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I know real estate commission rebates are debated on the boards as "good", "bad", etc... I'm not writing this post to rehash that debate... simply to ask for some advice. Our realtor has agreed to a commission rebate for the purchase of our new construction. Our builder has our realtors personal & broker contact information, and has her on the contract for 3%. She has agreed to $XX amount (closer to 1%) and the remaining will go directly towards closing costs. The rep for our builder stated that closer to closing time, we'll need a letter from her broker stating the $/% that will get applied directly to closing costs (I believe it'll be stated on the HUD?).
My question is this -
(1) I'd like to have an agreement signed by the realtor now (versus waiting months until we're closer to closing). Not sure if there's a standard doc that realtors use (independently or via their brokers, etc.) that I should reference, etc. Basically - just looking for any guidance on what I may need to include in the agreement.
(2) Are there any brokers that prohibit this from happening? Meaning, the realtor agrees to it, but his/her broker states that they simply don't allow this transaction to occur? I'm located in Texas, btw.
The agreement should be written specific to your terms, so unlikely there will be a standard document available for your area.
Your lender will need to approve this credit most likely, so you'll want to make sure it's okay with them.
A broker could definitely prohibit it, but I'd imagine the agent would already know it's okay with their broker when they agreed to it with you. There should be no reason why they could not draft the document now, opposed to waiting the couple months they mentioned.
How I handle it for the financing, YMMV, especially if using the builder's lender:
First, it is not the agent's commission to give away, but that of their broker. In order to defer any of the commission from your purchase, their broker must agree. Quite simply, I need it for their loan approval, so I request the letter early on in the process. And since most commission on new homes is paid on the base price and not the price with options, I require the letter to state the exact dollar amount. And since the commission is to be reflected on the HUD, the broker must authorize those funds to be diverted on the closing document. The end result is a letter on letterhead signed by the broker stating $xxx of the commission earned on the purchase of such and such home may be credited to the purchaser towards closing costs, but not to exceed the actual cost.
Where it gets tricky trying to put this in the new construction contract (at least in my area,) almost all builders use their own contract where your agent is not a party to the contract, but a named referral source of business. It's hard to put that in an addendum.....and even then, remember it is not the agent's commission to give away.
Many of the builders require the agent to sign a document agreeing NOT to rebate any commission to the buyer. I know I have had to sign a few of those recently.
In addition, builders pay realtors via a referral fee. The referral fee to the agent does not show up on your HUD statement at closing which means the rebate to you cannot be on your HUD statement. Our legal department always says "If it's not on the HUD, it's not legal" when it comes to real estate transactions. The agent can't just write you a check, and the broker won't pay out a % to you on a referral fee.
So you have a couple things you need to investigate to see if this is even possible/legal.
Many of the builders require the agent to sign a document agreeing NOT to rebate any commission to the buyer. I know I have had to sign a few of those recently.
In addition, builders pay realtors via a referral fee. The referral fee to the agent does not show up on your HUD statement at closing which means the rebate to you cannot be on your HUD statement. Our legal department always says "If it's not on the HUD, it's not legal" when it comes to real estate transactions. The agent can't just write you a check, and the broker won't pay out a % to you on a referral fee.
So you have a couple things you need to investigate to see if this is even possible/legal.
Interesting. Tract or custom builder, my fee has always been on the HUD.
Hey! Maybe the agent, broker, and OP can give the rebate to an attorney for drafting a legit agreement!
Thanks all for the feedback. Will reach out to my agent asap to make sure everything's good to go with her broker.. and get the letter right away to ensure we're on the same page.
Many of the builders require the agent to sign a document agreeing NOT to rebate any commission to the buyer. I know I have had to sign a few of those recently.
In addition, builders pay realtors via a referral fee. The referral fee to the agent does not show up on your HUD statement at closing which means the rebate to you cannot be on your HUD statement. Our legal department always says "If it's not on the HUD, it's not legal" when it comes to real estate transactions. The agent can't just write you a check, and the broker won't pay out a % to you on a referral fee.
So you have a couple things you need to investigate to see if this is even possible/legal.
The OP is in Texas, not CA. Builders pay out commissions not referral fees here. All rebates to the buyer show up on the HUD as a credit to their closing costs so it is legal.
The part that gets in the buyer's way is their lender. Most lenders only allow a certain amount of money to come from someone else besides the buyer. If the builder is already paying closing costs, the buyer can't accept more than the lender allows, so the buyer doesn't typically get the entire amount they want from their agent...
The OP is in Texas, not CA. Builders pay out commissions not referral fees here. All rebates to the buyer show up on the HUD as a credit to their closing costs so it is legal.
The part that gets in the buyer's way is their lender. Most lenders only allow a certain amount of money to come from someone else besides the buyer. If the builder is already paying closing costs, the buyer can't accept more than the lender allows, so the buyer doesn't typically get the entire amount they want from their agent...
I'm using the builders lender and I've already reached out to him to inform him that my realtor is rebating some commission. He said it was okay and just mentioned that he'd need that letter from the broker (no mention of $ limits). He, and the sales guy for the builder, mentioned they do these transactions often... guess I just need to find out from the lender if there is a $$ limit? Since we are going with the preferred lender we essentially get ~$3-4k in closing costs covered by them (lender/builder).. that's the only other thing we have crediting our closing costs.
I'm using the builders lender and I've already reached out to him to inform him that my realtor is rebating some commission. He said it was okay and just mentioned that he'd need that letter from the broker (no mention of $ limits). He, and the sales guy for the builder, mentioned they do these transactions often... guess I just need to find out from the lender if there is a $$ limit? Since we are going with the preferred lender we essentially get ~$3-4k in closing costs covered by them (lender/builder).. that's the only other thing we have crediting our closing costs.
Most lenders, do not allow more than 6% to be credited towards the buyer, and none of them I have found allow the rebate to reduce the purchase price. They allow you to prepay property taxes, buy insurance, cover closing costs, etc...but they do not reduce the total loan amount.
I have done many rebates, and I find it to be a huge pain b/c so few title companies and lenders know how to do it properly. From a paperwork perspective, the rebate takes more time than any of the other contract work I do....ONLY because the people on the other end of the transaction either resent the rebate or do not know how to handle it.
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