Purchasing a home, especially in Virginia, is a significant milestone for many. However, buying a home in the state is not cheap. It comes at a hefty price and with hidden costs. Inspection fees, closing costs, moving expenses, and new furniture purchases can significantly add to the financial burden, potentially pushing the dream of homeownership just out of reach.
These expenses can sometimes make the dream of homeownership seem out of reach. But there’s a financial silver lining in Virginia’s housing market – the buyer rebate. If leveraged properly, this strategy can save you thousands of dollars.
Buyer rebates are not only legal in Virginia but actively encouraged. According to the Department of Justice (DOJ), buyer rebates foster competition among real estate agents, which translates into significant savings for home buyers. The DOJ asserts that bans on rebates artificially inflate the cost of real estate services.
Curious about how these rebates work and how they can be applied in Virginia? Intrigued by the potential savings they could bring to your home buying process? Join us as we explore the impact of buyer rebates on Virginia’s real estate landscape and how you can make the most of this opportunity.
Table of Contents
1. What is Buyer Rebate?
When a real estate agent offers to pay a portion of their commission to buyers at closing, this amount is called a buyer rebate. Some agents offer rebate as cashback, while others offer it in the form of closing credit. The rebate can either be a fixed amount or a percentage of the home’s purchase price. Rebate is also often offered as a percentage of buyer agent commission.
2. How does buyer rebate work?
The home buyer rebate comes from the buyer agent’s fee. Let’s say you buy a home for $300,000. The seller would pay 6% commission to the agents involved at the end of the transaction.
Total Commission = Home Price x 6% = $300,000 X 6% = $18,000
Traditionally, 3% commission goes to the seller agent, and the other 3% goes to the buyer agent.
Therefore, each agent gets,
Total Commission / 2 = $18,000 / 2 = $9,000
The buyer agent earns a commission of $9,000, which he shares with the buyer of the house at closing. Suppose the buyer is promised 1% of the home price as a rebate. The rebate amount will work out to:
Home price X 1% = $300,000 X 1% = $3,000
A rebate of $3,000 is a considerable saving for a buyer.
3. How much is the buyer rebate in Virginia?
As mentioned earlier, buyer rebate can be expressed as a percentage of the home price, or as a percentage of the agent’s commission.
Let’s look at both these cases here.
Case 1: You get a rebate as a percentage of the final purchase price (say 1%)
Assuming the buyer and seller agents share the commission equally, each gets 2.60%, then:
Commission Percentage X Median Home Price = Total Commission Amount
5.20% X $372,301 = $19,360
So each agent will get half the total commission amount
$19,360 ➗ 2 = $9,680
If the buyer rebate is 1% of the home price, then this works out to:
Buyer Rebate Percentage X Median Home Price
= 1% X $372,301 = $3,723
So at the time of closing, the buyer agent will receive $9,680 as his commission. He will give $3,723 to the buyer as a rebate, and keep the remaining $5,957.
Case 2: You get a rebate as a percentage of your agent’s commission
If the buyer rebate is 40% of the agent’s commission in the above case, this would be calculated as,
Buyer Agent’s commission X 40% = $9,680 x 40% = $3,872
So at the time of closing, the buyer agent will receive $9,680 as his commission out of which he will give $3,872 to the buyer as a rebate, and keep the remaining $5,808.
So in this case, 40% of the commission as a rebate is higher than 1% of the home value. Be sure to work out the rebate like this when you compare rebates offered by agents, as percentages can be confusing.
Here is a helpful buyer rebate calculator provided by the Department of Justice:
3.1 Buyer rebate for a range of home values in Virginia
Let’s take a look at what the rebate would amount to for a range of home prices in Virginia. Let’s understand rebate as a percentage of the home price here.
|Home Price range||Buyer Rebate as % of home price|
|$250,000 – $3,00,000||$1,250 – $1,500||$2,500 – $3,000||$3,750 – $4,500||$5,000 – $6,000|
|$325,000 – $3,75,000||$1,625 – $1,875||$3,250 – $3,750||$4,875 – $5,625||$6,500 – $7,500|
|$400,000 – $450,000||$2,000 – $2,250||$4,000 – $4,500||$6,000 – $6,750||$8,000 – $9,000|
3.2 How much is the buyer rebate in the top counties of Virginia?
Let’s take the typical home prices in 20 of the best counties to live in in Virginia and see how much the rebate works out to:
|County||Median Home price||Commission as 5.20% of home price||Buyer Agent’s 50% share||Buyer rebate as 50% of buyer agent’s commission||Buyer rebate as 2/3rd of buyer agent’s commission|
4. How will the buyer receive the Rebate?
Rebate can be in the form of closing credits or cash. Let’s understand them in detail.
4.1 What is closing credit?
Closing credits are a way to reduce the total amount of money required by a buyer to complete the home purchase. A seller gives closing credits to the buyer to cover home repairs or closing costs. Closing credit helps to offset some of the homebuyers’ out-of-pocket expenses at closing.
Closing credit comes with specific rules and regulations. Rebates received as closing credit can only be used for specific expenses such as transfer fees, appraisal fees, escrow fees, buying mortgage points, loan origination fees, etc. The lender dictates how much credit you can receive at closing, and if the loan is riskier, the lender will reduce the credit amount accordingly. Closing credit must be agreed upon in writing by both buyer and seller.
4.2 What is Cashback?
A cashback rebate is a cash incentive that a real estate agent offers to home buyers at closing. Cashback amounts can be used in any way you want – for buying new furniture, home improvements, moving costs, etc. Cashback can be used in any way you please.
5. Is it necessary to disclose the buyer rebate?
Yes, it is necessary to disclose the buyer rebate to all parties, including the seller, attornies, and especially the lender. as the rebate amount affects the cost basis of a home. The cost basis of a house will affect the LTV ratio, which a lender uses to gauge the borrower’s loan eligibility. If you don’t disclose your rebate, your loan could be canceled and you could be charged with mortgage fraud.
5.1 What is cost basis? How does rebate affect cost basis?
Cost basis is the amount that your home is worth from the taxation standpoint. To put it simply, it’s the total expense that a buyer incurs for the home purchase. This includes the price of the home, plus closing costs, minus any rebate received. Rebate cancels out some of the closing costs such as inspection costs, escrow fees, etc., which lowers the cost basis of your home.
Assuming that your home costs $372,301 (median home value in Virginia) and you receive $7,182 as a rebate.
This means that your cost basis would be:
Cost Basis = Price of home – Rebate = $372,301 – $7,182 = $359,186
A rebate brings down the cost basis of the home.
5.2 What is LTV ratio? How will rebate affect the LTV ratio?
The Loan-to-Value ratio is a measure that compares the mortgage amount with the home value or cost basis. A higher down payment will lower your loan amount. Since the LTV ratio is nothing but the loan amount divided by the cost basis, the lower loan value will lower the LTV ratio. A mortgage lender uses the LTV ratio to determine how much they can lend you and if you’ll need private mortgage insurance in case the ratio is higher. A good LTV ratio aims for 0.8 or lower, which can help you get a better loan option and you can avoid paying private mortgage insurance.
Rebate affects the LTV ratio by lowering the cost basis of your home. Therefore, you should disclose the rebate to your lender to adjust the finances accordingly.
In the above example, if your loan amount is $293,095 for the given home value, your LTV ratio would work out to:
LTV Ratio = Loan Amount ➗ Cost Basis = $293,095 ➗ $359,186 = 0.816
Here’s the table that depicts the LTV when you receive $0 and $7,182 as your rebate:
|Home Buyer Rebate||Loanaon Amount||Cost Basis||LTV ratio|
A rebate increases the LTV ratio. Lenders prefer to keep the LTV ratio at 0.8. In this case, the lender will have to reduce your loan amount to bring the LTV ratio down to 0.8.
6. Does a buyer rebate mean the seller gets less money for the home?
No, the seller does not lose any money when a buyer receives a home buyer rebate. This is because the rebate comes from the buyer agent’s commission, which is already baked into the price of the home which is to be paid to the seller. The commission is only paid out once the buyer pays the full home price to the seller.
7. When to negotiate a buyer’s refund
The best time to negotiate a buyer’s rebate is before you enter into a representation agreement with your agent. After signing the agreement, you will not be able to re-negotiate further. However, in case you feel the rebate is a deal-breaker, you can speak to your agent and renegotiate the rate – although this could be dangerous, and the agent may back out of the deal completely. In genuine cases, the agent may agree to renegotiate so that the deal does not fall through.
8. How to negotiate a buyer rebate
Some agents may feel offended at the mention of a rebate, but there are plenty of agents out there who have made rebates a part of their standard agreement. Remember that rebates are always negotiable and you should definitely try to get yourself the best deal. Here’s how you can negotiate a rebate.
8.1 Be willing to walk away
Since you are investing a huge amount of money on your home purchase, you deserve to earn some money while you are doing it. Rebates are legal and encouraged by the Department of Justice since it is a direct benefit to a home buyer. So if your agent is not providing a rebate, you should be prepared to walk away and hire another agent who is willing to offer a rebate.
8.2. Shop around
Agents offer varying rebates depending upon the home’s location, real estate market, and the brokerage firm they represent. If you feel that you are not getting what you want, keep looking until you find a great rebate deal.
8.3. Talk to friends and family
Since you have already decided to buy a home, let people know. There might be chances that some of your family members or friends have used an agent earlier and can help you connect with agents offering a rebate.
8.4 Ask for what you want
Rebates are always negotiable. So never hesitate to be open about it. Talk with different agents and let them know what you want. This way, agents will know your expectations and notify you if they can offer it or not. After setting up your expectations, close with the agent who provides the best deal.
8.5 Do your homework
Most agents offer rebates when home buyers have done their home search. There are websites like Zillow, Realtor.com, and Trulia where you can find all the listing information. Do some of the tasks of your agent – narrowing down the search to a few homes, will mean that the agent doesn’t have to show you many homes. This will save the agent time, money, and effort, and they will be more willing to negotiate a good rebate.
8.6 Work with a new agent
Almost all new agents offer rebates as a marketing strategy to attract more buyer clients to use their services. New agents are more willing to provide rebates to close deals, especially when they are just getting started.
8.7 If you are buying a high-priced home
You have a higher chance of getting a rebate when you buy an expensive home. Your agent will receive higher commissions on the home sale and will be more willing to share his portion of the commission with you as a rebate.
8.8 If you are buying and selling with the same agent
If you plan to sell a home and purchase another at the same time, you could probably hire the same agent. Since this will mean a double commission with the same client, they will be more willing to offer you a higher rebate to get your business.
8.9 Buy a home an agent is already selling.
You can buy a home that your agent is already selling on the market. In this case, the agent will be representing both the buyer and seller and will be more open to negotiating a higher rebate since this means a double commission for them. When one agent represents both the buyer and seller, this is termed a dual agency. While the dual agency is banned in some states, it is legal in Virginia.
8.10 When buying in a low-demand area
If you decide to buy a home in a location where demand for homes is low, agents will be competing for business here and will be more willing to offer a rebate.
9. Why do agents offer a buyer rebate?
Agents offer rebates for different reasons. Let’s look at some of the reasons here.
9.1 Rebate helps attract buyers
Rebate is an excellent way for real estate agents to attract home buyers. When an agent tells a buyer that they can save thousands of dollars on their home purchase through a rebate, there is no question of leaving it behind.
9.2 Passing on real estate savings
Advances in technology have helped agents save time, effort, and money. For example, emails have reduced communication time, and realtor websites have reduced the time required to narrow down the search for a home. While the real estate commission has remained virtually unchanged. So agents don’t mind passing some of these savings on to the buyer as a rebate.
9.3 The home could be hard to sell
Some agents may face difficulty finding a buyer wealthy enough to buy an expensive home. Offering a rebate helps agents convince home buyers by making the home purchase affordable for them.
9.4 As a trade-off for services
Some agents offer a rebate when a buyer doesn’t require all their regular services. For example, they may not be required to search for homes at all because the buyer has already selected a home. As a trade-off for fewer services, the agent will be willing to offer a rebate to secure your business.
9.5 To bring the home within reach of the buyer’s budget
Home buying is a huge investment for most buyers. The overall expense of the home purchase, including closing costs, can take a toll and sometimes buyers might decide to backout as the home becomes unaffordable. Agents offer rebates so that buyers can bring down their out-of-pocket expenses, making the home affordable
10. Is buyer rebate taxable?
Buyer rebate is not taxable in Virginia. According to IRS, a buyer rebate is not a taxable income but an adjustment to the home’s overall purchase price. The broker should not send the 1099 form to the buyer. Generally, a buyer agent fills out a 1099 tax form to show any payment to his broker or another party, and sends a copy to the IRS. If you receive the form from your agent, you can ask them to withdraw it. You can check with your tax advisor in case of any issues.
10.1 How does rebate affect capital gains tax?
Rebate affects the capital gains tax through the cost basis of your home. Capital gains tax is the tax you pay when you decide to sell the home in the future. The tax is paid on the increase in the value of your home since you purchased it. A rebate lowers your home’s upfront cost basis, which makes it seem like your home gained more value over the years than it did and will increase the capital gain taxes in the future.
11. How can a buyer ensure that he gets a buyer rebate?
11.1 Do your research before signing the agreement with an agent
It is always a good idea to understand the real estate market situation and how agents operate in your area before you initiate negotiations with an agent. Information like what is the rebate rate in your area, and what is the total commission agents receive, will help you negotiate better.
11.2 Read the Terms and Conditions Carefully
Different agents have different terms and conditions; therefore, it is important to understand what your agent is offering. Some agents put a clause in the agreement that the rebate will only be given if they make a certain amount of money. Some tend to decrease the rebate amount based on the number of homes you tour through them. So, you need to check the terms and conditions beforehand to avoid any surprises.
11.3 Sign the Contract only if you are satisfied
Only once you are convinced that you are getting a good deal, should you sign an agreement with your agent. Do not get pressured into signing on the dotted line for any reason.
12. Where can I find an agent offering a buyer rebate in Virginia?
Finding an agent who offers buyer rebates in Virginia is not as difficult as it might seem. You can find them online through various advertisements on the internet or on the agents’ websites. Here is a list of agents as well as online services to help you find agents who offer buyer rebates in Virginia.
12.1 Clever Real Estate
Clever Real Estate is a nationwide agent-matching service that matches buyers with full-service real estate agents from the top national and regional brokerages. In addition, it offers an inbuilt cashback rebate of 0.5% of the home price to the buyer without any negotiations.
Their online service is fast and easy to use. Clever gives you a list of agents you can talk to, and if you don’t like any of them, you can ask them for a further list. Their agent-matching service is free, and you’re not obliged to use their services after signing up.
Clever Real Estate has a customer rating of 4.9 rating out of 5 based on 1,630 reviews on Trustpilot.
Redfin offers discount brokerage services to home buyers. It provides all the basic services that a traditional agent offers but at a lesser price. Though there are savings through rebates, buyers might have to compromise on the service quality.
Redfin rebates are subject to various terms and conditions. Redfin doesn’t even advertise how much rebate they offer. You need to check with your agent or lender if you qualify for a rebate. Redfin claims that an average buyer who qualifies for a buyer rebate with them saves $1,750 on their home purchase.
Redfin’s average customer rating is 3.9 out of 5 based on 416 reviews on Consumer Affairs, Yelp, and Google.
UpNest is an agent-matching service that connects you with top real estate agents. It’s free, with no obligation to use their service after signing up. Agents compete for your business once you sign up with them. This would mean very little negotiation from your side to get a rebate.
UpNest offers a 0.3%-0.75% of the home purchase price as a cash back rebate to home buyers at closing. It also provides a $150 Amazon gift card to encourage its customers (home buyers) to use their service.
At times, you may face challenges to connect with their representatives (customer service). Otherwise, UpNest savings are guaranteed no matter which of their agents you decide to work with for your home purchase. UpNest has a weighted average customer rating of 4.6 stars out of 5 based on 3,794 reviews on Google, Better Business Bureau, Facebook and Shopper Approved.
Realtor.com offers agent-matching services to home buyers. Like any other agent matching service, it’s free to use, and there are no obligations once you sign up. In addition to agent-matching services, its agents offer 30-40% of their commission as a rebate to home buyers at closing.
Though the website has updated information about the home listing, you’ll face challenges when you want to learn more about them in detail. You have to fill out many forms before connecting with any of their agents. Once you fill out the forms, you’ll be slammed with phone calls, text messages, and emails with offers and sales pitches.
Customers have given Realtor.com a rating of 2.7 out of 5 on Trustpilot. Out of 1,005 reviews, 46% of customers have rated it as excellent, while 15% rated it as bad.
12.5 Discount Realtor
Discount Realtor is a discount real estate brokerage that connects buyers with full-service agents for a lower fee than a traditional agent. The agents at Discount Realtor offer 1/3rd of their commission to buyers as a rebate at closing. It has local, experienced, full-service agents from well-known brokerages such as Keller Williams, Coldwell Banker, Homesmart, etc., who work with you. Customer reviews suggest that they offer quality service and help them save money.
12.6 Ed Simpson Realtor
Ed Simpson is a full-service agent who offers a cash back rebate when you buy a home through him. The commission rebate depends on how much he receives on a home sale. You can earn a 1% commission rebate on a home sale if the agent gets a 2.5% commission. If the agent receives a commission of 3% on a home sale, you can earn 1.5% of the home sale price as your rebate. The rebate is provided at closing, which can be used to cover closing costs. You need to do a home search on your own to receive a rebate. The website offers an MLS search, or you can use other real estate portals to search for your home online.
12.7 Flat Fee Group
Flat Fee Group is a flat-fee real estate brokerage that connects full-service agents to home buyers. They offer 2% of the home purchase price as a rebate at closing, and you may use the rebate as payment for closing costs or make a down payment. Flat Fee Group can help you connect with some lenders over the phone as they have several lenders on their list, and you can choose who you want to work with. Pre-approval helps an agent to know that you are a serious buyer and are willing to close the deal quickly.
Once you have found the home, you can speak to the Flat Fee Group agent. They will guide you through the entire offer and then make you sign the agreement. Their agent will submit your offer to the listing agent. If your offer is accepted, the agent will guide you through the entire process till closing.
The agent will offer a rebate at closing if the lender allows it. The rebate amount depends on the commission they receive and the number of showings with you. Flat Fee Group has a 4.9 rating out of 5 based on 45 reviews on Google.
12.8 Glass House Real Estate
Glass House Real Estate offers full-service brokerage services to home buyers. You can earn up to 1.5% cashback on your home purchase. They have 16 years of experience and claim to have sold homes worth over $125 million in 2021. Their team of local and expert agents have good experience and knowledge of home buyers’ need.
Glass House Real Estate shows you as many homes as you want to see. You need to have a local pre-approval letter and the list of homes you have shortlisted to see. The minimum commission they offer is $7,500, and they claim that buyers save an average of $11k on a home purchase through them.
According to WSJ Real Trends, Glass House Real Estate was the #1 Agent Owned Brokerage in DC Metro Area and the #2 in 2021 Selling Agents in Vienna. Northern Virginia Magazine named them Best Real Estate Agent 2016-21, and they were also featured in – Luxury Magazine, Blade Magazine, Washington Post, CNN, NYTimes, and Wall Street Journal. Glass House Real Estate has a customer rating of 4.5 out of 5 on Yelp based on 24 reviews.
12.9 Go To FSBO
Go To FSBO is a discount real estate brokerage that provides you full service at a discounted price compared to a traditional agent. They offer 2% of the home purchase price as a rebate at closing, and you can use this rebate for your down payment or pay closing costs. Go To FSBO has a customer rating of 5 out of 5 based on four reviews on Yelp.
12.10 Equity First Realty
Equity First Realty, a full-service real estate brokerage, helps buyers purchase their homes. Their agents have excellent negotiation skills and help you get significant savings. You can earn up to 1.5% of the home purchase price as a cash back rebate at closing. Equity First Realty has a 3.5 rating out of 5 based on eight reviews on Yelp.
12.11 New Homes Realty
New Homes Realty offers up to 2% of the home price as a rebate to buyers. It supports the do-it-yourself model where buyers need to do their home search to get a rebate. Their agents negotiate the best rate for your home and provide the best discounts.
12.12 DMV Home Rebate
DMV Home Rebate is a real estate agency that offers 1% of the home price as a rebate to you at closing. You need to do your home search before approaching their agent for your home buying process. In return, they provide you with a rebate for your efforts in your home search. DMV Home Rebate has a 5 out of 5 customer rating based on five reviews on Yelp.
12.13 Northern Virginia Homes
Northern Virginia Homes provides full-service real estate agent services to home buyers. Their agents offer rebates, and the amount depends on the specific transaction and your lender. You need to have a pre-approved letter from your lender before you start looking for homes. Once you have the pre-approval letter, the agents at Northern Virginia Homes will help you with the home buying process till closing. Northern Virginia Homes has a 5 out of 5 customer rating based on three reviews on Google.
Summary of websites/agents offering rebates as mentioned above:
|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 price||User-friendly website|
|Discount Realtor||1/3rd of agent’s commission||Local agents familiar with the market|
|Ed Simpson||1%-1.5% of home price||Local agents familiar with the market|
|Realtor.com||You can negotiate a rebate when you connect with their agents.||Fast online service. Good for getting an idea of the market situation|
|Flat Fee Group||2% of home price||4.9 out of 5 customer rating|
|Glass House Real Estate||Minimum $7,500||Local agents familiar with the market|
|Go To FSBO||2% of home price||Full-service realtor|
|Equity First Realty||1.5% of home price||Local agents familiar with the market|
|New Homes Realty||1%-2% of home price||Specializes in new homes|
|DMV Home Rebate||1% of home price||Local agents familiar with the market|
|Northern Virginia Homes||Depends on home price||Local agents familiar with the market|
13. Will I forfeit some of the agent’s services if I avail of the rebate?
You don’t have to compromise on an agent’s services for a rebate. Unless you don’t require any specific service from an agent, you can insist on full services.
You need to be aware of the service provided by a full-service realtor to negotiate this part of the contract. Here is a list of services that a buyer agent offers:
- Helps you identify a suitable home that meets your goals and objectives.
- Provides you with additional information on communities, schools, and any other important information that you may not find otherwise.
- Helps you with the negotiation process.
- Reviews the estimate of the funds required for the home purchase, including monthly mortgage payment, escrow, pre-paid, insurance, etc.
- Notifies you about the new listings before other buyers can find them.
- Schedules and attends inspections of properties with you.
- Monitors the loan approval process, title insurance, etc.,
- Keeps you informed of all events that may affect the closing.
- Attends the closing with you.
14.1 Instead of taking a buyer rebate, should I get in touch with the listing agent directly?
If you speak to a listing agent directly, he becomes your buyer agent. This agent acts as a dual agent representing both buyer and seller. He earns both the buyer and seller commissions, and you’ll not be eligible for a buyer rebate, since it was not discussed earlier. Hire a separate agent as it will not cost you anything. Therefore, it is better to have a separate buyer agent who will serve your interest, and give you a rebate as well.
14.2 What if the lender does not approve of the rebate?
Different lenders allow different amounts of rebates, and some lenders might not even approve it. You need to check with your lender (in advance) whether they will approve the rebate you receive at closing. But if you’ve already hired a lender who doesn’t approve your rebate, you can request your broker to ask the seller to reduce the home purchase price instead.
14.3 Are homebuyer rebate and first-time buyer credit the same?
No, home buyer rebate and first-time buyer credit aren’t the same. Rebate is the amount that a buyer agent shares from his commission with the home buyer at closing. Whereas the First-Time Credit Act grants first-time home buyers up to $15,000 in refundable tax credits. As of June 2022, the bill is yet to become a law.
A buyer rebate can be a great way to save thousands of dollars when buying a home. However, you should negotiate the best rate before closing with an agent. Once you have signed the contract, you may not be able to renegotiate your rebate.
Rebate should not be the only criteria for deciding on an agent. You also need to check the services offered by them. Some agents offer full service along with a rebate, while others provide reduced services along with a rebate. So due diligence is required before signing an agreement with an agent.