Why Are Broker Commission Rebates so Rare in NYC?
Buyers Can Fire Their Agent Anytime
It’s well known that home buyers never have to sign exclusivity agreements in NYC, meaning that they can switch agents or simply fire their agent at almost any time. This can be extremely frustrating for agents if they’ve already sunk a lot of time into showing apartments to the buyer or simply have spent a ton of time speaking with them.
However, for agents who aren’t providing discounts or rebates, they’ll at least have the chance to earn a full buyer agent commission on at least some of the deals that go through. But if agents are giving a commission rebate it can be extremely frustrating for a client to back out or cancel at a late stage.
That’s because the rebate agent has spent just as much time on the client as a full commission agent, yet the upside was limited to begin with. So it can be even more frustrating for a customer to cancel despite having limited the buyer agent’s upside from the outset.
Therefore, the customer’s ability to cancel at virtually any time really discourages most agents from providing commission rebates to buyers.
Pro Tip: Many discount brokers will try to counter this by requesting the buyer to schedule and attend all showings by themselves, therefore reducing the time committed by the broker in case the client cancels their relationship. While we encourage this behavior anyway as it can save your agent quite a bit of time, we also understand that it’s often better for private showings to be requested by your agent. As a result, all of our partner brokers are happy to provide you with the same, high standard of service as all of their clients receive while also providing you with a commission rebate at close.
Commission Rebate Customers Are More Demanding
While the majority of Hauseit Buyer Closing Credit customers in our experience are quite reasonable and a pleasure to deal with, we’ve also encountered the occasional buyer who doesn’t quite appreciate the fact that they are getting a significant rebate of the buyer agent’s commission.
As with any business, the Pareto Principle, otherwise known as the 80/20 rule, seems to apply. There will always be extremely unreasonable customers in any business, but it does seem that buyers who seek rebates are statistically more likely to be extremely demanding vs regular buyers who aren’t seeking a rebate.
The vast majority of real estate agents do not provide commission rebates to buyers for this exact reason. Why would they bother doing so when they can make several times as much money with much easier going clients? Why would they bother being harassed, insulted, and called late at night just so they can earn a fraction of what their colleagues are making on each deal?
For the vast majority of full-time real estate agents who traditionally rely on referrals and networking for new clients, providing a rebate simply does not make sense from a simple cost-benefit perspective.
Pro Tip: Keep in mind that it’s normal for buyers to be somewhat emotional during the home buying process. It can be somewhat nerve-wracking to put so much of one’s net worth into a single transaction. As a result, some amount of emotionality is to be expected with most home buyers. However, it seems that the most misbehaved ones seem to also be the ones who try to negotiate for as much as possible, even when such an extreme rebate is not offered. This self-selection is another well-known reason for why most full-time real estate agents refuse to offer commission rebates publicly.
Buyers Can Re-Negotiate The Rebate
A buyer can easily regret not negotiating harder for more of a rebate, and can attempt to re-negotiate the amount of the commission rebate mid-way through the process. This can be extremely frustrating for the agent if the agent has already spent a lot of time on the buyer, and is about to submit an offer on behalf of the buyer.
We’ve seen a few instances of buyers who have called partner brokers late at night, demanding to talk to them at once and threatening to fire them if they’re not able to speak that night.
When the partner broker grudgingly picks up the phone for the late night phone call, the buyer’s agenda becomes extremely apparent and it turns out that the buyer is simply threatening to fire the buyer agent if he or she does not agree to give more money back at closing.
In another instance, we recall a buyer asking repeatedly for a bigger rebate only a few days before closing. In all instances, the buyer usually claims that it’s essentially free money for the buyer agent because they didn’t have to do too much. This is very insulting for the buyer agent considering that he or she is doing the same amount of work that other agents are earning several times as much for.
Pro Tip: It’s generally not possible to re-negotiate the amount of your rebate after you have an accepted offer, and definitely not after you have a signed contract. That’s because the buyer agent is considered to have been the procuring cause of the sale after an offer is accepted. If you fire your buyer’s agent and switch to another agent who may be willing to give you a bigger rebate at this point, your original buyer’s agent can still be eligible for the commission if he or she was the procuring cause of the sale.
Decreased Deal Making Flexibility
Any agent that provides a rebate or discount to their customer in advance will have little to no flexibility to bridge any gap in price between the buyer and seller that could make a deal happen.
For example, it’s very common for listing agents to offer to reduce the total commission in order to make a deal happen. If the listing agent offered to reduce the commission by $10,000 total, then both the buyer agent and the listing agent would take a $5,000 haircut.
This is an uncomfortable situation for the buyer agent if he or she has already agreed to a significant commission rebate. Even though the rebate that the buyer receives will also be reduced, the real earnings of the buyer agent will be reduced even further. It’s an unpleasant situation to be in, especially if a buyer agent has already promised a majority of their commission to the buyer.
On the other hand, an agent that hasn’t already promised a commission rebate can step up and be the hero by covering a several thousand dollar gap between the buyer’s offer and the seller’s counter-offer. But it’s much harder to do so when the customer has already max negotiated a rebate, leaving the buyer agent with only scraps. In this case, can you really expect the buyer agent to give up more?
Pro Tip: We’ve seen situations where a buyer has demanded that his agent give up more commission in such as commission reduction scheme proposed by the listing agent and to take the entire hit. The reason given was because the listing agent was willing to give up some commission in order to make a deal happen, so the buyer agent should as well. This is insane as the buyer agent was already giving up a majority of the commission to the buyer, and to so caustically ask for more was just mind numbingly egregious.
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Disclosure: Hauseit (https://www.hauseit.com) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).