Owning a home in New Jersey is a cherished dream for many. Yet, it’s not uncommon for several potential homeowners to overlook the additional costs that come with this dream. These expenses go beyond the purchase price and mortgage payments.
An average house in New Jersey may cost no less than $349,816. However, this price is merely the tip of the iceberg. On top of this, you’ll have to pay additional expenses such as closing costs, moving costs, new furniture, and home renovations. All together, these could tally up to thousands more.
And then there’s the significant cost that can consume 3-6% of your profits – agent commissions.
If these expenses are giving you pause about buying a home, don’t worry. There’s a silver lining here.
What if we told you there’s a way to save thousands when buying your dream home? That’s right, through something called buyer rebates you can actually get thousands back on your home purchase. This strategy is one of the best-kept secrets in the real estate industry and could transform your home-buying journey into a profitable experience.
Here’s everything you need to know about it!
1. What is a buyer rebate?
A buyer rebate, also known as a commission rebate, is a real estate incentive offered to homebuyers by their real estate agent. In simple terms, it’s a portion of the commission the agent receives from the property transaction that is given back to the buyer. Essentially, it’s a way for the buyer to save money on their home purchase.
|For instance, let’s say you’re buying a house listed for $500,000, and the agent’s commission is 3% of the sales price, which amounts to $15,000. If your agent offers a buyer rebate of 1% of the home’s price, you’d receive $5,000 back from your agent. This amount can be used to offset other costs associated with buying a home, such as closing costs or moving expenses, or simply put back into your pocket.|
Real estate agents are developing innovative marketing strategies to attract more home buyers.
Buyer agents offer to share a portion of their commission with home buyers as an incentive to work with them.
This amount is called a buyer rebate. Some agents offer a fixed amount as a rebate, irrespective of the home price, while others offer a percentage of the home price or their commission.
Many buyers are unaware that agents offer rebates when buying a home. Some agents won’t even talk about rebates since it reduces their commission.
However, the Department of Justice (DOJ) is trying to increase awareness among buyers to help them save thousands of dollars from their home purchases.
2. Is a buyer rebate legal in New Jersey?
Except for eight states in the US – Alaska, Alabama, Kansas, Louisiana, Missouri, Oregon, Oklahoma, and Tennessee, buyer rebate is legal in the remaining 42 states, including New Jersey.
The buyer rebate was made legal in New Jersey in January 2010. The act allowed real estate agents in the state to share a portion of their commission with the home buyers as a rebate.
The NJ Real Estate Commission regulates who can provide and receive a rebate and how it can be paid.
Note: In Iowa, buyer rebates are only allowed in the case of Dual Agency – when the same agent represents both the buyer and the seller in a single transaction.
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** Iowa only allows rebates in the case of dual agency
3. Who pays the buyer rebate?
The buyer’s agent pays the buyer rebate.
The agent offers to share a portion of the commission with the buyer. This could be anything from 1-2% of the home price to 50% of the commission received by the buyer agent. The rebate will depend on how hard the buyer bargains for the same. There is no fixed percentage for rebates; they could vary depending on the broker agency, market conditions, or home price.
4. How does buyer rebate work?
Let’s assume that the home price is $300,000, and the seller pays a standard commission of 6% to the agents.
Total Commission = Home price X 6% commission = $300,000 X 6% = $18,000
If the buyer agent and seller agent agree to split the commission equally, each with receive $9,000 (since $18,000 ➗ 2 = $9,000).
If the buyer agent has offered 50% of the commission to the buyer, this will work out to,
Buyer agent’s commission ➗ 2 = $9,000➗ 2 = $4,500
So the buyer agent will give $4,500 to the buyer as a rebate, and keep the balance $4,500.
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5. Difference between Cash Rebate and Closing Credit
Rebates are always offered at closing, as they act as an incentive to complete the transaction. They can be offered as cashback or as closing credits. Let’s find out what each of these mean.
5.1 Rebate as Closing credits
Closing credits are offered to the buyer to make the deal more attractive. Availing these credits means the buyer has to bring less cash to the table at closing.
Closing credits are also known as seller concessions. These credits can only be used to pay for expenses such as home repairs or rectifying the plumbing or for a point job, or for specific closing costs such as escrow, transfer, appraisal, or loan origination fees, to buy mortgage points, etc.
How one can use them will be clearly stated in the agreement. One cannot use closing credits to make the down payment.
Closing credits are highly regulated, and the lender will have the final say on how much you can accept and how one can use them.
5.2 Rebate as cashback
Some real estate agents offer cashback rebates which are more beneficial than closing credits.
Cashback isn’t regulated and can be used however you want, including to buy new furniture, for moving costs, or you could use it to save up for emergencies.
Though cashback is not regulated, disclosing a rebate to your lender is safer, as all lenders do not have the same policies.
6.Why don’t agents simply lower the home’s selling price Instead of Offering a rebate?
Agents typically can’t reduce the home price by the rebate amount because they don’t have control over the selling price; that’s determined by the seller.
Instead, agents can offer a buyer rebate, which effectively reduces your net cost by returning a portion of the agent’s commission. This practice is subject to local real estate laws and regulations.
The rebate amount is a small addition to the mortgage,, and most importantly, the buyer needs the money for the closing costs. Let’s consider two scenarios – one where we ask for a closing credit and another where we ask for the home price to be reduced instead of availing a closing credit.
Suppose the home cost is $500,000, and you decide to make a downpayment of 20%. This works out to = Home price X 20% = $500,000 X 20% = $100,000. In case you have to pay closing costs of $12,500, then the total you have to bring to the table would be,
Cash required = Down payment + closing costs = $100,000 + $12,500 = $112,500
Now suppose you ask for a closing credit of $10,000.
Cash required would now be = $112,500 – $10,000 = $102,500.
In the second scenario, when we reduce the home price instead of taking a closing credit:
Let’s say you negotiated the home price from $500,000 to $490,000 (taking $10,000 off from the home purchase price). Your 20% down payment will now be:
Down payment = Home price X 20% = $490,000 X 20% = $98,000
The mortgage amount = Home price – Down payment = $490,000 – $98,000 = $392,000
With a closing cost of 2.5%, the closing fees will be:
Closing fee = Home price X 2.5% = $490,000 X 2.5% = $12,250.
This means the money you need at closing will be:
Money required to close the deal = Down payment + Closing fee
= $98,000 + $12,250 = $110,250.
So the money you will be required to bring at closing when you don’t take the closing credit is higher by $10,250.
Hence, when cash is scarce, you would rather ask for a closing credit than reduce the home price.
7. How much is a buyer rebate in New Jersey?
The typical price of a home in New Jersey is $461,990. And the average realtor commission in the state is 5.20%.
Commission Percentage X Median Home Price = Total Commission Amount
5.20% X $454,982 = $22,749
Assuming the buyer and seller agents share the commission equally,
Buyer agent’s commission = Seller agent’s commission = Total Commission ➗ 2 = $22,749 ➗2 = $11,374
If the buyer rebate is 1% of the home price; then this works out to:
Buyer Rebate Percentage X Median Home Price
= 1% X $454,982
So, at the time of closing, the buyer agent will receive $11,374 as his commission out of
which he will give $4,550 to the buyer as a rebate and keep the remaining $6,825.
Buyer rebate is expressed as a percentage of the home’s price or a percentage of the agent’s commission.
It is important to understand how each of these is calculated.
7.1 Buyer Rebate as a percentage of the home price
The rebate will vary depending on the home price in different parts of New Jersey. Let’s look at how much buyer rebate works out to as a percentage of the home price.
Let’s calculate the amount of buyer rebate when it amounts to 1%, 1.5%, and 2% for a range of home prices.
|Home Price range||Buyer Rebate as % of home price|
|$300,000 – $375,000||$3,000-$3,750||$5,250 – $5,625||$6,000 – $7,500|
|$400,000 – $475,000||$4,000 – $4,750||$6,000 – $7,125||$8,000 – $9,500|
|$500,000 – $575,000||$5,000 – $5,750||$7,500 – $8,625||$10,000 – $11,500|
7.2 Buyer Rebate as a percentage of the agent’s commission
You may come across agents that offer a rebate as a percentage of their commission, and it varies from agent to agent based on the home price, location of the home, real estate market, and the brokerage they work for.
Let’s take a look at what the rebate amounts to in the best places to live in New Jersey, based on the typical home price in each area. This is assuming the buyer agent gets 50% of the total commission.
|Place||Median Home Price||Buyer rebate as 0.5% of home price||Buyer rebate as 1% of home price||Buyer rebate as 1.5% of home price||Buyer rebate as 2% of home price|
|Berkeley Heights Township||$748,740||$3,744||$7,487||$11,231||$14,975|
8. Do I need to disclose the buyer rebate?
The buyer rebate must be disclosed to your lender and all parties in the transaction. The rebate will affect the Cost Basis and the Loan-to-Value (LTV) ratio, which the lender uses to check the buyer’s loan eligibility.
If you don’t disclose the rebate to your lender, your loan will be canceled. You may also be charged for mortgage fraud in the worst-case scenario. Moreover, all lenders do not approve of cash rebates. Therefore, it is better to disclose the rebate even if you receive it as a cashback.
If you receive the rebate as closing credit, you also need to disclose it on your HUD-1 settlement form, which covers all the settlement costs. The rebate goes on lines 204-209, where you need to include the name of the person issuing the rebate, which is usually your real estate agent. You can ask your agent to help you with the form if required.
8.1 How do rebates affect cost basis
Cost Basis is the overall cost of your home, including related expenses such as inspection costs, escrow fees, buying mortgage points, etc. Rebate, being a credit to the buyer, is deducted from this amount. The lender uses the Cost Basis to calculate the LTV ratio.
For example, if the home price is $300,000, and you spend $10,000 as additional related expenses, and the rebate amount is $5,000,
Cost Basis = Home price + Related Expenses – Rebate = $300,000 + $10,000 – $5000
8.2 How rebate affects LTV ratio
The LTV ratio is the loan amount divided by the Cost Basis. Generally, your lender will keep the ratio at 0.80 or lower.
Rebate affects the loan-to-value ratio as it lowers the cost basis of your home, thereby increasing the ratio. The lender will adjust your finances based on your rebate amount; hence you should disclose your rebate amount as soon as possible. For example, let’s take a scenario where you receive and rebate and another where you don’t receive a rebate.
Now LTV ratio = (Loan amount ➗ Home value)
In the above example, let’s assume that you didn’t receive any rebate from your agent, and you make a down payment of $60,000. You loan amount in this case would be,
Loan amount = Cost Basis – Down payment = $310,000 – $60,000 = $250,000
So your LTV ratio will be,
LTV = Loan amount ➗ Cost Basis = $250,000 ➗ $310,000 = $0.80
This ratio is as per your lender’s requirement.
However, if your agent offers you a rebate, say $5,000.
Now the cost basis comes down to $305,000 (as calculated in point 8.1 above)
Assuming your loan amount remains the same,
So now, LTV ratio = Loan amount ➗ Cost Basis = $250,000 ➗ $305,000 = 0.82
Here, the LTV ratio has increased; hence the lender will try to lower this ratio by reducing the loan amount, or else, you need to take separate mortgage insurance to offset the financial risk.
9. Is the home rebate taxable?
A home buyer rebate is not taxable. According to the IRS, a buyer rebate is an adjustment to the overall home price and not a taxable income. Therefore, taxpayers are not obligated to report the payment at the closing of a real estate transaction. Agents should not issue form 1099-MISC to their home buyers, and if they do, you can ask them to withdraw it.
9.1 How will rebate affect the capital gains tax?
The rebate affects the capital gains tax through the cost basis. When you avail of a rebate, it lowers the cost basis. A low cost basis can make it seem that your property gained more value over the years than it did.
Capital gains tax is the amount you pay for the increase in the value of your home. Hence, you will have to pay a higher tax when you sell the home in the future. However, this tax increase will be nominal.
10. Why do agents offer rebates?
While it is true that a rebate reduces the agent’s income to some extent, there are several powerful reasons for agents to offer rebates. It is a marketing tool to incentivize the buyer to hire the agent’s services. Let’s look at some of the reasons why agents offer rebates.
10.1 To beat the competition
Agents offer a rebate to stand out in the market and entice buyers to use their services. Many brokerages and real estate companies have made rebates a part of their business model today. Agents also need to offer rebates to stay ahead of the competition.
10.2 Straight Discount Method
Some companies have a huge listing on their platform and offer rebates as straight discounts to help quickly close deals. Even for individual agents who don’t have a huge listing, it makes sense to offer rebates because they can attract more customers, and the higher volume of transactions results in a higher overall commission.
10.3 Trade-off for fewer services
With more internet adoption these days, websites like Zillow and Realtor.com provide all the listing information to home buyers. Buyers are willing to take on some of the agents’ tasks. For example, they can significantly narrow the home search by viewing homes online or visiting selected homes independently.
This reduces the agent’s work, and they can take on more buyer clients, thus increasing their overall commission. Since commission remains the same, irrespective of the time spent with the client, the agent earns more for each hour spent working for the client. This allows agents to offer rebates as an incentive to home buyers for their efforts in the home search.
Some agents offer higher rebates when they are not required to show homes to buyers. Buyers can also purchase showing services only if needed and opt for a rebate from their buyer agent.
10.4 Passing on reduced costs
Technology has helped real estate agents by making their work more efficient and accessible than ever before. These days, from listing homes, processing paperwork, and connecting buyers with agents, all are taken care of by technology. This has also helped agents lower expenses. So agents don’t mind sharing some of these savings with home buyers in the form of a rebate.
10.5 Where homes are difficult to sell
Even experienced agents often find it hard to sell expensive homes. Rebates are a great way to convince buyers that they can save thousands of dollars from costly home purchases. Rebates also help buyers stick around when there might be chances of a deal falling through.
10.6 Dual Agency – Agent is buying and selling
When an agent represents both the buyer and the seller in a transaction, this is called a dual agency. In this case, he will be willing to offer a rebate because the agent will receive a commission from both the buyer and the seller. So the agent is more willing to offer a portion of his commission to his buyer.
Though the dual agency is illegal in some states (namely Alaska, Florida, Colorado, Kansas, Maryland, Texas, Wyoming, and Vermont), it is legal in New Jersey. In New Jersey, it is termed a Disclosed Dual Agency since it needs to be disclosed to all parties in the transaction.
11. Are buyer rebates negotiable?
Buyer rebate is always negotiable in states where it is legal. How much agents will negotiate depends on the home’s location, the real estate market situation, and the brokerage.
The easiest way to get a buyer rebate is to work with an agent already advertizing a rebate. If you want to negotiate further, you need to shop around and inform multiple agents that you will work with the one who offers the highest rebate.
The Department of Justice encourages negotiating rebates as it increases competition among agents and helps buyers save thousands of dollars.
12. How to negotiate for a buyer rebate
Few buyers know that a rebate is negotiable. Fewer still know how to negotiate. Here are some tips on how to negotiate buyer rebates.
12.1 Ask for a rebate or work with an agent already offering a rebate
If the rebate is legal in your state, you should always check for an agent offering it. If your agent is not offering a rebate, simply ask for one.
Chances are, with so many agents offering a rebate upfront, your agent, too, will agree to your request. If the agent disagrees, simply terminate your contract with the existing agent, and work with one already offering a rebate.
12.2 Choose the smaller brokerage firms
Small brokerages offer better services compared to large brokerage firms. Large brokerage firms incorporate subtle market manipulations and collect double commissions from buyers.
Therefore, it is better to work with smaller firms with access to all the same marketing opportunities and are ready to negotiate.
12.3 Don’t contact the listing agent directly
These days, buyers know how to find all the listing information on websites like Zillow, Realtor.com, and Trulia.com. So a few end up contacting listing agents by mistake. By doing this, you unknowingly give them an extra 3% commission and lose your portion of the rebate.
This is because the listing agent becomes your buyer agent in this case. It is important to note that buyer rebate is only offered by the buyer agent and not by the listing agent.
If you want to save a few thousand dollars on your home purchase, you should hire a buyer agent who is willing to offer you a rebate. Let the buyer agent connect with the listing agent on your behalf.
12.4 Get preapproval
Take preapproval for your home loan from a reputable lender. This will prove that you’re a serious buyer willing to close the deal quickly. The buyer agent will be more willing to negotiate for a rebate in such a situation.
13. Does availing of a rebate mean a trade-off on services?
You don’t have to compromise on any services to get a rebate. Some agents offer rebates and full services as part of their marketing strategy. You need to insist on complete services when availing of a rebate. To do this, you must be aware of the services a buyer agent offers.
13.1 What are the services offered by a buyer agent?
Let’s look at the services offered by a full-service buyer agent:
- Helps you find a suitable home that meets your goals and objectives.
- Enables you to negotiate the best price for your home.
- Reviews the estimated funds required for your home purchase, including monthly mortgage, escrow, etc.,
- Schedules and attends inspections of the house that you want to buy.
- Provides you with updated information about the communities, schools, or any other neighborhood information.
- Notifies you of all the new listings in the local market.
- Monitors your loan process, title insurance, etc.,
- Keeps you updated about all the information related to your home buying process.
- Schedules and attends the closing with you.
14. Where can I find agents offering a buyer rebate in New Jersey?
Buyers need to do their research online to get a rebate from agents. Many agents advertise rebates to attract customers. However, you need to ensure the rebate is not at the cost of services. To make it simpler for you, we have curated a list of companies/agents offering rebates in New Jersey and companies that connect you with agents offering rebates.
14.1 Clever Real Estate
Clever Real Estate offers 0.5% cashback on the home price to home buyers at closing. In addition to providing a cashback rebate, it acts as an agent matching service provider and a negotiator for home buyers.
The company allows you to connect with full-service agents from top brokerages – these would be the likes of RE/MAX and Century 21. Clever gives you a list of agents you can choose from and also pre-negotiates low rates for your benefit.
Like any other agent matching service, it is free to use, and there are no obligations after signing up. Clever Real Estate has a customer rating of 4.9 out of 5 based on 1,512 reviews on Trustpilot.
Redfin offers discount brokerage services to buyers who want to buy a home. They offer all the basic services that a traditional agent provides but at a lower price. According to customer reviews, you might have to compromise on the service quality for the discounted commission.
Redfin doesn’t advertise how much rebate they offer to their buyers. Therefore, you need to check with your agent if you qualify for a rebate. According to Redfin, an average buyer saves $1,750 on home purchases. Redfin has an average rating of 3.9 out of 5 based on 416 reviews on Consumer Affairs, Yelp, and Google.
UpNest is an agent-matching service with a unique business model. It connects home buyers with the top real estate agents who compete for your business. You will have less trouble negotiating as agents will be already competing to offer you the best deal.
UpNest offers home buyers 0.5% of the home purchase price as a cashback rebate to its home buyers. In addition, UpNest also provides a $150 Amazon gift card as an add-on.
At times, customers face challenges connecting with their customer support representatives. UpNest has a weighted average customer rating of 4.6 out of 5 based on 3,794 reviews on Google, Better Business Bureau, Google, Facebook, and Shopper Approved.
Realtor.com is an agent-matching service that is free for home buyers. It is the National Association of Realtors’ official listing and home search platform.
Their agents offer 30-40% of their commission as a rebate to buyers at closing. The website has all the updated information for your home search. It is primarily used by realtors to buy advertising and leads.
However, you must fill out many forms before connecting with an agent, which can be daunting. You will be slammed with phone calls, text messages, and emails with several offers. Customers don’t seem to find it appealing and have left a 2.7-star rating out of 5 on Trustpilot.
HomeLight is an agent-matching service that connects buyers with agents in their locality. You can explore their platform for free, and there are no obligations after signing up.
Unlike its competitors, HomeLight does not offer any discounts on commissions. So you’ll have to do all the negotiation on your own. HomeLight services are fast, and its reach ensures that you have agent options even in small towns and rural areas.
Once you sign up with them, you can see all the agent matches based on your requirement. HomeLight’s concierge and agents connect with you a few minutes after signing up. You will be contacted via phone, email, and messaging. HomeLight’s agent-matching services are fully automated, ensuring that it is quick, but this may be at the cost of quality matches.
Customers generally like their service and have given a 4.7 rating out of 5 based on 1,012 reviews on Site Jabber.
14.6 Feel @Home Realty
Feel @Home Realty offers real agent services to home buyers at a lesser price. Since it is based in New Jersey, you get the advantage of locally knowledgeable agents. Their agent provides 50% of the commission to buyers at closing. It has a streamlined process that helps save a lot on marketing and shares this saving with home buyers.
The firm is run by Charles Hendershot, a Certified Distressed Property Expert (CDPE) in New Jersey. He is indeed an expert of the Somerset, Morris, and Hunterdon counties, including school districts, local real estate transactions, and information about the neighborhood. Feel @Home Realty has a 5 out of 5 rating based on 32 reviews on Zillow.
14.7 NJ Real Estate Boutique
NJ Real Estate Boutique provides real estate agent services to home buyers. This is a local realtor hence is more informed about the local real estate market. They offer 50% of their agent’s commission as a commission rebate to buyers at closing. The rebate received can be applied towards the closing costs in the form of credit. NJ Real Estate Boutique has a 5-star rating based on 11 reviews on Google.
14.8 Mission Realty
Mission Realty provides real estate agent services to home buyers in New Jersey. Their local agent offers rebates as agreed on the buyer broker agreement, and the amount depends on the price of the property and their agent’s commission. This can be in the form of closing credit or cashback. The rebate can be used to offset the closing costs and cannot be used for the down payment. Mission Realty is run by Patti Jean Pasquino who has over five years of experience as a sales associate and specializes as a buyer’s agent. Mission Realty has a 5 out of 5 customer rating based on nine reviews on Zillow.
14.9 HomeVue Real Estate
HomeVue Real Estate is a full-service discount brokerage in New Jersey. Their agent offers up to a 2% rebate to its homebuyers at closing, and it may vary depending on the home price, location, and company structure. The agents provide rebates as an incentive to their home buyers for their efforts in narrowing down the home search.
HomeVue Real Estate offers the most attractive rebate to those buyers who are independent, resourceful, ready to buy quickly, and don’t need an agent to show homes. The rebate offered is in the form of credit, which can be used to reduce closing costs. HomeVue Real Estate has a 5 out of 5 rating based on 11 reviews on Zillow.
List of websites/agents offering rebates:
|Website/Firm name||Rebate Offered||USP|
|Clever Real Estate||0.5% of home price||Big savings at most price points. Top brand agents to choose from.|
|Redfin||0.22% of home price||User-friendly website|
|UpNest||$150 + 0.3 to 0.75% of home pirce||User-friendly website|
|Homelight||0.5% of home price||HomeLight appears to have a stronger service distribution and reach in smaller cities and rural regions.|
|Realtor.com||0.3% of home price||NAR website, which is quite up to date.|
|Feel @Home Realty||50% of agent’s commission||Local agents who are well-versed with the market.|
|NJ Real Estate Boutique||50% of agent’s commission||Local agents who are well-versed with the market.|
|Mission Realty||Depends on the commission earned by agent||Local agents who are well-versed with the market.|
|HomeVue Real Estate||2% of home price||Local agents who are well-versed with the market.|
15.1 Will I get a buyer rebate if I want to buy a new home?
If you visit a builder to buy a new home, you need to register a buyer agent with them to receive a rebate at closing. Builders are not legally bound to compensate a real estate agent for selling a home if you reached out to them directly. Therefore, you need to inform the builder about your buyer agent before signing an agreement.
15.2 Why don’t most realtors offer a buyer rebate?
Most of the agents have fewer real estate transactions throughout the year, so giving a rebate can be a loss to them.
15.3 Will the home cost more if I work with a buyer’s agent?
No, the home purchase price will remain the same even if you hire a buyer agent. The buyer agent commission is included in the home price, so you need not pay any additional fee for hiring an agent. In fact, hiring a buyer agent helps you save thousands of dollars in the form of a rebate.
15.4 If I already have an agent, can I switch to one offering a rebate?
If you already have an agreement with your current agent, you cannot switch to another agent. You need to terminate your agreement with the first agent before you can opt for another agent offering a rebate.
15.5 Can I get the entire buyer agent commission if I don’t hire a buyer agent?
No, you will not receive the buyer agent’s commission as it is included in the home price. If you decide not to hire a buyer agent, the seller agent will keep the entire commission. You will not be eligible to get a buyer rebate without a buyer agent. However, in such a case you can speak to the seller and the seller agent and ask them to reduce the home price, since there is no buyer’s agent. Most likely, they may agree.
Rebates can save thousands of dollars for home buyers. With the internet making home listing information easily available, buyers can narrow their search and reduce some of their agent’s tasks. By doing so, buyers can receive a rebate from their agent to incentivize their efforts. Since agents have more time on their hands, they can also focus on getting more buyer clients, increasing their overall commission in the bargain. So rebates are a win-win for all.