Common Uses For Homebuyer Commission Rebates

How To Use Agent Commission Rebates In UT

Love it (buyers and sellers) or hate it (agents and brokers), real estate agent discounts are here to stay.  For Utah homebuyers, the discount comes as a commission rebate, aka refund.  The buyers decide how to use their rebate, but here is a list of the most common uses for rebates I've seen in the past eighteen years as a discount real estate agent in Utah.  

How Agent Rebates Work

How Utah Reale Estate Agent Commission Rebates Work

 1. Closing Cost 

Many home buyers don't realize it, but the down payment isn't the only money they'll need to purchase a homeClosing costs include the appraisal, recording fees, title fees, and lender's title insurance policy, to name a few. These costs vary greatly depending on the lender you select and the price of the house.  

Closing Cost Paid Agent Commission Rebate

As a buyer's agent, I do my best to negotiate the lowest purchase price and get all or a portion of the buyer's closing cost paid by the seller at settlement.  Every transaction is different, and there is no guarantee that the seller will pay the buyer's closing cost. 

In this case, home buyers who work with a discount real estate agent like me to guide them through the home buying process receive a commission rebateLending guidelines allow the agent to contribute (rebate) a portion of their commission towards the buyer's closing cost, eliminating one of the largest expenses of purchasing a house.

Closing Cost Paid For With Home Buyer Rebate

If the buyer elects to apply the rebate to their closing cost, the gift from commissions must be listed in sections 204-209 in the settlement statement per Real Estate Settlement Procedures Act (RESPA) guidelines.

PRO TIP: Real estate agent commissions are not included in the closing cost, and buyers do not pay commissions out of pocket.

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2. Interest Rate Buy Down

Agent Commission Rebates Buy Down Interest Rate

Interest rate buy-downs fall under closing cost, but in today's high-interest rate, Utah real estate market buy-downs have become so popular they've earned their spotlight.  The most common rate buydown is a two-one (2-1).  This is a temporary rate reduction for the first two years of the home loan before the rate returns to the permanent rate.

What does using the agent commission rebate to buy your mortgage rate down mean?  It's exactly what it sounds like.  You pay for a lower rate, usually for two years (2-1 buy down), by paying the interest upfront.  The lender isn't losing money. They're simply collecting the interest in advance.  This makes a lot of sense if you can get someone else to buy the rate down for you, like a seller, or by applying the commission rebate a broker offers.

Utah real estate agent commission rebates

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Buying The Rate Down With A Commission Rebate

Using the rebate (refund) from the agent's commission to temporarily reduce the interest rate became very popular in the high-rate market in 2023.  

Here's an example of how a 2-1 buydown works.

The home buyer agrees to forego the cash back after closing to apply the refund to the buy-down.

If the going rate is 6.5%, the monthly payment for the first year will be set at 4.5%. In the second year of homeownership, the monthly payments will be based on a 5.5% interest rate, and the rate will return to a 6.5% rate in the third year regardless of current rates.

Rate buy-downs can save home buyers lots of money if the seller or the agent rebate pays for the buy-down.

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3. Lower Home Price

Real Estate Agent Rebates Lower Home Prices

Once I've negotiated the price as low as possible and the buyer and seller accept the offer, we can approach the listing agent about reducing the buyer's agent commission (BAC) owed and the purchase price by an equal amount.  The seller, the listing broker, and the buyer's broker are required to agree to the reduction of commission and price on the escrow instruction form.

This approach is common with cash buyers since it eliminates the unnecessary step of giving them a rebate after closing.  Instead, they get the rebate in the form of a lower price, which reduces their cash to close. 

Most home buyers utilizing a mortgage to purchase a home usually prefer to receive the rebate after closing or have their refund applied towards their closing cost.  The average rebate is around $10,000.  A price reduction of $10,000 makes very little difference on a homeowner's monthly mortgage payment. Still, ten thousand tax-free dollars in the buyer's bank account can make a huge difference to a family's lifestyle.

Lower Home Prices With Agent Rebates

Example of how agent rebates can lower the price buyers pay for real estate.

Let's use a list price of $600,000.

A cash buyer (or mortgage) wants to purchase a home in Cottonwood Heights, Utah.  The list price is $600,000, but the home buyer wants to negotiate a lower price.  Several days after the initial offer and many counteroffers, the buyer and seller agreed to $585,000.

Since the buyer is paying cash, they prefer a lower price than my commission rebate after closing.  At this point, I would contact the listing agent or broker and let them know I'm willing to reduce my commission by 1.5% (rebate amount varies) in exchange for an additional price reduction equal to the commission reduction.

Once agreed to in the escrow instruction form, the new lower home price would be $576,225. 

$585,000 x 1.5% = $8,775.

$585,000 - $8,755 = $576,225.

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4. Home Repairs

Regardless of the age and condition of the home, you should budget for replacing, repairing, and eventually remodeling things in any house.  Welcome to homeownership!  Home Depot (I prefer Lowes) will become your new favorite store.  There are endless repairs and improvements to maintain a house properly.  Luckily for our home buyers, we help pad their emergency funds with our commission refunds.

Real Estate Agent Rebates Home Repairs

Repairs Paid For By Commission Refunds

The average refund from our commission is approximately ten thousand dollars.  This non-taxable cash infusion into your bank account will go a long way in repairing any defects we cannot negotiate with the seller before closing on the home.  There are also unknown repairs that the seller was unaware of, and the inspector could not have identified them during a non-invasive home inspection.   Inevitably, home maintenance and funds needed to fix them will be at the least opportune time.

Luckily for the buyers we represent, our agent cash-back refund makes these home repairs and the cash required to fix them less painful.

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5. Win the offer

Real estate markets are constantly changing, and so is the negotiating leverage of each party (buyer and seller).  In 2020 and 2021, Utah's real estate market was absolutely insane.  Homes sold for hundreds of thousands of dollars over the seller's asking price hours after being listed on the local multiple listing service (MLS).  Home buyers were waiving their right to have an inspection and appraisal and making earnest money immediately non-refundable.

In 2022 and 2023, the local market halted and did a complete 180, and now the buyers were in the driver's seat.  Once sellers pulled their heads out of the clouds and realized they missed the top of the market, they would need to accept that their house would sell for significantly less than their neighbor's house during the bidding war pandemonium of 2021.  Now, sellers were reducing list prices by $50,000 and $100,000 at a time and offering to contribute huge sums of their equity to buy down the interest rate for the home buyer.

Real Estate Agent Rebates Win Home Purchase Offer


What do, I mean, win the home?  Well, in 2021, when it was common for the seller to receive 20 -30 offers the first day on the market, agents had to be very creative.  The negotiating tools available for buyers working with traditional brokers were the final home sale price, non-refundable earnest money upon acceptance (so risky), appraisal gaps, quick close, free rent backs for the sellers for seemingly unlimited durations, and pretty much anything else the seller demanded.

One of Utah home buyers' biggest advantages when working with me is the commission rebate.  Since I'm a discount realtor who offers to give my clients half of my commission in the form of a rebate, we had one more negotiating tool other agents and buyers lacked, and it worked out very well for my clients.  

Once we have submitted our absolute best purchase offer, I will speak with the listing agent to discuss the offer.  If our offer were one of the best, I would pull out one last trick.  I'd let the seller's agent know I'm willing to lower the commission paid to me by 50% so the seller nets more money.  This was almost always well received, and I know for a fact because agents told me after we closed on the home that the lower commission won the buyer the home. 

Even though the homebuyer didn't technically receive a broker commission rebate in these scenarios, they purchased the home of their dreams, and it was the rebate savings that made it possible.

Example Of Multiple Offer Commission Rebate

One of my clients was competing for a home in Sandy, UT, with over thirty purchase offers.  We attended the open house along with what seemed like 200 other buyers.  The massive pile of shoes on the front porch continued down the stone path to the driveway.  The buyer loved the home and was willing to do what it took to win the bid.

The list price on the MLS was $650,000. We offered $775,000 with a $125,000 appraisal gap (the buyer pays the difference between a low appraisal and purchase price), which sounds crazy but was very common in that market.  After a few days of negotiating against the other buyers, the listing agent let us know we were in the top three the seller was considering.  After consulting with the buyer, they agreed to forego the commission rebate to be more competitive.  I followed up with the seller's agent and notified her I had emailed her a signed escrow instruction form reducing the buyer's agent commission (BAC) by half, resulting in $11,625 ($775k x 1.5%) more profit in the seller's pocket.  This is the cheery on top.  Our offer was accepted, and the rebate made it the most appealing in a war of multiple offers.

I know what you're thinking.  That poor buyer must be regretting that purchase.  Not at all.  They love their home, which is currently valued higher than the $775,000 they paid, and have referred several of their friends to me. 

Agent Rebate Conclusion

Now, you should understand that real estate agents in Utah offer rebates, the ways they are most commonly used during a real estate transaction and after the buyer closes on their new home.  Rebates are a great way to make homeownership a more attainable goal for home buyers before the American Dream slips out of reach.

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