Entry by Lester Langdon

Your thoughts and advise please on Rebates


Today I spoke with a trusted mortgage person with 25 years experience. She said that Fannie Mae and Freddie, etc, will not allow a broker to rebate commissions to buyer except to the extent of closing costs, which max at 6% for (or 4% max) depending on the % down payment. She said rebated to buyer of seller commission could not be on the closing HUD and not given to buyer outside of closing.

Do any ACREs have experience with this issue? any documentation?


In my Virginia experience rebates can only be applied to closing costs but to not exceed buyer closing cost. The rebate entry was not on the HUD. It showed up as a credit to the buyer on the first page closing net sheet. Also, the buyer's lender must be advised of the rebate early in the process.

Do not have an example.

Ok, she says that you can rebate the commission and pay for closing costs, but it can't appear on the HUD?  Doesn't make sense to me.  If you pay the closing costs, it's going to appear on the HUD.  In fact, as stated, nothing should be done outside of closing (as in, NOT appearing on the HUD).

No disrespect intended here, Lester, but I'd ask around to a few other lenders experienced in FHA lending before I'd call this fact.  25 years experience doesn't always translate into current knowledge.  Unless it's specifically illegal, which this is not, a good lender will usually find a way to make it work within the bounds of government rules.

Can only give buyer the rebate to the extent that it only pay for buyer closing costs that are on the HUD closing statement. Meaning that buyer broker can only ask that HUD be credited from broker to buyer in the amount of closing costs.

If buyer broker commission are $12,000 and buyer closing costs are $5,000, then buyer broker can credit buyer with $5,000 for closing costs.

After initial price has been established, an addendum can be signed during the feasibility option inspection period, - that the price be reduced by remainder of commission rebate and that seller not pay that amount to listing broker.

So priced is reduced $X and seller saves $X in commissions to listing broker.


can you request that the sales price be adjusted to reflect the money be substracted from the final negotiiated price  if it were 400create an ammenrment showing the new sales price at $355 for example?  

In our jurisdiction, Alberta, all rebates must be disclosed to the lender or it constitutes mortgage fraud since the buyer signs an affidavit swearing to the value of the purchase. Not sure of the legalities in other jurisdictions.

Disclosing is done in several ways. Primarily if it is a rebate offered by the seller it is on the MLS sheet which is provided to the lender for the deal approval; secondly, if it is a buyer agent rebate, then it can be disclosed on the Offer to Purchase which is also provided to the lender for the deal approval. Thirdly, if the buyer doesn't wish to disclose the rebate to the seller through the Offer to Purchase, then the Buyer Brokerage Agreement is provided to the lender at the time of the approval. In all cases, their lending amount is be based on the purchase price minus the rebate.

Exactly! That was the requirement in Virginia and the rebate was shown on the buyer side as a credit to the purchase price, not on the HUD. The credit could not exceed the buyer closing cost.

Thanks, to continue the process....

If the rebate is 12,000 and the closing costs are 4,000 then 8,000 is taken off the sales price.  The seller will do so only IF he does not have to pay the 8,000 to his listing broker, therefore we need listing broker to reduced his commissions from seller by an amount equal to the reduction in price. Otherwise the seller gets a bad deal if he reduces sales price and pays his listing broker the full 3% commission which would have gone to buyer broker.  This will require an amendment to purchase contract whereby the buyer and seller agree to the reduced price, contingent and subject to listing broker reducing commission to seller.


Is there any other way to get the rebate in cash to the buyer instead of a reduced sales price and reduced monthly payment? (other than credit for closing costs)

why would the seller care their net is exactly the same as they agreed to receive?  why in real estate does the buyer have to join the contracr between the seller and their realtor in staed of having thier own?  

Regardless of whether the seller reduces price or not, the seller has a contract with the listing broker to pay 6% to the listing broker, who pays 3% to the buyer broker.

If I am seller, I will not reduced my price unless I get a simultaneous same amount reduction in my contract with the listing broker.

The listing broker needs to agree to reduce the commission from 6% down to 3%, because the listing broker no longer needs to pay 3% to buyer broker.


and why wouldn't he, the numbers are the same for him and his seller.  BUT, i think its very shortsited on the sellers behalf, he has already agreed to a bottom line.

does the seller agree to a final sales price including payments in the amount of x percent?  is it then the brokers money to do with what he wants?  he has agreed to pay you x, you were smart enough to get paid "a-w" prior to settlement  you cant get paid twice, its midniight, im typing with mu thumbs on a screen that i cant see and i am again amazed dazed and confused when it comes to the politics of real estate  gn all  

This page contains a single entry by Lester Langdon published on June 7, 2011 3:35 PM.

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