Realtor credit (Phoenix: sale, real estate, insurance)

[ga_sam]

I will like to know if realtor credit is legal in Arizona ? I have seen some realtor's offering 50% off there commission back to there client's. Somehow I am not sure of this is legal or not ?

[Zippyman]

Its legal in Arizona - in some states it isn't. The only sticky issue is that depending on what type of loan you get, it may have to be disclosed to the lender ( I. E., FHA loans require a minimum of 3.5% of the purchase price come from the buyer's bank account, or a gift from relatives (disclosed), etc.).

Be aware of the fine print, like any contract - the brokers I've seen doing rebates often won't offer a rebate on properties less than a certain dollar amount, and they often limit the number of homes they will show you.

If you really want to save some money and learn a few things as well, you can get your own agent's license by jumping through a few hoops. The requirements are a bit of a hassle - 96? hours of class, a state test, fingerprinting, etc, but it is possible to "sell yourself" a house and get a check for the buyer's agent commission yourself.

I went that route myself, not so much to save money, but so I would have access to listings as soon as they posted, and the ability to tour as many homes as I wanted to without having to beg for an agent's time. I was later able to negotiate deals for my family members & rebate most of my commissions to them, less expenses.

FWIW, on many short-sales, the seller's bank won't allow an agent to collect a commission if they're the one buying the house - however it's often still worth it to have a license, just because it makes it much easier & more convenient to find deals, and having unrestricted / unfiltered MLS data available makes it easier to write offers and know your offer is based on truly comparable properties.

[Captain Bill]

You can Google for Realtor rebates in the Phoenix area. You may find someone. Just remember that when they cut the price, they will also cut the service. So be sure you understand exactly what service you will get.

The agent who is giving away part of his/her pay may not have the incentive to spend a lot of energy trying to get you the best price for a property. Therefore, the money you save in a rebate, could be more than offset in the amount you pay for a property.

I'm not trying to discourage you; but rather to spell out the hard facts.

Rebating to credit for closing costs, etc is legal, but must be approved by the agents broker. And it must be disclosed to the lender to see if they will allow it.

Any rebate MUST be shown on the HUD-1. It cannot be paid under the table. That would amount to loan fraud.

[ga_sam]

Originally Posted by Captain Bill

Any rebate MUST be shown on the HUD-1. It cannot be paid under the table. That would amount to loan fraud.

I will have to disagree with you on this, please take a look at the articles below, I don't think it has to be a part of HUD either.


[SIZE=2]RebateReps FAQ » Blog Archive » Are rebates taxable to me as the buyer?[/SIZE]
[SIZE=2]
[/SIZE]Benny L. Kass - Tennessee Ban Intensifies Commission Rebate Debate

Commission Refunds Not Taxable Says IRS!

[rjrcm]

Originally Posted by ga_sam

I will have to disagree with you on this, please take a look at the articles below, I don't think it has to be a part of HUD either.


[SIZE=2]RebateReps FAQ » Blog Archive » Are rebates taxable to me as the buyer?[/SIZE]
[SIZE=2]
[/SIZE]Benny L. Kass - Tennessee Ban Intensifies Commission Rebate Debate

Commission Refunds Not Taxable Says IRS!

The first link has this FAQ:

Would I be getting ‘real’ cash at closing?

May 31st, 2007 Yes! The rebate is put right on the HUD-1 closing statement, so you bring less of your cash to closing, and use our cash instead, to pay closing costs, etc.

I do not see the relevance of your 2nd link.

[Zippyman]

Originally Posted by ga_sam

I will have to disagree with you on this, please take a look at the articles below, I don't think it has to be a part of HUD either.


[SIZE=2]RebateReps FAQ » Blog Archive » Are rebates taxable to me as the buyer?[/SIZE]
[SIZE=2]
[/SIZE]Benny L. Kass - Tennessee Ban Intensifies Commission Rebate Debate

Commission Refunds Not Taxable Says IRS!

I think the primary issue here for the agent/broker is liability - if the buyer later defaults on the loan for whatever reason, the loan file is going to get looked over very carefully by the feebs.

Why would anyone who is taking a reduced commission be willing to increase their risk of federal "grumpiness" later - by not disclosing a payment on the HUD? Why would the agent risk having to pay taxes on money they either never received, or refunded directly to the seller?

You do realize that commissions usually end up being split amongst 4 parties? (buyer's broker, buyer's agent, seller's broker, seller's agent) - and both brokers are paying for E&O insurance... and everyone involved is paying taxes on that as well?

The average sale in Phoenix is around ~$100k, and a hypothetical commission in that case might be $4-7k~ ish, before taxes, split five ways if the agent is kicking something back to the buyer...that's not nearly enough cash to risk a visit from "the men in black"... for me at least..

[hts]

When we moved from DC to Phoenix in '05, we found a community (Anthem) we really liked, but was controlled by the developer (Pulte). Unfortuntely they would not accept an offer/contract without a realtor, so we found one that split her commission in half (1.5%). Wasn't a problem. We would have preferred to buy without a realtor, but alas were not able to.

[Captain Bill]

Originally Posted by ga_sam

I will have to disagree with you on this, please take a look at the articles below, I don't think it has to be a part of HUD either.


[SIZE=2]RebateReps FAQ » Blog Archive » Are rebates taxable to me as the buyer?[/SIZE]
[SIZE=2]
[/SIZE]Benny L. Kass - Tennessee Ban Intensifies Commission Rebate Debate

Commission Refunds Not Taxable Says IRS!

Disagree if you wish, but I'm correct.

All money changing hands in a real estate transaction must be on the HUD-1 Settlement Statement. When money changes hands outside the HUD then it is being hidden from the other parties to the transaction. Hide a rebate from your mortgage company and you are committing mortgage fraud; a very serious offense.

Zippyman offered you some good information. I'll offer you two pieces of advice and then I'll leave this thread because there's nothing more to discuss. You've been given the answers to your question:

If you find an agent who is willing to give you part of his earnings, then ask lots of questions to determine what services s/he will and will not be performing for you. If the service offered works for you then go for it (on the HUD).

If you find an agent who is willing to give you money outside the HUD, then seek advice from a real estate attorney before proceeding. You may even want to call his/her broker to discuss what is being proposed and make sure the broker is on board with it. After all, the broker is your true representative. The agent is the brokers sub-agent.

Also, ask your mortgage broker if they will allow you to receive a rebate off the HUD. They won't charge you for their answer.

[Captain Bill]

One more thing before I leave this thread. Below is a statement from one of the discount companies:

Unless you specify otherwise, we apply your commission refund to your closing costs, so you pay less out of pocket for the home. Closing costs vary depending on the lender, size of loan, home price and timing of the closing.
The money in excess of your closing costs will be refunded to you by check at closing. Expect to get your check 7-10 days from close of escrow. This option is subject to lender approval.

In the second bullet point, the money is not being used to assist with closing costs. Therefore, that portion of their refund will be sent after the company receives their money from the title company.

However, as stated before, a refund cannot be hidden from the lender, therefore, they ask for lender approval.

If the lender approves, then a notation will be made on the HUD 1 that the buyer is receiving funds that are being paid outside of escrow (POE). That provides the required disclosure to all parties, especially the lender.

Good luck to you.

[rjrcm]

The OP can get around all those annoying lender disclosure requirements by just paying all cash .