Are Commission Rebates Legal?

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Buyers cheer New York's Attorney General writing a letter clarifying commission rebates are legal

In a previous post, we asked Why Aren’t Commission Rebates More Common In NYC? We’re sure some readers may have wondered, “Just how clear is the law when it comes to commission rebates?” Are they legal or just tolerated? Thankfully for buyers, the law in New York is unequivocal – commission rebates are legal.

What Could Be Illegal About Commission Rebates?

New York Real Estate Law is very clear - only a broker can accept a commission. That black and white rule applies after the closing table as well. A broker can't collect the commission and divvy it up afterwards. This is to prevent any possibility of kickbacks that would interfere with a client's best interests.

Imagine if your mortgage lender was able to refer you to whichever broker offered the highest piece of the commission. Since most buyers are not brokers, this would appear to be a problem. Thankfully, the New York Attorney General clarified everything in 2015.

New York’s Attorney General Weighs In On Commission Rebates

In April 2015, New York Attorney General Eric Schneiderman published a letter that removed any ambiguity around commission rebates. You can find the entire letter here but Schneiderman’s quote sums it up perfectly -

“Rebating by real estate brokers can greatly reduce the costs of buying and selling property and even facilitate new and innovative business models. I urge the real estate community to embrace this opportunity to be more competitive, and improve the choices available to New York homeowners. I also encourage buyers and sellers alike to take advantage of your right to bargain with your broker for a lower commission.”

Commission rebates were not illegal previously but, as Schneiderman emphasized, “there is no room for debate: commission rebating in New York State is legal.”

Why Are Commission Rebates Necessary To Promote Competition?

The real estate industry has done a fantastic job convincing buyers their broker should be free. This has become entrenched as year after year, listing brokers have paid for buyers’ brokers. In reality, the buyer is paying everyone as they're writing the big check.

Putting that aside, it’s impossible for a buyer to determine how much their broker earns without a commission rebate. Say a buyer is set on buying 123 Main St for $1,000,000 and a 3% commission is offered. Without a commission rebate, their broker will make $30,000 - case closed. But by using commission rebates, a buyer can determine how much their broker should make. If they think $30,000 is too much, they can receive a commission rebate and decide what's appropriate, not the listing broker.

We can’t think of another industry where the other side of the table is paying the person looking out for your best interests. If you’d like to learn more about commission rebates and control how much your broker earns, contact us and we’ll get your search started today!

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