then gives two-thirds of that commission ($20,000) back to its clients. In a private letter ruling, the IRS determined that commission rebates are generally not taxable as ordinary income, but rather reduce the buyer’s cost basis in the property. In this example, the buyer received a $20,000 rebate on a $1,000,000 purchase. The IRS sees the buyer as only having paid $980,000 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.
Finding a Great Real Estate Broker Who Will Negotiate (or Who Offers) a Commission Rebate
You can find a real estate broker who follows the traditional brokerage model and try to negotiate. In effect, you will make the agent compete for your business. Increasingly, the trend is to see some agents reduce their fees somewhat. However, if the agent is making less money from you on the same $1,000,000 transaction as their other $1,000,000 client, the broker has less incentive to work as hard for you as he or she does for clients who are not taking a piece of the pie. It’s sad but true – many brokers are greedy!
At Digs, we offer the same rebate structure to all our clients, so we have just as much incentive to keep you happy and get your deal done as we do for all other clients. We are happy to write you a huge check at closing as our closing gift (beats a new bath mat or set of sheets!). We know this is the best thing a homebuyer can receive.
Don’t Just Focus on the Rebate – The Quality of the Real Estate Agent is Most Important
Remember, though, the rebate check is only one important benefit of working with a good rebate broker. In addition to the tangible financial benefits, a great broker does many things to make you feel comfortable and get your transaction to the closing table. For example, they evaluate your financials, share invaluable market knowledge, and provide detailed pricing analyses. They negotiate a competitive purchase price, refer you to experienced real estate professionals, and prepare and submit your condo or co-op board package. They are also your sanity check and your therapist to the extent needed (NYC real estate can be very stressful!). Do your research before hiring just anybody. Talk to the broker, question him or her thoroughly to get comfortable with their experience and credentials. If you have reservations, ask to speak to current or former clients as references.