- The Washington Times - Thursday, January 5, 2006

One consumer-oriented real estate benefit getting press lately is the commission rebate to buyers. In essence, a buyer purchases a house and receives a 1 percent rebate, or some derivative of the sales price, at settlement.

On a $215,000 house — that’s the national average — the rebate amounts to $2,150 back to the buyer.

The debate goes something like this: If the average commission is 6 percent and the average house is $215,000, what’s wrong with consumers getting a piece of the action as a rebate?

Some states don’t allow it. Their laws say the only people who can benefit directly from the sale of real estate are licensed real estate agents. States prohibiting rebates to unlicensed individuals are Alaska, Kentucky, Louisiana, Mississippi, Missouri, New Jersey, North Dakota, Oklahoma, Oregon, South Carolina, Tennessee and West Virginia.

As you can imagine, rebates have caused some debate. In states where rebates are allowed, many agents use the offer of a rebate to attract buyers who want a “discount.”

Agents who believe they should keep what they earn of the commission contend it’s creates an unfair advantage for those who cut their fees this way.

Agents can’t really debate this practice in an open forum because federal antitrust law prohibits agents from discussing commissions with each other unless they work for the same company.

The January 2006 issue of Realtor Magazine documents the latest moves regarding the rebate debate.

The magazine reports that, depending on the state, agents “may be prohibited from or limited in the offers [they] can make to consumers.” The information comes from a new study from the Worldwide Employee Relocation Council Coalition and the Association of Real Estate License Law Officials.

The article further says “that while most state statutes don’t specifically prohibit fee splitting with principals in a transaction, wording designed to forbid sharing fees with anyone who doesn’t hold a real estate license often keeps licensees in some states from offering fee rebates to consumers.”

The high value of homes has increased commissions considerably, so why wouldn’t a commission rebate be fair for everyone — especially in high-priced markets such as Washington, Los Angeles and New York, where the average sales price hovers around the $500,000 mark? At 6 percent, that’s $30,000.

Yes, $30,000 is a lot of money — until you start divvying it up among the companies and their agents.

First you have to split it in two — half to the listing company, half to the selling company — so the gross commission per company goes down to $15,000.

The consumer takes a third of that — 1 percent of the sales price, or $5,000 — for his discount. The agent and his brokerage split the remaining $10,000.

Agents face stiff competition. Northern Virginia has about 15,000 agents chasing a $20 billion market.

Sounds like a lot of earning potential. Yet if each agent sold an equal share, it would be just $1.3 million in sales, resulting in $19,500 in income after splitting commissions. You can see why full-time agents get frustrated when a consumer starts asking for part of their income.

Agents with whom I have talked are especially miffed that in no other industry are the practitioners constantly considered overpaid. In no other industry do consumers even consider demanding something back from the sales person, and no other sales person has to provide the kind of service a Realtor does.

In addition, these agents point out that they only get paid if they are successful. There’s no commission for the unsold house or the rejected contract. They say lawyers get paid whether they win or lose a case, and doctors get paid whether or not the patient recovers.

So, consumers, discuss your agent’s fee and what services you’re going to receive in exchange for the money. Is the service of value to you?

Be sure to find an agent who is good at negotiating. In a normal to soft market, sellers are very willing to offer up cash assistance to the buyer. Many loan programs allow up to 3 percent assistance from seller subsidies. Be sure you have an agent who knows how to negotiate on your behalf.

M. Anthony Carr has covered real estate since 1989. He is the author of “Real Estate Investing Made Simple.” Post questions or comments to his Web log (https://commonsenserealestate.blogspot.com)

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