How to Get a Buyer Agent Commission Rebate in Maryland and DC and Save Thousands on Closing Costs
If you’re planning to buy a property in Maryland, you’re not alone. Many people aspire to live in the Old Line State, close to DC’s most influential movers and shakers.
However, buying a home in Maryland is neither easy nor cheap. As of October 2022, home prices in the state have increased by 1.6% year-over-year due to soaring mortgage rates and limited inventory.
But don’t lose hope! You can still get a great deal in Maryland, even as a first-time homebuyer. Many micro markets in the state are experiencing frequent price drops and fewer offers, making it possible for buyers to negotiate the best price.
Moreover, if you have a good credit score and plan to settle in Maryland, buying a home now can still be a wise decision. While we can’t help you lower the cost of buying a home in Maryland, we know of a way to make the real estate transaction less expensive.
You can save thousands of dollars on closing costs by taking advantage of buyer rebates and remain confident regardless of market fluctuations. But what is a homebuyer rebate, and how can you get one in Maryland and DC? Here’s everything you need to know about getting a buyer agent commission rebate in Maryland.
1. What is Homebuyer Rebate?
A homebuyer rebate is a refund that agents give their clients at the end of a deal.
The real estate industry is constantly evolving. To keep up with the pace, agents must keep coming up with new ways to make their services more attractive to prospective buyers.
A home buyer rebate is one such method.
When agents promise to give a rebate, what they mean is that they will refund a part of their agent commission to the buyer after successfully closing the deal. You can consider it a refund your agent will give you at/after closing. This rebate is sometimes a fixed amount on the commission percentage or a fraction of the final purchase price.
Let us explain this in detail:
In a typical real estate transaction, 6% of the closing price goes towards paying the buyer and seller agents’ commissions. The agents split the commission equally, which means that each agent gets a 3% commission at the end of the deal.
For example, suppose the closing price of a home is $350,000, and the decided commission on the transaction is 6%. In such a case, $21000 will be paid toward the agent commission.
Out of this $21000, the buyer agent will receive $10,500. Your rebate will come out from this $10,500.
Now you must be wondering why a buyer would be keen on giving you a rebate, especially if it means a pay cut. Well, there are several reasons for that.
Rebate helps agents attract prospective clients, reducing advertising and marketing costs. Think of it as a marketing technique. If done right, it results in a ‘win-win’ situation for both the agents and the buyers.
Another way to look at it is:
Homebuyers today do most of the leg work when finding a home online. 97% of homebuyers use the internet to find their dream home themselves. This reduces the overall workload of real estate agents and enables them to work with more clients simultaneously. As operational costs reduce, they have the leeway to give out cashback to get more business.
To understand this in detail, we need to understand how rebate works in Maryland.
2. How does Buyer Rebate Work in Maryland, DC?
The average house in Maryland is priced at $380,000. The average commission rate in Maryland is 5.10% of the closing price, which is split between the listing and the buyer’s agents.
So on average, your agent earns 50% of 5.10% on a real estate transaction in Maryland, DC. This will be around $9,690, considering the average home price in the state. Your rebate will come out as a percentage of this $9,690.
Here are the regulations regarding buyer rebates in Maryland:
- Agents can offer buyer rebates to clients as an incentive to purchase. It can be provided as a percentage of the closing price.
- Rebates should not be offered as prizes in a contest. It shouldn’t be offered to selective clients. Note that drawing many people for an open house is not considered a contest as long as the attendees don’t have to take any steps other than being present at the open house.
- Buyer rebates-whether in the form of a cashback or a reduced commission rate-must, be specified in writing before purchasing a house.
- Buyer rebates must be disclosed to the seller, even if they aren’t mentioned in the HUD-1 form.
2.1 What kind of rebates can you get in Maryland and DC?
Buyer rebates can be offered in one of the following two ways:
- Cashback: As the name suggests, this form of the rebate is given as cash or cheque after closing. As the buyer receives cashback after successfully purchasing a house, they can spend it whichever way they want.
- Closing Credits: Closing credits are given at the time of closing. These credits can cover specific closing costs like escrow, appraisal, transfer, or loan origination fees that make up 1-5% of the final purchase price. Even though closing credits help buyers shoulder the financial burden of the closing cost, to use it, buyers require lender approval.
Closing credits are not as flexible as cash backs and must be used for specified services.
|Note that whether you receive your rebate as cashback or closing credits, you cannot use them to fund your down payment. That is because you will only receive them at or after closing.|
2.1.1 Problem with closing credits as rebates
Receiving buyer rebates as cashback is always considered a better option; here is why:
Subject to Lender Approval:
Your lender can decide whether you can receive a rebate in a mortgage situation. Closing credits, by definition, cancel out some closing costs, lowering the house’s total cost.
Why does it matter?
The price of a home determines its Loan to Value ratio. What’s that, you ask? Loan-to-value or LTV is a metric that lenders or financial institutions consider before approving a mortgage. Think of it as a risk assessment parameter that determines how much mortgage you will get.
Mathematically you can calculate the LTV ratio by dividing the loan amount to the cost basis.
If you lower the house’s total cost, the overall LTV ratio goes up. If the LTV is higher than 80%, the lender will have to adjust your financing to bring it to 80% so that your mortgage rate does not increase. So to bring the LTV to 80%, they would have to reduce the overall loan amount.
That is why you require lender’s approval before accepting closing credits as a rebate.
Suppose you buy a home appraised at $380,000 and pay $76,000 as a downpayment. Your LTV ratio lies at 80%. However, if you get $4,750 in rebate and submit the same amount as a down payment, your LTV ratio increases. To maintain this at 80%, the lender has to reduce the loan amount; hence, you will have to give more money towards your downpayment.
|Rebate Amount||Loan||Cost of the House||LTV Ratio|
|Note that if you try to hide a rebate from your lender, you can be held liable for mortgage fraud.|
2.2 Why do realtors offer rebates?
Commissions are how real estate agents make their living. Then why do they voluntarily offer rebates to buyers?
- Helps Them Get Ahead of the Competition: Sometimes the market is saturated with realtors, and it is tough to find clients. Currently, the number of listings is half the number of realtors in the United States, which means that there is fierce competition between realtors. Offering a buyer rebate is an effortless way to attract clients and drum up more business.
- Helps Close a Difficult Sell: Some homes are more difficult to sell. This applies chiefly to luxurious homes in upscale neighborhoods, as finding clients who can afford such houses is difficult. Offering a rebate in such a scenario establishes them as an agent who cares about the client, making it easier for them to seek and lure informed buyers.
Also, these luxurious homes are priced high, and the agent can earn a sizable commission even after offering a rebate to the buyer. Since they stand to earn a commission equal to or more than the commission they would earn on a traditional real estate transaction, they do not mind offering a rebate to sweeten the deal for the buyer.
- Can Speed Up the Selling Process: Offering a rebate makes the whole real estate buying process much smoother. Rebates make it much easier to lock down a buyer, which means that agents spend a lot less time showing the house and looking for prospective buyers.
- Helping Clients Save Money: Believe it or not, some realtors genuinely care about helping buyers with smaller budgets. Besides, the internet has made it much easier to stay updated on listings and process paperwork.
This saves realtors a lot of time and money, and they can pass on these savings to the buyers through rebates.
- Savvy Buyers Help Close Deals Faster: 53% of buyers feel that finding a house that ticks all the boxes on their list is the hardest part of a real estate transaction. This is true. Nowadays, buyers take this task upon themselves as real estate websites have made finding a house accessible to buyers.
Since the buyers do all the legwork, all that agents do is make an offer and help the buyer navigate the paperwork and closing process. This means they save a lot of time and effort that they would have otherwise spent hunting for houses. In return, they offer a rebate to the buyer.
2.3 How to get a buyer rebate in Maryland
There are two significant ways to get a buyer rebate in Maryland. You can either go the traditional route and find a realtor willing to offer a rebate, or you could use any real estate websites offering buyers rebates. Here’s how it all works:
18.104.22.168. Clever Cashback:
Rebates in clever are issued as a cheque after closing. Clever guarantees a rebate equivalent to 0.5% of the closing price of the house. You find, select and interview different agents on Clever, and you start working with one upon making the decision. Clever offers you full support through the entire process. However, to be eligible for the cashback, you need to avail of full service from Clever.
22.214.171.124. Redfin Refund
Redfin offers a buyer rebate to clients in specific markets. The rebate can be offered as closing credits or cash back, depending on the individual circumstances of the sale.
There is no set percentage or amount, but buyers receive an average of about $1500 as a buyer rebate. There are terms and conditions around the final purchase price and commission rate, so you might not receive the exact estimated amount.
126.96.36.199. REX Real Estate’s AllHomes Cash Back
REX offers to give you half the commission it earns on the properties listed on MLS. REX’s rebate is only offered to eligible buyers, and even the 50% cashback on commission is not guaranteed as there are terms and conditions applied.
Though it is a cashback, REX buyer rebates can only be used for closing costs. You must also be pre-approved by REX home loans to qualify for a rebate on this platform.
Howzer does not offer a buyer rebate but has a buy-and-sell bundle similar to a cashback. If you are buying a house, chances are you are selling your old house. If you choose to sell with Howzwr, their agent will sell your house for a flat commission of $5,000. When you buy a house with Howzer, you are refunded $2,500 at closing.
188.8.131.52 Magnolia Realty
Magnolia Realty offers up to 2.11% of the purchase price. This amounts to about 70% of the total commission earned by the agent, making it one of the highest buyer rebate rates offered in Maryland, DC.
They are full-service agents, and the rebate offered is over and above any reduction in price negotiated by the buyer, making the whole real estate transaction very buyer oriented.
184.108.40.206. Glass House RE
Glass House RE is a full-service real estate firm offering buyers a 2% rebate at closing. The company gives one of the highest buyer rebates in the DC area. Plus, they offer full-service agents to buyers.
There are no restrictions on the types of properties for home buyers when buying with Glass House Real Estate. Other companies often do not work with or charge more for REOs, foreclosures, and short sales. But Glass House RE does not.
2.3.2 Working with a realtor
Here are all the steps involved in getting a rebate while working with a realtor:
220.127.116.11 Do Your Research
Like most decisions in a real estate transaction, you need to do your due diligence before you select a real estate agent. Research all the realtors available in your area and consider all your options before choosing an agent.
Remember, you cannot switch agents once you start touring houses or you’ve signed the buyer-broker agreement. So, be sure of your decision. Not every agent has the same policy on buyer rebates. Some might offer more than the average rate, whereas others will throw in freebies to sweeten the deal for you. It is best to spend some time choosing the best option available.
18.104.22.168.Choose a Brokerage
This is a step that people usually skip, but you need to calculate the potential rebates offered by different brokerages to choose the best possible deal. There will always be differences between the services offered by the agents and the amount of rebate they offer, so consider all considerations before you choose an agent.
22.214.171.124 Read the Fine Print
Go over all the terms and conditions with a fine-toothed comb to ensure you know exactly what you’re signing up for. Sometimes the percentage of the rebate is high. Still, there is a cap on how much cashback you can receive, or there is a minimum net commission, which means that you get a rebate only after the agent makes a certain amount of money, which will naturally affect the buyer rebate you receive.
126.96.36.199 Sign the Agreement
Signing the broker-buyer agreement is the final step in ensuring you get the buyer rebate you want. The agreement will detail the terms of how you receive your buyer rebate and commit to buying a home with the agent.
188.8.131.52. Get a Rebate!
As we’ve mentioned, there are two ways to receive buyer rebates: cash back at closing or closing credits that negate closing costs. You will receive your buyer rebate as laid out in your agreement. Either way, you will save thousands of dollars on your real estate transaction.
2.3.3. Negotiating with a realtor
If your realtor has not already offered you a buyer rebate, negotiating one can be painstaking. That’s because some agents might even back out of the deal rather than take a cut on their commission.
When you are working with a realtor who doesn’t advertise buyer rebates, the chances you will be able to negotiate a rebate with them becomes slim. Here are some situations where you could be in the position to successfully negotiate a rebate:
- Luxurious Homes: If you buy a high-priced home in an upscale neighborhood, you are a precious buyer to the agent. They will be interested in closing the deal as quickly as possible because selling upscale homes is difficult. Also, they will earn a big commission on this home, so they will be willing to offer a rebate as it won’t affect their earnings too much.
- Buyer’s Market: When there are more properties than buyers, the market becomes more inclined towards buyers. In a buyer’s market, buyers have the upper hand and when that happens, negotiating a rebate with the agent becomes easy.
- Selling with the Same Agent: If you agree to sell your old home with the same buyer, they will offer you a rebate in return for the extra business and long-term relationship.
- You Are a Pre-Approved Buyer: If you are a pre-approved buyer, you are more likely to receive a rebate from your agent to retain you. If you have already picked out the house you want and are ready to close the deal, any agent would happily offer you a rebate to seal the deal.
Remember that unless you are a seasoned negotiator, you will find negotiating a rebate a tad difficult to accomplish.
Once you find a few agents you like, you can ask them if they will offer you a buyer rebate.
As they say, there’s no such thing as a free dinner, so you’ll probably have to offer them something in return. You can offer to do the home search on your own, and they only have to help you negotiate the price and navigate the technicalities of the buying process.
The other way is to reach out to several realtors and mention a rebate. You can then discuss it with whomsoever seems interested. It doesn’t always work and might create tension with agents you want to work with.
3. Is Buyer Rebate Legal in Maryland, DC?
Buyer rebates are completely legal in Maryland, DC. Currently, 42 states and Washington, DC allow real estate agents to offer buyer rebates to their clients.
It is important to note that the U.S. Department of Justice strongly favors buyer rebates and supports making them legal for all 50 states.
While buyer rebates are legal in Maryland, they are still subject to your lender’s approval. You must disclose the amount and nature of the rebate you receive to your lender.
As discussed above, when you get a rebate on your real estate transaction, the overall cost of the property goes down. Lenders use the cost price of the home while calculating the loan-to-value ratio. If it is higher than 80%, the loan makes up a bigger percentage of the home’s value, making it a riskier transaction for the lender.
They will adjust your financing to keep the LTV ratio at 80% or lower. If you do not disclose your rebate to your lender, you can face severe problems down the line, like the cancellation of your home loan or mortgage fraud charges.
If your agent is giving you a cashback after closing, it will not affect the purchase price of your home. However, you should still disclose it to your lender to err on the side of caution.
4. Average Buyer Rebate in Maryland
Buyers can save up to $4,845 on average from rebates.
The average purchase price of a home in Maryland is $380,000, and the average realtor commission is 5.1%, which is split between the buyer and the listing agent. This makes the buyer agent’s commission $9,690.
You can get up to half this amount as a buyer rebate, which comes to $4,845.
5. Average calculation for commission buyer rebate
The rebate you get on your property depends on the purchase price of your new home, your agent’s commission, and the percentage of commission rebate he is willing to offer.
5.1 Rebate on agent commission
Here is how you can calculate a rebate on agent commission:
List the final buying price of the property in question. Then, list both agents’ commission percentage ( as mentioned in the listing agreement). In Maryland, DC, this percentage is 1-6%; however, we will consider this percentage to be the state’s average of 5.1% for better understanding.
If this commission were to be divided 50/50 among the two agents, your agent would receive 2.55% of the final purchase price as commission.
Commission earned by buyer’s agent = sales price* buyer’s agent commission
If the buyer agent offers you 65% earlier, your rebate amount will be 65% of the buyer’s agent’s commission.
The rebate you will get = 65%*2.45%*the buying price of the home.
To make matters more manageable, you can use the calculator given by the U.S. Department of Justice to calculate your commission rebate.
Let’s understand this one last time:
|Final Purchase price||Average commission of both relators ( 5.1%)||Avergae commission of your relator (2.55%) 50/50||The rebate you will get (suppose 50%)|
5.2 Rebate on selling price
If you receive a commission on the selling price ( generally 0.5 – 1.5% of the final selling price), the rebate you will get will equal the commission on selling * final selling price.
|Final Purchase price||Rebate offered on buying price (say 0.5%)||Rebate provided on buying price ( say 1%)||Rebate provided on buying price ( say 1.5%)|
6. Are Rebates Taxable in Maryland?
Buyer rebates are not taxable in Maryland. They are treated as a reduction in the cost of the property and not as income, so they do not fall under the income tax bracket. The IRS has issued a private letter that states the ruling that refunds issued by real estate agents to buyers are not taxable.
7. Other ways to save money on real estate transactions in Maryland
The DC Housing Finance Agency has initiated several programs to help potential homeowners save money on real estate transactions. You can apply for multiple programs simultaneously if you wish. Consult your lender to find out which programs you are eligible for.
7.1 Homeowners’ Property Tax Credit Program
The Property Tax Credit program helps you save on property taxes by giving you tax credits if the property taxes are more than a fixed percentage of your gross income. It sets a maximum limit on your property tax based on your income level.
7.2 Mortgage Credit Certificate (MCC)
If you qualify for a Mortgage Credit Certificate, you can receive a Federal tax credit for 20% of the mortgage interest you paid during the year. To qualify for this program, you must be a first-time homeowner under the maximum income limit.
7.3 Home Purchase Assistance Program
The HPAP is designed to help you with financing if you are a first-time homebuyer. It gives you a deferred interest-free loan to fund your downpayment and closing costs. You must be from a low- to moderate-income household to qualify for this program. The maximum loan amount under this program is $453,100.
7.4. The District of Columbia Mortgage Assistance (DC MAP) COVID-19
The DC MAP provides a zero-interest loan for paying the mortgage principal, interest, escrowed property taxes, mortgage insurance, and other costs related to homeowners to people who have suffered a loss of income due to the global pandemic. The maximum amount you can receive through this program is $5,000 monthly for up to 6 months.
7.5. DC Open Doors
DC Open Doors helps buyers with the downpayment, closing costs, and offering purchase loans. You can access deferred repayable for your downpayment and below-market interest rates for first-trust mortgages.
8. Is a Rebate right for you?
Many discount brokers offer you a 50% or even a 100% rebate on their commission. You receive the buyer rebate after closing. Some discount brokers have offered other incentives like moving services or free home inspections.
Whether they are suitable for you or not depends on your circumstances. If you are a seasoned buyer and know the ins and outs of the buying process, it makes sense to give up the services of a skilled traditional real estate agent in exchange for a substantial rebate on commission. In this case, the agent will only provide essential services like processing the paperwork for the transaction.
However, if you are a first-time buyer, you will probably need the advice of a real estate agent to help guide you toward making the best decision. Without a skilled agent, you risk overpaying for a house or buying a home with significant defects in a bad neighborhood.
9. Should rebate be the sole choosing factor for a realtor?
A rebate helps you save considerable money on real estate transactions, but it cannot be the sole deciding factor when choosing a realtor. Simply offering a debate does not vouch for the skills or level of service the realtor provides.
Some realtors offer commission rebates because they have an image issue and want to compensate by offering attractive rebates to buyers. Some realtors are tech-savvy and have found ways to run a successful business using buyer rebates.
Rebates can be part of the considerations, but also consider client reviews and the public reputation of the agents you screen before picking a buyer agent.
There is no doubt that offering a rebate is an excellent way of saving money on a real estate transaction. They are entirely legal in Maryland, and DC, so you should take advantage of them to save on your home purchase.
However, please don’t make it the only factor affecting your selection for a realtor. Consider all the other factors as well. If you are a complete novice and need someone who will hold your hand through the entire process, it is best to find a seasoned realtor, whether they offer you a rebate or not.
If you are pretty confident about navigating a real estate transaction, look for a realtor who offers you the best rebate.