Mortgages, Rebates & Real Estate Agents

There are details you, your agent and your accountant need to know about

If a selling agent is offering commission rebates to a buyer, most mortgage companies will only allow up to 3 or 6 percent of the sale price limited to the actual costs.

Let’s say a home sells for $500,000 with a 2% buyer side commission. Buyer rebate is $5000.00

If the closing costs that the buyer is paying are $5000.00 or less and no other party is contributing a credit, then the rebate is contributed as a credit at closing towards buyer closing costs.

If it is more, that is when you have a conundrum. Is this part of the agreement of sale? if so, everyone is signing documents saying that there is nothing going on financially outside of the agreement. Or is the rebate agreement a separate contract between agent and buyer?

(That question I can’t help you with because I am not an attorney and I am not familiar with the laws in each state. But, please do consult one in your state).

Once you’ve gotten the rebate, then you have to account for it. The good news is, under current tax law, you don’t declare it as income and get taxed on a federal level (check your own state though). You do have to add it to your basis for calculating your capital gain down the road. (Insert reminder to contact accountant here).

In less accountingese, you’ll have to pay the piper eventually, but it won’t be as bad as paying it now and you’ll get the money from a sale to pay the tax!

Happy rebating!

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