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Louri Groves…, Real Estate Pro in Huntington Beach, CA

Commission rebates from agent to client needs to be approved by the lender and must be disclosed up front ... correct?

Asked by Louri Groves (714) 767-8158, Huntington Beach, CA Tue Feb 15, 2011

I wanted to confirm that commission rebates from agent to client needs to be approved by the lender and included in the contract (this way the lender is alerted before the HUD). So for example, a selling agent needs to be upfront and disclose to his buyer that this rebate is subject to his lender's approval....

What are your opinions of those who rebate their commissions? Thank you in advance for your comments.

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Louri,
First, make certain your broker or office approves the practice. Second, notify your Escrow Company of your intentions, they can handle the HUD. Typically as long as no cash is being given to the buyer and their down payment contribution is whatever they initially submitted it to be, you should be okay.
As far as my opinion of agents who rebate, I believe that each agent has to decide what their business model is and live according to it. At some point in most agents career a situation presents itself where we contribute or reduce our commissions for specific set of circumstances.
As a long term plan, you really have to ask yourself if it will produce the results you are after. Often clients who focus on price, will always feel they paid too much whatever it is. Rebating your commission as a standard practice up front removes a tool you may later use to bridge the gap between a buyer and a seller when all else has been tried.
Take a look at the offices in your area who advertise this as their model, and the ones who did a few years ago and are now out of business. There is a reason, in my opinion most “discount or rebate” companies are not around long, it costs us more than people think to be in business and stay in business.
It’s a free market and you should do as you feel best, but take everything into consideration before you commit to a plan you can’t afford to keep.
1 vote Thank Flag Link Tue Feb 15, 2011
Touchy subject for a lot of people. Some will say they'd rather rebate than not have a client. Or that part commission is better than no commission at all. And others will be steadfast in saying they won't do it.

I say a one point in time, you will find yourself in a situation where you need to give in a little bit to help close the deal. For example, the selling agent and I were caught in the crossfire between buyer and seller who were $2,000 apart on completing the deal on a $700k house (imagine haggling over such a small amount for this sale). To move things along, the other agent and I agreed to go half on the difference, And our contribution was shown on the HUD not as a rebate but rather as a credit towards closing costs.

in California, rebates are legal, but they are not in several states, See http://www.justice.gov/atr/public/real_estate/rebates_details.htm

Whatever you do, make sure this rebate/contribution is on the HUD. No exceptions.
1 vote Thank Flag Link Wed Feb 16, 2011
Any payment of Commission to anyone has to be on the HUD which the Buyer's lender must approve. ALSO, it's the Seller's money, so the Seller has to approve it if you are giving the money to the Buyer.

Unless you ARE the Broker, the Broker needs to approve it

As for an opinion about it, I think giving commission away cheapens our profession - except - if you are doing the transaction "Pro-Bono" as a charitable action.

Thom Colby
Broker / Owner & Certified HAFA Specialist
Thom Colby Properties
Newport Beach, CA
Moving Lives Forward (TM)
We NEVER DOUBLE-END Transactions in our Brokerage. IN MY OPINION, there is NO benefit to the Seller or Buyer and only benefits the Agent. Also, NEVER use your RE Agent / Broker as your Lender or vice versa. Also, be careful when using Real Estate Broker-owned Escrow and Title Companies - they can be loads of trouble.
888-391-5245 Direct Cell
THOM@THOMCOLBY.COM
DRE# 01398570
1 vote Thank Flag Link Tue Feb 15, 2011
Hi Louri,

Yes, any rebates must be listed in the HUD1. Otherwise, it is against DRE regulations because the rebate will be considered a payment from your broker to a non-licensed salesperson.
1 vote Thank Flag Link Tue Feb 15, 2011
Hi Louri,

Yes, you are correct. The Underwriter may alsorequire a letter from your Broker stating that he authorizes you to give the rebate to the buyer.


All the best,
Ros

Roswell Moore, CMPS
Certified Mortgage Planner
480-422-5095 direct

We are a Direct Lender, Mortgage Bank where we originate, process, underwrite and fund, in-house, FHA, 203(k), VA, USDA, Jumbo, Conventional, loans to Canadians, Australians & other Foreign Nationals, on time.
1 vote Thank Flag Link Tue Feb 15, 2011
I am sure that is correct. What you could do is write something into the contract that the seller will give a concession towards closing costs and deduct it from your commission.
1 vote Thank Flag Link Tue Feb 15, 2011
Dan -

EXCELLENT POST !
0 votes Thank Flag Link Tue Feb 15, 2011
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