Agent Commission Rebate
- Thread starter gld2
- Start date
qwerty
Well-known member
It is not income, it is an adjustment to the purchase price of the home, see here:
http://www.redfin.com/about/press/releases/pr-irs-ruling
http://www.redfin.com/about/press/releases/pr-irs-ruling
irvinerealtor
New member
Hello gld,
The optimal way to do this is through escrow, so that it is not a taxable event for either the broker or the buyer.
Some builders (and their escrow companies) do not allow the credit to be run through escrow, and will only honor their broker co-op if it goes to the broker at the close of escrow. In these situations, you should be clear with your broker as to what your agreement will be. Get it in writing.
-IR2
The optimal way to do this is through escrow, so that it is not a taxable event for either the broker or the buyer.
Some builders (and their escrow companies) do not allow the credit to be run through escrow, and will only honor their broker co-op if it goes to the broker at the close of escrow. In these situations, you should be clear with your broker as to what your agreement will be. Get it in writing.
-IR2
gld2 said:
usctrojancpa
Well-known member
It is optimal for everyone (and legal) to have the commission rebate happen via escrow. As long as the commission rebate is done through escrow (usually via an addendum to the purchase agreement) it is not taxable to the agent/broker because they never see the money and it is not taxable to the buyer (it does reduce your cost basis in the home). The agent/broker only report the commissions that they receive from the closing from the escrow company as their income. I provide all my buyers a written commission sharing agreement before or when we open escrow so everyone can sleep at night.
sgip
Well-known member
Bear in mind that lenders won't allow it for anything other than pre-paid expenses and standard closing costs. You can't use it for down payments or repairs not being completed before close of escrow. If you are getting a commission rebate through escrow, make sure that you calculate what your total closing costs are well in advance of closing. I've seen $$$ left on the table unspent because the closing costs did not equal the rebate.
sgip
Well-known member
Most of the situations where the credit is unused will cause a mad scramble at the zero hour trying to find ways to spend the credit for costs not originally considered. Some escrows don't know that Realtor credits can be used for pre-paids. When they draw up the closing statement and list only hard costs (escrow, appraisal, points) they don't include things like insurance or interest. Sometimes we can re-do closing instructions in time to include pre-paid costs. We've had loan documents in escrow with a credit that shows up at the zero hour, laying there like a dead body, then everyone tries to piece it out hither and yon. When that happens the lender has to re-approve the deal (24-48 hours), re-draw documents (24 hrs), and re-gather everyone around the closing table which can be a miracle unto itself.
The highest credit left over I've seen was about $2,000. The buyer could not improve their rate because of a lock expiration issue and could not pay for anything else. He simply had to watch the credit evaporate. Piss poor planning on everyones part I'd have to say.
The highest credit left over I've seen was about $2,000. The buyer could not improve their rate because of a lock expiration issue and could not pay for anything else. He simply had to watch the credit evaporate. Piss poor planning on everyones part I'd have to say.
usctrojancpa
Well-known member
The best thing to do is to get an estimated closing statement from the escrow company as soon as possible to get an idea on the total costs. I always word my addendum to state that I'm crediting my buyers for their recurring and non-recurring closing costs. If the costs don't exceed the up-front agreed upon commission rebate then I tell my buyers to think about buying down their interest rate to use up the rest of it.
sgip
Well-known member
You can use a concession - seller or Realtor - to buy a rate down anytime. The issue with this buyer is that they had bought their rate down already, locked it in at a favorable time, but rates had increased since the time of the lock. They had to close within the terms of their lock. Had they spent the funds to re-buy their rate down, the time it would take to re-lock, re-approve, and re-document the file would have put their closing well past their original lock. If I recall correctly it was .125% in rate difference. The buyer at that time felt it was better to take the bird in hand and lose $2,000 than to chase a better rate and maybe not make their lock in time.
My .02c
My .02c
usctrojancpa
Well-known member
Either buydown your interest rate or have the seller reduce the sales price.gld2 said:
annabanana
New member
Does this mean that if the agent chooses to share the commission, that those funds can only be applied towards closing costs? It cannot be applied towards the down payment portion?
usctrojancpa
Well-known member
For the most part yes, however if the owner is putting down a large down payment (like over 40%) I don't see there being an issue unless the lender raised the red flag. I'll rely on SPIG to confirm that though. Whenever I make my commission rebate contributions to my buyers, I typically have this kind of language...."Buyer's agent to contribute $xxxx from buyer's agent commission to buyer's escrow for recurring and non-recurring closing costs." Most lenders will allow a buyer's agent to make this contribution directly to their buyer (seller and listing agent don't need to be made aware of it either which is good because listing agents will throw a fit about it and lecture me on why I shouldn't do it...screw them!), but for the lenders that don't allow me to do it directly then I have to go through the seller where they reduce my commission and credit my buyer the same amount that they reduced my commission so their net proceeds remains the same. Clear as mud?annabanana said:
usctrojancpa
Well-known member
Nope, it's more the exception than it is the rule. Remember that many agents work for large national brokerages (Coldwell, ReMax, etc) and they have to give up 20-40% of their commission to the broker (it should be back to the buyer, but that's another story) which makes it very difficult to give anything back to their buyers. I work for a smaller broker where I get to keep 100% of my commission so I cut out the middle man looking for their cut and pass the savings along to my buyers. So what I'm trying to say is that agents that are their own brokers or work for small brokers like mine are going to be the ones to provide commission rebates to their buyers.edhne said: