What is Real Estate

Writen by Bill Brynelsen

Ask just about any traditional real estate agent what he / she thinks about giving back part of their commission to their home buying clients in the form of a real estate rebate and you just put a stick in a hornet's nest. Most Big Brand Name Real Estate companies continue to do business the traditional way and get away with out offering real estate rebates to their home-buying clients.

One of the biggest reasons traditional agents get away with not offering rebates is because most homebuyers are not very well informed about buyer rebates. How they work, where the money comes from, will a rebate affect the price they may pay for that next home or are they even legal in the first place? While there is no law on the books in any state that says real estate agents must offer a rebate. Homebuyers should at least know they exist and have some basic knowledge about how rebates work so they may make an informed decision when it comes to using an agent that offers a rebate or one that does not.

To be honest, just the word rebate sounds cheap. For me it congers up images of my dad mailing in a rebate form so he can get two bucks back on a case of Pennzoil. And, there is nothing wrong with that. A penny saved is a penny earned.

But, rebates provide homebuyers with far more than just a couple of bucks back. A good homebuyers rebate can add up to thousands of dollars off the price of your next home purchase. Rebates to homebuyers can range from one half of one percent to as much as two percent of the homes purchase price. The rebate my company offers (New Market Realty, Inc.) is 1.5%. So, on the purchase of a $300,000 home my buyer clients will receive a check and lower the price of their new home by $4,500. Now that's money any homebuyer should want to get back!

But, it's been very slow going for real estate companies offering rebates. Even with Nontraditional real estate companies advertising heavily online they still represent just a fraction of the $61 billion in commissions that were paid out last year in the U.S. real estate market. Discounting transactions totaled just 2 percent of home sales, according to results of a study issued this summer (2005) by the U.S. Government Accountability Office.

The controversy surrounding rebates has The National Association Of Realtors taking a buyer-beware attitude. Mr. Stevens, current president of the NAR has been quoted as saying "In some senses, you get what you pay for." Mr. Stevens has also been quoted, as saying home buying is "too big a transaction not to work with an expert." Well, Mr. Stevens I personally don't feel we, as Realtors should be trying to scare homebuyers back into the dark ages of traditional real estate. I also would like my readers to note that I am a dues paying, member in good standing, licensed Realtor® I also consider myself an expert on the home selling and buying process.

Just for the record. All real estate agents under the rules of the NAR and state law are required to take and pass a state test in order to receive a real estate license. And, all real estate agents must take state required continuing education classes in order to keep their real estate license and to stay current with real estate practices in their state.

For Mr. Stevens or any traditional real estate agent for that matter, to imply or suggest that a real estate agent offering buyer rebates or listing homes for a flat fee is some how less of an expert than a traditional real estate agent is nothing but a cheap shot and a pitiful attempt to scare home buyers and sellers into believing they will be receiving inferior service and poor real estate market knowledge.

Traditional real estate agents love to use the word discounters. It's their way of cheapening the innovative ways we so called discounters have come up with to save real estate consumers (buyers and sellers) thousands of dollars on a single real estate transaction.

The rebate process is very simple. In any real estate transaction there is a buyer and a seller. A listing agent works with the seller and a buyer's agent works with the buyer. The party / person who pays all the commission in a real estate transaction is the home seller. Buyers never pay a commission. Now that we have that covered how about we walk through some basics of buying a home.

When working as a buyer's agent I am never concerned about the amount of commission a listing agent has charged a home seller to list their home. It just doesn't matter. 3%, 4% or 6% I don't care. The only thing I am concerned with when it comes to commissions is how much that listing agent is going to pay me out of that 3%, 4% or 6% they have charged the home seller.

In my local real estate market in the state of Illinois I can expect to be paid on average 2.5% of the homes selling price from the listing agent.

If you were to purchase a home using me as your buyers agent for a selling price of $300,000. I would be paid a commission of $7,500. 2.5% buyers side commission x $300,000 homes selling price = $7,500. Now, lets give you back some money in the form of a buyers rebate.

But, before we do lets just do a little review. I don't want you to miss anything. First, we don't care what the listing agent charged the home seller. Second, all we care about is how much that listing agent is going to pay me working as your buyer's agent. Third, we now know that I will be paid 2.5% of the homes selling price from the listing agent. Forth, the amount I will be paid is $7,500, which is funded from the total commission charged to the home seller.

Ok, now for your share of all this money. It doesn't matter what your rebate amount is. The math stays the same. The only thing that will change is the amount of cash you get back from your buyers agent and that depends on the amount of rebate being offered. As I have mentioned earlier in this article I give my home buying clients a 1.5% rebate.

So, pick up your trusty calculator and take your new homes selling price of $300,000 multiply that by 1.5% and you should come up with $4,500.

Now subtract the $4,500 from my buyer's agent commission of $7,500 and you should come up with $3,000.

Your buyer's rebate is $4,500. Your welcome. And, my buyer's agent commission is $3,000. That's all there is to it. Now you know how buyer rebates work. Where the rebate money comes from and that a rebate will not increase the price of your new home because it comes out of the commission the home seller agreed to pay before you even looked at the home.

It even works for brand new construction. Because most homebuilders will pay a commission to a buyer's agent of from 2% to 3% depending on what area of the country you're in. Because of fair housing laws the Builder's published price list guarantees that everyone pays the same price. With or with out a Realtor. And, no, the builder will not reduce the price of your new home if they don't pay a real estate commission.

If you are wondering if rebates are legal in your state you may want to refer to Money Magazine's 2005 Real Estate Guide. Which reported that rebates were banned in Alaska, New Jersey, Kansas, Oklahoma, Rhode Island, Louisiana, South Carolina, Mississippi, West Virginia and Missouri. Rebates were reported as restricted to credits at closing in Alabama, South Dakota, Oregon and Tennessee.

In my home state of Illinois the web site I direct people to is the Illinois Department of Financial & Professional Regulation. www.idfpr.com./

Once on this official state site I tell folks to look in the navigation bar on the left and click on the link that reads General FAQs. On the next page that opens click on the link that says Real Estate FAQs. The next page that opens is titled Division of Banks and Real Estate Real Estate Frequently Asked Questions INTRODUCTION. Scroll down to GENERAL PRACTICES. On line / question number six. That question will read as follows.

May compensation be paid to a principal to a transaction, even if the principal does not have a real estate license?

The Answer: Yes. Section 10-15(c) of the Act authorizes the offer or payment of compensation ("prizes, merchandise, services, rebates, discounts or other consideration") to an unlicensed person who is a party to a contract or lease. Of course, such compensation is not required. The payment of such compensation should be pursuant to the negotiations on the transactions. The payment of such compensation is not limited to payment by a licensee to the licensee's client - in other words, a seller's agent may pay compensation to an unlicensed buyer.

But I just don't stop there. On the very next line / Question number seven. That question will read as follows: May a licensee offer compensation to solicit clients?

The Answer: Yes. Section 10-15(d) of the Act authorizes the offer or payment of compensation ("cash, gifts, prizes, awards, coupons, merchandise, rebates or chances to win a game of chance") to a consumer as an inducement to that consumer to use the services of a licensee, even if the consumer and licensee ultimately do not enter into a client relationship. Any advertisement under this Section must also comply with all requirements regarding real estate advertisements. Also, care should be taken not to offer compensation to unlicensed persons for referrals of clients - this is prohibited.

This seems to clear up any question as to real estate rebates being legal or not in my home state of Illinois.

Some words of caution if you decide to use an agent offering any type of buyers

Bill Brynelsen is a real estate agent in Spring Grove Illinois. His forth coming book "The Truth Behind The For Sale Sign"©. Gives readers valuable insight into the tricks real estate agents will use to get your listing/money. Visit Bills real estate web site at http://www.mypadd.com or email him your real estate questions at info@mypadd.com You just may save yourself thousands on your next real estate transaction.