How to Use Buyer Commission Rebates in NYC: What Every Buyer Should Know
How to Use Buyer Commission Rebates in NYC: What Every Buyer Should Know
Buying real estate in New York City is a major financial undertaking. Between the high purchase prices, competitive market, and a myriad of closing costs, every dollar counts. While many people focus on negotiating the purchase price, a significant—and often overlooked—opportunity to save money exists through buyer commission rebates.
This guide is designed to demystify commission rebates in NYC, explaining what they are, how they work, and how a savvy buyer can use them to their advantage.
What Is a Buyer Commission Rebate?
A buyer commission rebate is a portion of the commission that your buyer's agent receives from the seller, which is then given back to you, the buyer.
In a typical NYC real estate transaction, the seller pays a total commission, often ranging from 5% to 6% of the purchase price. This commission is then split between the listing agent (who represents the seller) and the buyer's agent. For example, on a $1,000,000 apartment with a 6% total commission, the listing agent might receive $30,000 and the buyer's agent would receive $30,000.
A buyer commission rebate is when your agent, in this case, the buyer's agent, agrees to return a portion of their $30,000 share to you.
Are Commission Rebates Legal in NYC?
Yes, absolutely. Buyer commission rebates are legal in New York State and New York City.
In fact, the New York Attorney General's office has actively encouraged their use as a way to promote competition and lower costs for consumers. Despite this, many traditional brokerages may not openly advertise them, which is why working with a forward-thinking brokerage is often the easiest path to securing a rebate.
How Does a Buyer Commission Rebate Work?
The process is straightforward. Instead of your agent keeping their entire share of the commission, they credit a portion of it back to you. The rebate can be structured in one of two ways:
A credit at closing: The rebate amount is applied directly to your closing costs, which can significantly reduce the amount of cash you need to bring to the table. This is the most common method.
A check after closing: Your brokerage provides you with a check for the rebate amount shortly after the transaction is complete.
Here’s a practical example to illustrate the financial impact:
Scenario | Without a Rebate | With a Rebate |
Purchase Price | $1,000,000 | $1,000,000 |
Seller's Commission | $60,000 (6%) | $60,000 (6%) |
Listing Agent Share (3%) | $30,000 | $30,000 |
Buyer's Agent Share (3%) | $30,000 | $30,000 |
Buyer Rebate | $0 | $20,000 (from agent) |
Net Cost to Buyer | $1,000,000 + Closing Costs | $980,000 + Closing Costs (after credit) |
As you can see, the rebate is a powerful tool that effectively lowers your purchase price, putting tens of thousands of dollars back in your pocket.
Are Commission Rebates Taxable?
Generally, buyer commission rebates are not considered taxable income by the IRS.
Instead, a commission rebate is viewed as an adjustment to the purchase price of the home, which in turn lowers your cost basis.
Cost Basis: This is the original value of your property for tax purposes. If you buy a property for $1,000,000 and receive a $20,000 rebate, your adjusted cost basis for the home would be $980,000. This is an important distinction to understand, particularly if you plan to sell the property in the future, as it will affect your capital gains calculation.
Because it is not considered income, most real estate brokerages will not issue a 1099 form for the rebate. However, it is always wise to consult with a tax professional to discuss your specific situation.
A Step-by-Step Guide to Using a Commission Rebate
Using a commission rebate isn’t complicated, but requires a few key steps to ensure a smooth process.
Find a Rebate Brokerage: The easiest way to get a rebate is to work with a brokerage that is structured to offer them. These firms have business models that prioritize efficiency and pass the savings on to clients. While you can try to negotiate with a traditional agent, many are not incentivized to reduce their commission and may not have the approval of their firm to do so.
Confirm the Rebate in Writing: Before you start the home search process, make sure the terms of your commission rebate are clearly stated in your buyer representation agreement. This document formalizes the relationship between you and your agent and should explicitly outline the percentage or fixed amount of the rebate you will receive.
Inform Your Lender: This is a critical step. If you are financing your purchase with a mortgage, you must inform your lender that you are receiving a commission rebate. The rebate is treated as a reduction of the purchase price, which can affect your loan-to-value (LTV) ratio. If the lender is not aware of the rebate, it could cause issues with your loan application and delay or even jeopardize your closing.
Receive Your Rebate: At closing, the rebate amount will be credited to you. This is usually reflected on the final closing statement, reducing the total amount you need to pay. If you opted for a post-closing check, it will be issued shortly after the transaction is finalized.
Tips & Takeaways
Rebates are Legal: Don't let anyone tell you otherwise. Buyer commission rebates are legal and encouraged in NYC.
The Seller Pays: The commission rebate comes out of the buyer's agent's share of the commission, which is paid by the seller. It doesn’t affect the seller’s closing costs or the listing agent's commission.
Tell Your Lender: This is the most important piece of advice. A mortgage lender must be made aware of a commission rebate to avoid issues with your loan.
Get it in Writing: Always ensure the rebate is part of your formal agreement with your agent.
Rebate Models Vary: Different brokerages offer different rebate amounts and structures. Be sure to compare what's available to find the best option for your specific transaction.
If you're ready to get more out of your NYC real estate purchase, a buyer commission rebate is a smart, transparent way to save. At Yeo Real Estate, we believe in empowering our clients with the knowledge and resources to make the most informed decisions possible.
Contact Yeo Real Estate today to learn how our buyer-focused model can put thousands of dollars back in your pocket at closing.