New York is the land of dreams- a city like no other, a place that has served as a backdrop of many movies and inspired people across the globe with its charm. To live here long enough to be called a ‘New Yorker’ is a matter of pride. And honestly, no words can quite describe building a life here.
If you have dreamt of spending your heydays and beyond in New York, you must know that you are in for a roller coaster ride. But, unfortunately, while living in NYC is thrilling, it isn’t always easy or cheap.
Recent stats show that a typical New York City home can cost around $370,000 to $650,000, depending on the neighborhood and borough. Plus, living here is expensive- 129% higher than the national average. As a result, it may take someone years, if not decades, to afford a home here in the Big Apple.
If you are curious about the many ways of saving money on home purchases, you will be excited to learn about buyer rebate- a lesser-known way to help you save thousands of dollars on your next NYC home purchase.
1. Home Buyer Rebate NYC
1.1 What is a buyer rebate?
A buyer rebate, by its definition, is a refund given to the buyer by the agent at closing. You can think of it as an incentive or a much larger closing gift from your agent.
Anyone purchasing a home in NYC can get this refund. So, whether you are buying your first apartment or thinking of investing in a condo, you are eligible for a buyer’s rebate.
A real estate commission rebate can go by many names- buyer commission rebate, realtor rebate, or buyer rebate – all essentially meaning the same thing.
In NY, commission rebates are not as popular as in other states. That’s why if you ask agents upfront about such refunds, they will tell you that they do not exist. In addition, to avoid them, they might even go to the extent of telling you they are illegal. However, you must know that since 2014 commission rebates to buyers have been deemed legal in NYC. Not only this but buyers have since been encouraged to ask for a rebate from their agent to reduce the overall commission.
Typically, you can get a commission rebate in one of the following ways:
- as closing credits ( a more popular way of giving rebates)
- as cashbacks.
Let us discuss each of these ways.
1.1.1 Rebate as Closing Credits
When your agent promises to give you a commission rebate as closing credit, what they do is cover some of your closing costs (around 3-5% of the purchase price).
Note: Closing credits as rebates are pretty standard among rebate agents; however, it is in your best interest to avoid rebates in such form. That’s because such rebates come with many limitations, which we will discuss later in the blog.
1.1.2. Rebate as Cashback
The other form of rebate that real estate agents give out is cashback. Agents generally give out cashback after a successful home purchase. These are given either in the form of cheques or cash, and they can be used however you want.
Now, you must be thinking, “why will an agent be keen on giving a rebate if it means a pay cut for them.” Good question!
Well, the answer is simple – competition.
To understand this better, you must know how commission works in NYC. So, first, let us discuss that in detail. If in case, you are already familiar with the process, you can skip the section altogether.
1.2 How does the real estate commission work in NYC?
Most people buying or selling properties in NYC do so with the help of licensed real estate agents. These agents do not charge by the hour. They request a fixed commission on the final sales price in exchange for their services and expertise.
Sellers and their agents usually decide on this commission and detail it in the listing agreement.
As co-brokers, listing and buyer’s agents generally split the commission equally. However, depending on an agent’s expertise and effort, this spilt can also be 40/60 and 65/35 for the listing and buyer’s agent, respectively.
FYI: Co-broking (or sharing the commission) is automatic and contractual between REBNY Member Firms in NYC. It contractually obligates each firm to co-broke 50% or more of the seller's commission with every member.
Note: Terms like realtor, real estate agent, and brokers are often used interchangeably. However, they have different levels of licensing. By joining the National Association of Realtors, brokers and agents can become realtors.
1.2.1 Who pays for this commission?
Typically, the sellers pay a commission to the agents involved. This commission is sourced from the home sale proceeds and amounts to 4-6% ( or 5.75%- avg. commission in NYC) of the final purchase price.
Now you may have a question, is agent commission entirely free for buyers? Well, technically, the answer is no.
Agent commission, as stated above, comes from the final home sale proceeds, which the buyer pays. So, it would be wrong to say that the buyers have to pay nothing in commission.
1.2.2 Why does a buyer agent give rebates instead of reducing their commissions?
As mentioned above, a buyer never pays an agent directly in NYC. Instead, the commission is always decided and paid by the seller.
Now, as the commission is pre-decided and will be paid to the agents at closing, requesting a discounted commission from your agent won’t do anything for you.
Here is why.
Regardless of whether the buyer has representation, the seller is liable to release the owed commission if the property gets sold. So, even if your agent decides to give you a discount, it won’t affect the final sales price of the property. Alternatively, the remaining amount will go directly into the listing agent’s pocket.
Let us explain this with the help of an example. The average commission on a typical home purchase is 5.11% of the final sales proceeds in New York state. It translates to your agent’s share becoming 50% of this amount, roughly $9453.5 for a $370,000 home.
Now, even if you convince your agent to give you a 50% discount on the commission, you won’t save the remaining $4,726. Instead, the remaining $4,726 will go directly to the listing agent because the seller pre-decided the entire commission in the listing agreement.
And that is precisely why buyer agents prefer giving buyers a rebate instead of a discount.
1.3 Where Does the Rebate Come From?
Your buyer rebate comes from the buyer agent’s share.
Say an agent promised to give you 50% of the commission he would earn on your $370,000 house, which is listed at 5.11% commission.
This means that the listing agent (or the seller’s agent) receives $9,453.5 (50% of the commission amount, which is 6%), and the buyer agent gets the rest of $9,453.5.
Your cashback will come from this $9,453.5, which will be 50% of this amount, which accounts for a whopping $4,726.75!
Now, if you are receiving a rebate on the final purchase price, the deal will happen in the following way:
Suppose you are promised a 1% rebate at the final purchase price. So, for a $370,000 house, you will get $3700 as a rebate.
1.4 Why Will Your Agent Be Keen to Give You a Buyer Rebate?
The answer to this question is changing consumer behavior.
For example, homebuyer preferences and way of purchasing homes have changed from how it was in the late 2000s.
Finding dream homes online has become easier with the dawn of online real estate marketplaces. Today, more and more homebuyers buy houses they see online. In fact, 51% of homebuyers across the U.S. found the home they purchased over the internet.
And as homebuyers are now solving the most challenging and strenuous parts of the home-buying process, it has become easier for agents to close deals quickly.
Moreover, working with informed buyers means agents get to work with more clients at half their business costs.
So, to grow their business and retain and attract informed buyers, agents are now offering rebates as an incentive to work with them.
Let us discuss what else motivates agents to offer a buyer rebate.
1.4.1. Rising Competition and Changing Buyer Preferences
There are over 78,167 active real estate salespeople in New York. Needless to say, the competition is fierce, even in NYC. New properties are getting quickly absorbed from the market, and finding new clients is challenging. In addition, working with first-time homebuyers and helping them navigate the NYC market is becoming more and more time-consuming for agents.
As a result, they are trying anything and everything to stay on top of their game. And to serve this purpose- to cut competition and gain an edge on the market- offering a rebate is proving fruitful for seasoned real estate agents.
Additionally, a rebate is a good option for new real estate agents who want to establish themselves in the market.
1.4.2 They Want to Shorter Their Selling Cycle
Closing deals is the only priority of an agent.
Agents must continuously close deals to build a reputation and stay in business. Closing more deals mean more money and firm to the agents. So, if giving a buyer rebate guarantees that a client will surely buy, they would give it in a heartbeat, even if it means taking a pay cut.
1.4.3 They Want to Pass On the Savings to Their Clients as a Goodwill Gesture
Building relationships is one of the most crucial aspects of a real estate agent’s job. Not only does it ensure a good reputation in the market, but it also helps in getting more business from referrals. A rebate is one of the many tools in a real estate agent’s toolkit that establishes goodwill with a client.
1.4.4 They Deal in Upscale Properties
NYC has been the nation’s hottest real estate market for years. It still ranks among the most expensive real estate markets globally, with an average ticket size of over $1M.
Most of the agents in the city deal with upscale properties. For such agents, the priority is to close, and a rebate is no hindrance. That’s because even after rebating their commission, the earning potential in such deals is still higher.
1.4.5 High Brokerage
NYC brokers/ agents are infamous for charging hefty amounts in the commission’s name.
By giving a rebate, agents reassure buyers that they are getting a great deal. This might even help them work with clients who are otherwise dicey of working with real estate agents due to high commission costs.
1.4.6 They Are Most Likely to Close a Sale With a Rebate
Real Estate offers are not binding in NYC until a buyer signs and sends the signed contract with 10% of the contract deposit. So, a buyer can walk away from a deal at any time before signing a purchase contract.
Because of finances, this trend of backing out from a deal has become quite a norm in NYC.
Closing costs are expensive, and they can be around 1.5-6% of the final purchase price for buyers in NYC. This means that to purchase a home of $370,000, a buyer would easily spend a minimum of $5,550.
It is evident that with huge expenses like these in the picture, buyers may get cold feet and even rethink their decision altogether.
When that happens, an agent’s reputation and earnings are at stake. So, to avoid this and close deals, agents offer rebates to help shoulder the buyers’ financial burden.
1.5 What Is the Average Rebate Buyer Agent Gives in NYC?
Your average Rebate in NYC will depend on the following:
- Final purchase price of your new home
- Commission rebate that your agent or company is willing to offer
- Your lender’s approval (in case you are getting a refund on closing costs)
Suppose you buy a home at a final purchase of $745,000 (the city’s median sales price) in NYC.
Then, you are eligible for a rebate in one of the two ways. You get a rebate on the final sale price (here $750,000) or a percentage out of the buyer’s agent commission.
Let’s consider both these cases individually.
- Rebate on Final Sales Price
A few companies in NYC claim to rebate a percentage of the final closing cost. The percentage bracket is usually 0.5 -2 %. Such rebates are popularly given as cashback post-closing a deal. So, if you buy a home worth $750,000, you are eligible for a rebate ranging from $ 3750 to $11,250.
- Percentage of Agent’s Commission
Most agents in NYC offer a rebate on their commission.
You can receive a percentage commission on the rebate in one of two ways: either hire an agent who offers a commission rebate or negotiate with your existing agent to give you a rebate at closing.
Note: The odds of the latter happening are pretty slim. However, if you want to save thousands at closing, it is worth a shot.
Now, coming back to the rebate part. For example, suppose you buy a home for $750,000, and your agent promises you a 65% rebate over their 3% share. In that case, you will receive an average of $14,625.
1.6 Is Rebate Legal in New York City?
Yes, buyer rebates are legal in New York City according to Section 442 of the New York Real Property Law, Article 12-A.
Two documents confirming the buyer commission rebate’s legality are the write-up on the New York Department of State Division of Licensing Services website and one letter to the real estate brokerage community sent in 2015.
Alternatively, New York’s Attorney General and Antitrust division actively promote real estate rebates to increase the industry’s competition and reduce the overall commission for buying and selling properties in the state.
1.7 Where Can You Use Buyer Rebates?
1.7.1 Closing cost
Closing costs in NYC can be around 1.5 – 6% on the final purchase price. This can be around $11,250 to $ 45,000 (without and with taxes, respectively) on a $750,000 home.
You can pay a portion of this closing cost with the help of a rebate. It may include underwriting, title search, loan fees, escrow charges, title insurance premiums, and pest inspections. However, you may first need to talk to your title company and lender to avail of this benefit.
1.7.2. Moving costs
Moving is an expensive affair. An average cross-country move to NYC can cost you up to $10k! You can spend your commission rebate to cover a portion of these moving costs.
1.7.3. New Furniture
In NYC, buyers also use their portion of the commission rebate to purchase new home furniture. So, if you have enough money to cover the expense mentioned above, investing your rebate in new furniture is always a great option.
1.7.4. Emergency Savings
If you have saved enough money for all the options above, you can always save your rebate for emergencies.
1.8 Is Buyer Rebate Right for You?
While buyer rebates are always great for buyers looking to save some extra bucks, buyers must be very cautious before signing any agreement with the agent.
Please note that buyer rebates are highly regulated even in the states where they are legal. Strict rules surround them, especially if you plan to fund your new home. That’s because your lender might have additional stipulations in a mortgage situation. This is especially if you are getting your NYC commission rebate as a closing credit.
Note: Do not hide the information about commission rebates from your lender. If you do, you may face financing falling or mortgage fraud.
1.9 Problems with Buyer Rebate as Closing Credits
If you are looking at a mortgage to fund your new home, your lender might disapprove of a rebate (especially if it is in the form of closing credits). Allowing a rebate on closing credit might disrupt the cost basis.
What is the cost basis?
The cost basis is the final amount you pay for your home at the time of purchase. It includes everything – from your purchase price to the fee you pay during closing and other financial investments.
When you get a commission rebate in the form of closing credits, it cancels out some closing costs, lowering your home’s cost basis. It then affects your Loan-to-value. Loan to value is the amount you borrow to the actual value of your home.
When that happens, your lender must adjust your financing to keep the ratio low (80% or less). Suppose you buy a home worth $600,000
|Homebuyer Commission Rebate||Loan Amount||Cost Basis||LTV Ratio|
|$10,000||$592,000||$740,000||(81.08% too much)|
To adjust this, the lender will try to adjust the LTV ratio to 80%. As a result, it will decrease your loan amount to $592,000.
It means that with a rebate as closing credit, the overall financing of your house decreases. To avoid this, try taking your rebate as a cashback or as additional services like landscaping or interiors.
Note: You must disclose your closing cost rebate on your HUD-1 settlement form (which covers all settlement costs). You will also have to mention the name(s) of the party issuing the credit. Your agent will help you figure this out; remember to keep a check.
1.10 How Much Buyer Rebate Can I Get On My Property? [Calculating Rebate]
As we mentioned before, your commission rebate depends on the following:
- Purchase price of your new home
- Your agents’ commission
- percentage of commission rebate promised by your agent
- Rebate on agent commission
Calculation of your rebate:
List the final buying price of your new home. Then, list the commission percentage ( you’ll usually get this information in the listing agreement). In NYC, this percentage is around 4-6%. So let’s assume the commission to be 5%.
If this commission were to be divided 50/50 among the two agents, your agent would receive 2.5% of the final purchase price.
Commission earned by buyer’s agent = sales price* buyer’s agent commission.
Now, if the buyer agent offers you a 50% rebate, you will get:
50%*2.5%*the buying price of the home as your NYC commission rebate.
To make matters more manageable, you can use the U.S. Department of Justice calculator to calculate your commission rebate.
Let’s understand this one last time:
|Final Purchase Price||Average Commission of Both Realtors (5%)||Average Commission of your Realtor (2.5%) 50/50||The Rebate you will get (suppose 50%)|
- Rebate on Selling Price
If you receive a commission on the selling price (generally 0.5 – 2% of the final selling price), the rebate you will get will be equal to 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 2%)|
1.11 Are Rebates and Cashbacks Similar?
Rebates and cashback are many times used interchangeably. However, in some situations, they might not mean the same thing.
While cashback can be considered money or cheques given back to the buyer after closing, a rebate is generally used for credits given at closing.
Closing Credits cover the following:
- One-time closing cost (For example, escrow, transfer, loan origination fees, etc.)
- Buying points on your mortgage.
So, you need to ask your service provider beforehand what ‘rebate’ means in your situation.
Note: You cannot use either (cash back or credit) towards the down payment of your new home.
2. The Process to Get a Buyer Rebate NYC
Step 1: Request a Rebate
2.1.1. Top platforms that offer rebates:
Getting a rebate is easy if you have an agent in NYC already offering one. You can find rebate agents easily on the online platforms listed below.
Prevu is an online marketplace that offers up to a 2% commission rebate (on property prices above $750,000) to eligible homebuyers. The platform offers these savings by connecting buyers and sellers with agents that do most, if not all, the tasks of a full-service agent.
The platform operates only in a few high-end markets in the US, NYC being one of them. You can find good rebate agents on the platform without searching a lot. The only downside with Prevu is its limited pool of agents.
Hauseit is another platform that offers buyers a 2% closing credit on the final sales price. This company is currently operational in NYC, and while it is still working with customers outside Manhattan, it is not operational in other regions of New York. The company boasts excellent ratings and exception services; however, the buyer rebate on this platform is subject to the amount of property you buy.
Yoreevo is a real-estate marketplace that helps buyers save 2% on any property in NYC. Their agents are knowledgeable about the NYC market and very responsive. You can browse through various apartment listings on their platform, choose the property of your choice, and close your dream home quickly with the help of their discount real estate agents.
NYC buyers can receive a 2% rebate with Nestapple’s full-service agents. This platform is great for customers who have just begun their home search and need a little handholding in the property search.
Upnest prides itself on being a no-cost service platform that connects buyers to the best local real estate agents.
You can set how much rebate you seek on this platform, and the platform will automatically match you with suitable local agents.
BRN partners are brokers that offer 2% cash back at closing. The rebate you get from them will vary depending on how much you spend when buying a home. In addition, the platform connects you with full-service agents in NYC who offer rebates.
If you are already working with a realtor, here is how you can negotiate with it to give you a rebate.
2.1.2. One-on-one Negotiation
Negotiating a rebate with your existing agent or a new agent who does not usually offer a rebate can be difficult.
However, here are a few situations where you might be able to negotiate a rebate with your agent:
You are buying an upscale home in NYC. If you are purchasing a higher-value apartment in NYC, there are chances that you might be able to negotiate a commission rebate. That’s because, in the case of an upscale property, agents are more interested in closing the deal. It is because even with a pay cut on high-end properties, your agent will roughly earn the same amount as they would on a typical apartment.
It is a buyer’s market. Whenever the market favors the buyers, they become valuable to agents. When that happens, negotiating becomes easier. So, look out for micro-market trends in NYC when you buy, and if the market is in your favor, don’t hesitate to ask for a rebate from your agent.
You are giving your agent an additional offer. Another situation where agents may agree to provide you with a rebate is when you decide to buy your new house and sell your old one exclusively through that one agent. In such a situation, retaining you becomes important for the agent. Thus, giving you a good chance of getting a rebate.
If you are a pre-approved buyer. Every agent wants to work with a pre-approved buyer that has picked a house and is now ready to close. Working with such buyers enables agents to close deals quickly and work with more clients. So, negotiating a rebate could be much easier if you are a pre-approved buyer.
Step 2: Read and sign the buyer agent agreement
Once you shortlist an agent, you will be asked to sign an exclusive buyer agreement. This document will contain all the details of your association with the agent- from deliverables to the promised rebate.
Once you sign the agreement, you will agree to work exclusively with the real estate agent. So be extra cautious when reading the agreement. Understand what percentage and type of rebate you will get and ask questions wherever necessary.
To get a better picture, calculate the rebate beforehand with the budget (for your new house) you have in mind and choose an agency that offers you the best deal.
Sign the buyer-broker agreement only after all your requirements are met.
Step 3: Close on A House
Now that you have found your dream home in NYC and finalized the agent you want to work with, go ahead and close the deal.
Your agent will help you through this process, from offer to negotiation to the closing formalities.
Step 4: Get Buyer Rebate!
Post-closing the deal, enjoy your new home in one of the most bustling cities in the world!
It is time to reach out to your agent to claim your rebate.
3. Is the buyer agent rebate taxable? Do you need a 1099?
No, as per the private letter ruling issued by the IRS in 2007, commission rebates in the form of credits do not count as taxable income to the receiver.
It also mentions that such credits are considered adjustments to a buyer’s cost basis. Hence, they are treated as a reduction in the purchase price. Therefore considered non-taxable.
As far as 1099 is considered, as a rebate is not considered an income, you won’t receive 1099 for your commission rebate. Source: 20, 21
4. How to determine whether I am eligible for a buyer rebate in NYC?
If you buy a home in NYC, you are eligible for a buyer’s rebate.
There are no set criteria for the same, and anyone buying a house can get a buyer’s rebate. The only thing to remember here is that your lender and the seller should know this beforehand.
5. What are other ways to make real estate transactions a little less costly?
If you are not a first-time buyer, you can always save big by hiring a discount or fee-for-service agent who charges you for selected services.
Such agents split their services up and charge a fixed or hourly fee for performing specific services.
For example, suppose you find your dream home in NYC. You reach out to the listing agent and are close to closing the deal. At this point, you may want to involve an agent to make the offer and help you with the paperwork. But you don’t wish to pay in full as you have already done most of the legwork. In such a case, you can involve a fee-for-service agent who can help you look into the documents and assist you in closing.
As a result, instead of paying them the full 3%, you pay them for their services.
6. Can Realtors give a rebate to sellers?
The short answer is no. Since rebates are cashback on purchases and sellers are not making a purchase, they are not eligible for a rebate.
Note: The seller has the right to negotiate commission with his agent before signing the listing agreement, but that would not count as a rebate.
7. Should rebate be the sole choosing factor for a realtor?
Rebates can help you save thousands on a real estate transaction. Plus, as it is legal and tax-free, there is nothing wrong with getting a rebate.
While a rebate is a good money-saving tactic, it shouldn’t be the sole criterion for shortlisting an agent. That’s because, on rare occasions, you might also come across an unprofessional agent offering a rebate.
To avoid this, you need to consider other factors, like the agent’s market reputation and the latest closing timelines, before considering them.
To source this information, look at reviews and speak with multiple agents.
In NYC, a homebuyer commission rebate has become extremely popular. And it makes sense. Rebates help homebuyers save thousands on the biggest financial decision of their lives. A typical buyer rebate in NYC can help homebuyers save an average of $25,000.
For agents, rebates make sense too. It helps them maintain relationships with their existing clientele and attract new clients for their business growth.
Even though traditional real estate agents are a little doubtful about rebates, many new players have started offering rebates to incentivize the efforts of homebuyers in finding their homes. In addition, many companies and platforms have also begun offering rebates, giving buyers a fair chance to save a good amount of money on home purchases.
Our only advice to new home buyers in NYC will be to read the broker agreement carefully before you sign it. We would also urge you to ask questions and know exactly what you are getting into in the name of a rebate.