Sorry for the online debate, but there are a lot of misconceptions regarding rebates, and I'll write a blog about it later today to help try to dispel some of the problems. If, like me, you've given a lot of commission rebates to consumers (in fact, more than $200,000 in rebates to my clients in the past two years), then you'd know the rules regarding rebates.
In a nutshell, here's what every consumer (and agent) should know and be aware of in order not to make the rebate a taxable event and not to trigger problems with the mortgage or the reporting.
1. All rebates MUST be reported on the HUD-1 closing statement by the title/escrow company--no exceptions on this
2. If done correctly, commission rebates provided to buyers are "not" considered income to the buyer but are reductions in the price of the home
3. Both the Buyer and the Seller must agree to the commission rebate, which I memorialize on an addendum to the purchase contract
4. The mortgage company providing the purchase money for the Buyer MUST be aware of the commission rebate as this can affect the loan
5. Because the bank must approve the short sale and the REO sale and is the group that agrees to pay the commission to both the buyer and seller's agents, the bank will refuse to allow the buyers to "make money" on the purchase of a home, and will reduce the commission to the buyer's agent if there is a commission rebate. In these cases, we use the commission money to buy down points on the buyer's loan (if that is allowed, and many times it is NOT), or to pay for inspections and some section 1 repairs to the home (which I've always been able to successfully do)
I know it is a long held misconception that agents who provide rebates are "less qualified", "not knowledgeable", unable to negotiate the good deals, but that's simply not true. For many of us, the brokers we work for provide us with cost breaks that we can, then, pass along to consumers--Zip Realty and Redfin are both prime examples of this type of broker fee structure. And I promise, there will always be consumers who WANT to pay for a full commission Realtor, and there will be those who are willing to venture into discount agents--there's a lot of market out there, and it's unnecessary to downgrade the quality of colleagues simply because they can and are willing to reduce their commissions.
Trust me, I'm sure that, at one time or another, everyone on here will buy something from Target and Walmart to reap the savings from discount prices on items--it's the same items, just a discount price. I feel it is the same way here.
So, again, JJ, I encourage you to look at both discount AND full service agents, and choose the one that works best with you.
Area Pro Realty-People's Choice
The top, experienced, local real estate agents will have completed over a hundred real estate sales. I've completed over 1,000. Each sale provides the opportunity to learn to avoid and solve issues. Each sale builds credibility. If your offer is equivalent to the offer submitted by an experienced agent, your offer will not be accepted. You will have to offer more.
Experienced agents have the knowledge and network to solve issues. They will probably have already solved problems similar to those that are likely to be encountered many many times. If you are represented by an experienced buyer agent, the seller's agent will have more confidence in your offer.
Assuming your time has no value to you, that you are confident you can inspect the property and disclosures for risk, that you can quickly and efficiently resolve any issues with the seller's agent, the competitive advantage an experienced agent has will probably cover the commission savings offered by a discount agent.
Few people would consider building their own home even though they have the sufficient construction skills. Professionals are more efficient, reducing the total cost enough to cover their earnings. Though many people want to believe they can do what's needed, they aren't nearly as efficient nor able to resolve issues. Yes, the seller's agent would jump in to solve problems but you've already positioned yourself as one who is reluctant to use experienced professional advice.
Some people like to do the work themselves. If you love writing purchase offers, negotiating sales, and resolving escrow issues then having a discount agent "represent" you may be satisfying. If your time is valuable and you don't intend on becoming an expert, you should use an experienced agent who will do the work for you.
Top 3 agent at Keller Williams nationwide
Completed more sales in Palo Alto in the last 10 years than any other agent
I've learned that once someone makes up their mind it is difficult to change it in regards to requesting a buyer's agent to share their income with them. So I'm going to through out some things to think about.
Based on your other questions about loosing earnest money, I'm sure you will have other questions on the contract, contingencies, and more. An experienced agent will earn your business through their skills. If you were to loose your 3% earnest money through an inexperienced agent that would not make up for a percentage rebated back.
Many buyers think finding the house is the hard part but the reality is that is the easy part. When you hire a buyer's agent you are hiring them for several functions, and a main one is RISK MANAGEMENT. I have a one page purchase contract that my parents used in the 1950's when they sold their home. Finding the house back then without the use of the internet was the hard part and the contract was the easy part. Now that has reversed with the litigious nature of people.
I'd be happy to have a conversation with you. In the mean time I wish you all the best.
Mark Burns, Realtor
Coldwell Banker Elite - Top 2% Worldwide
DRE #00896552 Licensed since 1985
Over 600 Homes Sold in Silicon Valley
Firstly, thanks for all of the solid contributions here. A purchaser can definitely negotiate with an agent and still get quality service as we did. Our agent was great, diligent and on task. He was also was well paid on an hourly basis and very happy for the work. We are now referring our friends to him.
I think a lot of agents would be happy with 1 or 1.5% of a transaction on a Bay Area home. Good luck to all and thanks again!
Want to pass on a little suggestion on agent selection. Most of us posting here have had years of experience selling homes locally. Some more than others. Agent reputation, especially in heated markets (like Palo Alto, Los Altos etc). is crucial. Why? Because a good listing agent is going to do their do diligence for their seller, which includes checking out thoroughly the buyer's representative.
Case in point. I just listed a home in PA. We listened to several offers. The deciding factor on which buyer got the house was the buyer's agent. He/she was the most professional, did the best job and was the one who had a solid reputation for getting transactions closed. Unless you plan on overpaying for the home, a good agent is crucial in securing your home.
Unfortunately, whether true or untrue, some "discount" agents get a reputation as being not as qualified/professional an agent. The stereotype is that they can only get business by "giving away" their commission. Note: I am note saying or implying that they are, only detailing that the stereotype exist. If you go into a multiple offer situation with an agent who has a bad rep (regardless of reason for said bad rep), you have one strike against you and will likely not get the home unless you severely overpay.
I liken it to using an friend who is an (out of area) agent (i.e. in another part of the state). Sure they could process the contract and present the offer, walk you through the inspection process etc.. However, because they aren't a known entity within the local market (or worse yet, known for being a bad agent), it will be very difficult for them to get your offer accepted because the listing agent knows nothing about him/her. Harsh, but true.
Good luck to you finding a right broker for your situation. A word of warning - before working with a broker, figure out how they are going to share the commissions with you. Real estate industry is not set up for the buyer's agent to refund their client and some of the ways it is being done set up alarms with the buyers making it more difficult to get your offer accepted. Some practices can even be considered a conspiracy to commit tax fraud.
Thank you for your excellent feedback and thoughtful replies. Interestingly, my experience to date has been that even an agent with many years of experience can screw up a transaction and some fabulous, thoughtful and caring agents will agree to reduce their fee if the buyer is willing to do a significant amount of the leg work in sourcing a property, particularly in a market like Palo Alto where few buyers are accompanied by their agents on open houses.
My question on earnest money came when I dealt with a mortgage broker who did not understand the nuances around self-employed financings and was eager to close the deal. Again, a situation where a broker had huge amounts of experience but did not understand the nuances of the situation. So I have now become a student of the market, transactions and financings.
I would certainly consider a full service agent under certain circumstances.
Again, thank you for the thoughtful replies and I will be reaching out to some of the respondents on this email.
Which ever you do, check out your agent, and make sure that they are going to provide you the help you need. There are good and bad in all classifications, whether or not they discount. I've worked for a discount brokerage in the past and was surrounded by some top notch agents and some very inexperienced and unskilled agents. Same as where I am now.
Some of the questions you will want to ask are as pointed out by Mark and others, years of experience, homes sold, continued education, do they tour and know the market, how is that agent perceived by the other agents (do people want to work with them), their understanding of the contract and disclosures, what do they do to get your offer accepted and how will the conduct the transaction from beginning to end. Will they show you the property. Do they have an assistant, use a transaction coordinator, if so are those fees charged back to you. Do they carry E&0 Insurance and what type. If something goes wrong in the transaction is there someone higher up in their brokerage you can talk to directly. What type of office support do they have.
As Marcie said, it is competitive.
All the best to you.
This business has a tendency to encourage agents to do a lot of self promotion. It is part of attracting new customers and making existing clients feel comfortable that they have made a good choice. A lot of it is personality - the agent getting along with the client and the client feeling satisfied that their needs are met.
I would encourage any buyer or seller (whether they need hand holding or not) to obtain the facts about an agent and their practice. The number of Buyers represented and sold, Sellers represented and sold, etc. An agent's track record speaks volumes about experience and expertise but it is only one part of the formula.
Is the agent in good standing with their MLS and Association of Realtors? Does the agent have a clear record with their respective state department of real estate?
You can go even further. Does the agent participate in and support local schools, homeowners rights issues that pertain to city planning commissions and city councils, etc., etc.? We work where we live and we live where we work. We have community responsibilities as well.
I also wholeheartedly agree with Juliana Lee's comments (I took the short path with my answer in this thread fully expecting that something like her response would eventually come along).
Happy hunting and be careful out there . . .
Mark Burns, Realtor
Coldwell Banker Elite - Top 2% Worldwide
President - PRDS, Contracts and Forms for Silicon Valley Residential Real Estate 2008-2012
DRE #00896552 Licensed since 1985
Over 600 Homes Sold in Silicon Valley
Agents on Zip Realty & Redfin need someone to give them clients, why?
Experienced, educated agents do not need someone to hand them clientele. You should read some of the horror stories of buyers on Trulia and other websites because they didnh't use the right agent.
For instance.. below it is stated you can not give commissions on distressed sales. That is BS unless its their own rule of thumb. You can always give commission to a buyer as long as it is disclosed and done through escrow.
Choose someone smart on such a huge investment. You get what you pay (or don't pay) for.
First, I know for many agents, the idea of a discount agent is offensive and their skills are questionable, but I can promise that this is not always the case. I know many agents who offer their clients a commission rebate--many of whom are Redfin agents or agents like me who pass savings along to clients--and I would certainly not categorize any of us as lacking in knowledge. In fact, a large portion of my clients are Google employees and they are not only thrifty but cerebral--they would spot and avoid a real estate neophyte.
I certainly appreciate the recommendation from someone like Marcy Moyer, whom I would similarly refer to anyone looking for a great agent. Marcy knows I rebate money to my buyers, as do many of my connections in this business. In fact, a discount agent is often no less connected than a full commission agent, and all of the people on Trulia here know me well, and none would know any difference between the service I provide and the service provided by a full commission agent.
So, by all means contact several agents...both full commission and discount agent, to get a good feel for what is available before hiring the best agent for you!
Area Pro Realty-Peoples Choice
David Tap Tapper
Check out our testimonials at pacific-century.com and drop me a line if you would like to discuss our "rebate" program.
Pacific Century Realty
Just curious....Since you're the buyer (per the heading under your name), why are you concerned with the commission since the seller pays the commission of both the listing agent and the buyer's agent?
Area Pro Realty -Peoples Choice
I am a Redfin Referral agent and would be happy to honor the credit. Please let me know if you would like to discuss further.
You may email me at firstname.lastname@example.org
I look forward to hearing from you soon!
Intero Real Estate Services
Top 10% Producing Agent