Buyer's Brokers Discounts Disclosure?

[David Goldsmith]

When a sale is done and the Buyer's Broker gives a rebate, what type of disclosures are in the public benefit? Shouldn't the official purchase price be lower when used as a comparable sale because the consideration is being discounted? Are bank's cash requirements being adhered to? That is to say on an 80% loan, if the buyer is putting down 20% but getting a 2% rebate, are they still actually conforming (or do banks already account for this)? When an appraiser uses a comp where there was a rebate how do they know to adjust for it if there's no notation on the listing?

 

[Steven Slotnick]

Amazing question. It would seem that the buyer's broker would not have an obligation to be transparent as to the discount in the public record as he/she isn't doing the filing, only negotiating the deal. It does seem that the buyer and/or the buyer's attorney would be obligated to inform the lender of the reduced purchase price from the rebate as it directly affects the agreed amount the mortgage for the purchase of the property? I guess I don't understand, when or by whom, the amount of the rebate is made public, or if it has to be. Can it just be a recorded hidden in the sale price? If so. what figure makes up the true appraisal value of the property if the discount is not disclosed to the appraiser (or is disclosed to the appraiser but no one else) but is calculated into the appraisal and creates future skewed comps? Is there collusion at some point? Am I at all on track with these questions... I would love to know where the fiduciary responsibility lies. I apologize in advance is this made no sense. What do the say, "there are no stupid questions, (i paraphrase) but losing your license is".
Best,
Steven Slotnick
Keller Williams NYC

 

[David Goldsmith]

I agree with you (I hope I'm not putting words in your mouth) that it is more likely that the rebate has been disclosed to the buyer's lender. But the more commonplace the rebates become, it seems to me more likely that actual sales prices are 1% to 2% lower than what we (and appraisers) are being told they are.

 

[Robert Isaacs]

But what if the rebate happens after the closing (as I think is most often the case) rather than at the closing table?

Any sense (obviously just a guess / gut feeling) as to what % of time a transaction has a buyer's broker discount? I think it's still pretty small, but maybe I'm wrong.

 

[John Walkup]

The rebate is seen as lowering the buyer's cost basis. So in the case of the 80/20 loan, the buyer is now putting down slightly more than 20% because the cost basis is lower, eg on a $100k purchase, buyer puts down $20k and borrows $80k, but since purchase is technically $98k, they are really putting down 20.4%. Since it's just a reduction in price, it gets hairy-er when you go out X years and the buyer sells. Do they note the lower cost which will then make any profit greater?

 

[Robert Isaacs]

I may be wrong, but I can not imagine that the average homeowner is tracking things that carefully, let alone reporting them that assiduously.

 

[John Walkup]

You're not wrong!

 

[David Goldsmith]

The rebate is seen as lowering the buyer's cost basis. So in the case of the 80/20 loan, the buyer is now putting down slightly more than 20% because the cost basis is lower, eg on a $100k purchase, buyer puts down $20k and borrows $80k, but since purchase is technically $98k, they are really putting down 20.4%. Since it's just a reduction in price, it gets hairy-er when you go out X years and the buyer sells. Do they note the lower cost which will then make any profit greater?

I'm not sure I agree with that math. They were originally putting down $20k on $100k purchase = 20%
If they get a 2% "cash" rebate then they are putting down 18.37% ($18k/$98k). Of course this is assuming they don't tell the bank and buyers are taking out a loan based on "purchase price" as opposed to "discounted purchase price." I'm guessing in most cases it is disclosed and the loan amount is lower, but I can't tell you definitely what's happening in all cases.

 

[Noah Rosenblatt]

It 930pm and I need to re-read this awesome thread tomorrow with a clearer head ))

 

[David Goldsmith]

Discount Firms Keep Asking Why Broker Fees Are So High

Redfin and an Oregon-based brokerage are keeping the pressure on the residential real estate industry to lower broker fees and increase competition in the space.

therealdeal.com

Discount brokerages launch fresh attacks on size of residential fees​

Oregon brokerage fights state to offer sellers, buyers a break on fees​

The age-old question of what justifies broker fees often comes up as people embark on buying or selling their homes — and discount brokerages are egging on the conversation.
American home sellers and buyers pay among the highest fees to agents, the New York Times reported. In the U.S., the standard fee is 6 percent, with 3 percent going to the seller’s and buyer’s agents, respectively. Compare that to Asia or Europe, where standard broker fees are as low as 1 or 2 percent.

There have been a string of lawsuits over the past two years accusing the residential real estate industry of conspiring to keep broker fees high and violating U.S. antitrust laws in the process. The instigators range from private citizens to the U.S. Justice Department, with some industry members trying to offer discount models to consumers.

As the pandemic has pushed even more of the buying and selling process online, discount brokerages with models based on online listings and transactions are keeping the subject top of mind.

Last week, Redfin announced it would publish agent commissions on thousands of public listings. It’s a move that’s in line with the spirit of the Department of Justice’s settlement agreement with the National Association of Realtors for the industry to make agent commissions more transparent to consumers and fix the industry’s misleading, incorrect advertising.

Weeks earlier, an Oregon brokerage, REX Real Estate, filed a state lawsuit challenging the state’s policy of banning brokerages and agents from refunding commissions to buyers. The brokerage is exploring filing similar suits in Louisiana, Missouri and Tennessee.
The firm says the logic behind the suit is based on the view that homebuyers are doing an increasing amount of the work to find a home without an agent’s help.

“You’re starting to see a kind of drum beat,” Mike Toth, REX’s general counsel, told the Times. “Buyers are doing so much of the work themselves. So why are commissions so high?”
The continued suits and positioning of firms like Redfin and REX indicate that pressure on the industry to reduce fees and increase industry competition is not going anywhere.