How Realtors Can Benefit From Real Estate Rebate Agreements
How Realtors Can Benefit From Real Estate Rebate Agreements
by Glenn Freezman
As you may already be aware, a number of new 'rebate' models have crept into the real estate market during the past few years. Driven partly by a weak market, the vast majority of these programs are aimed at enticing buyers to work with brokerages by offering heavily discounted closing costs. In some ways the rebates are little more than marketing tools that are being used to bring in new business by floating out a strong unique selling proposition (USP) to help those brokerage stand out from the crowd.
Not surprisingly, very few home buyers are looking to spend more
money than they need to in order to get into a new home. By offering a lowered commission fee based on the services that are being provided, as opposed to a percentage of a home's selling price, consumers may feel that they are starting to get their money's worth for the services that are being offered to them. A lowered commission cost means a lower home price (since the sellers have less to pay out at closing). From the brokerage side of things, attracting more buyers is a huge plus in any market. Being able to identify in-market home buyers means that brokerages have an advantage when it comes to providing those buyers with access to other third-party services including introducing buyers to affiliated lenders, title companies, home inspection firms, etc.
It's important to mention that the legality of these programs is currently based upon state law. However, the US Department of Justice strongly believes that giving home buyers choice is important for competition and there is nothing illegal about bringing lower prices to consumers. As a result, the US government is doing what it can to get states with laws opposing rebates to repeal them.
One of the concerns that often comes up with rebate programs is ‘does the quality of support match the price that is being paid?' Like most things, the answer is "it depends". While these rebate programs may offer home buyers lower closing costs, the quality and level of the service provided may be very much to the advantage of the home buyers depending on their involvement in the home buying process. For example, not that many years ago having a skilled and experienced Agent for the Buyer to take home buyers by the hand so they could be led through the maze of home buying was practically necessary. Without knowing what they were doing, the average home buyer was in danger of getting themselves into trouble because they didn't know the landscape when researching and buying a home. Even today, buying a home isn't much of a DIY consideration for the average consumer.
However, even if home buyers aren't necessarily that savvy, the tools and information available to them via the Internet takes a lot of the guesswork out of the process of finding a new home and doing smart due diligence. Today a prospective home buyer can not only virtually walk through thousands of homes without leaving the comfort of their computer, but can also effectively research communities, take virtual walk-throughs of neighborhoods, measure distances from new properties to other amenities like churches, schools, places of work, etc. I can even pull their own comps to get a better sense of whether the pricing for a home is on par with other properties in the area.
This empowerment has given homebuyers a great opportunity to actively participate in the purchase of their own home. As a result, many of these active homebuyers are hesitant to then turn to a Realtor and say "well, I did a lot of the work
to get things started here but certainly feel free to charge me full commission for your time". Instead, as you might imagine, the consideration is "Hey, I'm working on this too and the time I put into it should be worth something to me. How can we make a deal?"
As a result, real estate rebate programs are very attractive to homebuyers willing to take on more of the challenges and responsibilities for finding a new home and who wish to pay what they consider to be a fair rate for the services provided by Realtors. This isn't to say that by selecting a brokerage that offers a rebate that the quality of service is any less than the quality of service found through a full-service brokerage (although the fine print on some rebate agreements will some limitations on the types of services being provided).
It also doesn't mean that there aren't still buyers who want to turn all of the work over to a seasoned professional. In many cases paying a full commission is a great deal for the home buyer. However, for those buyers willing to take on more of the risk themselves, rebates can be a great opportunity to save money while still getting access to the quality services that brokers and realtors can provide.
In short, by offering home buyers rebates, brokerages and their Realtors have a great way to stand out from the crowd to attract more home buyers, create new opportunities for 3rd party agreements with affiliated vendors and bring a greater level of service and choice to home buyers. At the end of the day, this is a model that gives everybody a win.
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by Glenn Freezman
As you may already be aware, a number of new 'rebate' models have crept into the real estate market during the past few years. Driven partly by a weak market, the vast majority of these programs are aimed at enticing buyers to work with brokerages by offering heavily discounted closing costs. In some ways the rebates are little more than marketing tools that are being used to bring in new business by floating out a strong unique selling proposition (USP) to help those brokerage stand out from the crowd.
Not surprisingly, very few home buyers are looking to spend more
money than they need to in order to get into a new home. By offering a lowered commission fee based on the services that are being provided, as opposed to a percentage of a home's selling price, consumers may feel that they are starting to get their money's worth for the services that are being offered to them. A lowered commission cost means a lower home price (since the sellers have less to pay out at closing). From the brokerage side of things, attracting more buyers is a huge plus in any market. Being able to identify in-market home buyers means that brokerages have an advantage when it comes to providing those buyers with access to other third-party services including introducing buyers to affiliated lenders, title companies, home inspection firms, etc.It's important to mention that the legality of these programs is currently based upon state law. However, the US Department of Justice strongly believes that giving home buyers choice is important for competition and there is nothing illegal about bringing lower prices to consumers. As a result, the US government is doing what it can to get states with laws opposing rebates to repeal them.One of the concerns that often comes up with rebate programs is ‘does the quality of support match the price that is being paid?' Like most things, the answer is "it depends". While these rebate programs may offer home buyers lower closing costs, the quality and level of the service provided may be very much to the advantage of the home buyers depending on their involvement in the home buying process. For example, not that many years ago having a skilled and experienced Agent for the Buyer to take home buyers by the hand so they could be led through the maze of home buying was practically necessary. Without knowing what they were doing, the average home buyer was in danger of getting themselves into trouble because they didn't know the landscape when researching and buying a home. Even today, buying a home isn't much of a DIY consideration for the average consumer.
However, even if home buyers aren't necessarily that savvy, the tools and information available to them via the Internet takes a lot of the guesswork out of the process of finding a new home and doing smart due diligence. Today a prospective home buyer can not only virtually walk through thousands of homes without leaving the comfort of their computer, but can also effectively research communities, take virtual walk-throughs of neighborhoods, measure distances from new properties to other amenities like churches, schools, places of work, etc. I can even pull their own comps to get a better sense of whether the pricing for a home is on par with other properties in the area.
This empowerment has given homebuyers a great opportunity to actively participate in the purchase of their own home. As a result, many of these active homebuyers are hesitant to then turn to a Realtor and say "well, I did a lot of the work
to get things started here but certainly feel free to charge me full commission for your time". Instead, as you might imagine, the consideration is "Hey, I'm working on this too and the time I put into it should be worth something to me. How can we make a deal?"As a result, real estate rebate programs are very attractive to homebuyers willing to take on more of the challenges and responsibilities for finding a new home and who wish to pay what they consider to be a fair rate for the services provided by Realtors. This isn't to say that by selecting a brokerage that offers a rebate that the quality of service is any less than the quality of service found through a full-service brokerage (although the fine print on some rebate agreements will some limitations on the types of services being provided).
It also doesn't mean that there aren't still buyers who want to turn all of the work over to a seasoned professional. In many cases paying a full commission is a great deal for the home buyer. However, for those buyers willing to take on more of the risk themselves, rebates can be a great opportunity to save money while still getting access to the quality services that brokers and realtors can provide.
In short, by offering home buyers rebates, brokerages and their Realtors have a great way to stand out from the crowd to attract more home buyers, create new opportunities for 3rd party agreements with affiliated vendors and bring a greater level of service and choice to home buyers. At the end of the day, this is a model that gives everybody a win.
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