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Regular Contributor
lylapad
Posts: 153
Registered: ‎08-24-2007
0

agent splitting commission with buyer? Legal or not?

When I purchased my previous home, I did all the legwork and as a result, the agent I worked with sent me a check for 1/2 his commission at the end of escrow.

 

Today I spoke with an agent who entertained the idea and spoke to her legal dept. and they told her it was illegal. The only thing she could do is issue a credit during escrow. Is it possible the laws are different in LA than they are in Contra Costa County? DId the laws change since 2004? Wouldn't this be a state law? 

 

Now how is it possible that the agent who did this with me and other people I know is illegal, and do companies like Redfin and Zip Realty issue a cash payments post escrow or credits during escrow?

 

 

 

Contributor
bayalex
Posts: 16
Registered: ‎05-28-2009
0

Re: agent splitting commission with buyer? Legal or not?

I don't know the strict legalities, but I do know that each time I've bought or sold a home before, there's been something my agent has done -- buy/supply a home warranty, gift me some patio furniture, or split the commission with me.  Also, commission rates, although it's less common, are negotiable.  So, it's SOUNDING like what your agent is telling you is untrue -- which, if the case, is not a good sign.  If your agent doesn't want to share commission with you, they should just say so straightforwardly, possibly with an explanation of how they see the situation -- what value they believe they add, for which they want to be compensated, etc.  Then they should let you decide what's in your best interest.

 

That said, the (non-Redfin) agent I worked with, who split his commission with me.... well, let's just say that it became painfully clear why he had to split commissions, and I probably would have been better off just paying for the advice and expertise I would have hoped to get from somebody who commands the respect in the industry to confidently say, "No thanks -- The value I add to the transaction is worth my full commission." That demonstrates the ability to negotiate for oneself, and in retrospect, I believe that's the kind of agent you want negotiating on your behalf. 

 

Good luck!

Regular Contributor
lylapad
Posts: 153
Registered: ‎08-24-2007
0

Re: agent splitting commission with buyer? Legal or not?

Thats a good point. The issue I have is that I will be doing all the "leg work" to find the house. I also look after a toddler and my schedule is pretty tight so it would be very difficult for me to coordinate my schedule with the buyers and sellers agent on every single house I want to look at. It would take forever. I am offering the value of at least narrowing down what I am interested in to a couple choices, which could take a few to several months. The agent could be servicing other clients who don't have the time or schedule to look at homes, and use the agent to filter out the lemons.

 

I hope to find someone who is at least willing to give up a portion of their commission in exchange for the countless hours I would save them by doing the leg work myself. For example, this weekend I viewed 10 homes I had saved which fit my criteria and the pictures looked good. None of them were a good option enough to make an offer. That being said, had an agent been driving us around for 3-4 hours to view these homes with my toddler in tow, would have driven anyone nuts.

 

I'm giving the agent the opportunity to take the grunt work out of the home search and concentrate on the meat of the sale which is the negotiation process, which is worth 50-70% of their 1/2 of the total commisson.

 

Silver Regular Contributor
tux
Posts: 641
Registered: ‎01-29-2010
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Re: agent splitting commission with buyer? Legal or not?

I'd ask your agent to have their lawyers cite the law which says that. Somehow I suspect the only thing you'll hear are crickets, but if you do hear something which can be referenced, please let us know.

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dkhaz
Posts: 5
Registered: ‎05-03-2010
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Re: agent splitting commission with buyer? Legal or not?

 


tux wrote:

I'd ask your agent to have their lawyers cite the law which says that. Somehow I suspect the only thing you'll hear are crickets, but if you do hear something which can be referenced, please let us know.


I would say do some more digging and find out if this is illegal or not.  At the end of the day, if you have to ask for citation of a law to have them prove you right, then you may think twice before using them as your agent.

Silver Contributor
SidewalkHomes
Posts: 412
Registered: ‎08-01-2008
0

Re: agent splitting commission with buyer? Legal or not?

Lucky,

 

If you got a loan on the property, your agent giving you 1/2 his commission after the fact is, in fact, illegal.  What Redfin, and others (Sidewalk Homes included) offer is completely legal, because we make everyone aware of the rebate, and it shows up on the HUD-1.   The sharing of the commission can come in several forms, but the key from a legality standpoint is that the lender has to be aware of it and be okay with it.

 

So why wouldn't a lender be okay with it?  I'm not really sure, but some aren't (especially FHA).  In those cases, there's often another solution to the problem - sometimes the seller will agree to drop the purchase price 1.5% (1/2 the commission listed in the mls) and drop my commission to 1.5%, as they net the same amount doing this.

 

Many folks think there is not enough transparency in real estate, being above board with sharing the commission is a step in the right direction. 

Silver Contributor
SidewalkHomes
Posts: 412
Registered: ‎08-01-2008
0

Re: agent splitting commission with buyer? Legal or not?

Bayalex,

 

You obviously had a very weak agent.  The argument that 'the realtor must not have been a very good negotiator if they'll negotiate away 1/2 their commission upfront' is the mantra of the old guard realtors.  It's baloney.  There are strong and weak agents at both ends of the spectrum.

 

I worked for the name brand firms for 8 years.  ALL they cared about was how much of YOUR MONEY they got out of the deal.  I'd rather share my commission with buyers than a broker with a national name and an expensive office.  Companies like Redfin are helping change the game. 

Regular Contributor
AROOLY
Posts: 97
Registered: ‎10-12-2007
0

Re: agent splitting commission with buyer? Legal or not?

Splitting commission outside of escrow (without lender knowledge) is a violation of RESPA. It is mortgage fraud, FBI is on the look for this cases all the time. You can get reimbursed from the selling agent but only in escrow and only with clear approval of the lender. I have no idea how some brokers are sending legally a check out of escrow, maybe they have a special procedure to inform and get the approval of the lender. 

 

If you are buyer and you get anything money / presents out of escrow without the lender approval you are also guilty of mortgage fraud, the lawyers are warning to avoid any present over $20-$30. The punishments can be very severe for the agents and buyers also.

 

So when you got money out of escrow 6 years ago is not something to brag about. 6 years ago we did not have a financial meltdown so maybe the Fed's did not care to much. Today is different. 

 

I will give here an example why paying out of escrow can be crime:

----------------------------------------------------------------------------------------------

Let say the seller is paying a commission of 6%.

The agent finds a buyer without any downpayment, the agent pays the buyer under the table 3% for an FHA downpayment. The buyer buys the home without any funds.

Buyer does not have anything to lose if the home is foreclosed. 

Buyer lives for free in the home and then foreclose the home. 

Crime is committed, FBI wants to speak both with the buyer and with the agent. 

--------------------------------------------------------------------------------------------------

 

On top of this if you get money out of escrow is income and the broker has to give you a 1099 and report your income.

 

Do not ask for any money or valuables outside of escrow, if the agent agrees, run because most likely he does not know what he is doing.

 

It is legal to get reimbursed part of the commission if it is done in escrow and with the approval of all parties, including the mortgage underwriter.

 

Good Luck.

Regular Contributor
lylapad
Posts: 153
Registered: ‎08-24-2007
0

Re: agent splitting commission with buyer? Legal or not?

Um...thats odd because I am pre-approved with B of A and the actual rule...at least with B of A is that the buyers agent may not use their commission to credit the buyer IN ESCROW for down payment. Only the seller is allowed to credit the buyer DURING ESCROW. However, refunding the buyer a portion of the buyer agent commission is perfectly legal and the lender has no issues with it since it is post escrow. At least that is what my mortgage rep told me who works for B of A.

 

She is even working on finding me a buyers agent who will give me a rebate so I do my loan with her instead of a mortgage broker. It is NOT illegal, and the refund to the buyer is also tax free. 

 

The only state in the country where it is illegal to refund the buyer a portion of the agents commission is in Oregon. This is why redfin donates to charity the portion they would typically give to the buyer.

 

 

 

 

Regular Contributor
ucdsf
Posts: 64
Registered: ‎02-19-2010
0

Re: agent splitting commission with buyer? Legal or not?

Actually, I've been told the refund is subtracted from your cost basis when you sell your house.  So technically not tax free.  Maybe tax deferred, but not free.