Real estate agent rebates, incentives have pros and cons

I’m a first time buyer who has been looking for a while. My real estate agent has offered a commission rebate that would help me close the deal on a great property. Is there a downside to accepting the offer?

Everybody likes a deal, whether it’s a sale at the grocery store or negotiating for a better price on a property.

When you’re looking for a home, you may come across real estate agents who offer commission rebates or other incentives to work with them. Some common examples are a set amount of cash back, paying for the home inspection, paying legal fees, a free trip somewhere warm, etc. These can be very enticing — especially the prospect of going somewhere with warm weather these days.

Before getting into the pros and cons of rebates, I want to stress that if your real estate professional makes a promise, get it in writing. Do Remember: unwritten commitments — whether they involve a rebate, a purchase agreement or any other detail of a real estate transaction — can be difficult to enforce.

If a rebate or incentive is offered, it’s typically agreed to at the outset when you sign a Buyer Representation Agreement. But they may also come up later if your agent offers to help “bridge the gap” between you and the seller. For example, if you’re unwilling to offer more than $375,000, but the seller won’t go lower than $378,000, your real estate professional may offer to give you the difference, once the deal closes, so an agreement can be reached.

Taking the rebate will lower your net cash output giving you a chunk of money you can use to upgrade your new property (for landscaping, or to help cover the cost of a new roof or furnace), or to buy a new TV and throw a party for the big game or the Olympics.

It sounds like a can’t-miss offer, but there are some important details to consider before accepting the helping hand. If you take the rebate and agree to pay a higher price for the home, keep in mind that your mortgage eligibility, mortgage amount and down payment requirement will be based on the higher sale price, not the net amount of the sale price minus the rebate. Likewise, your land transfer taxes will be based on the higher sale price.

In addition, the higher sale price may affect your municipal tax assessment in the future, meaning you may pay more in municipal taxes.

These additional costs don’t seem like much on their own, but combined and considered over time, they could impact your budget and what you feel comfortable paying for the property.

The bottom line is that a rebate might look good on the surface, but it’s ultimately your money coming back to you. Whether you agree to a rebate or incentive, it’s in your best interests to document your decision with your real estate professional.

By: Joseph Richer Registrar, Published on Thu Jan 30 2014 thestar.com

Joseph Richer is registrar of the Real Estate Council of Ontario (RECO). He oversees and enforces all rules governing real estate professionals in Ontario. Email questions to askjoe@reco.on.ca . Find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps .

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Chrisoula Mouhteros

Chrisoula Mouhteros

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CENTURY 21 Leading Edge Realty Inc., Brokerage*
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