Dividing the broker co-op, illegal??

[usctrojancpa]

The credit is limited up to the closing costs (lender costs, interest rate buydown, impound reserves, upfront PMI payment, etc) and design center upgrades for financed buyers.  The homebuilder will not allow the credit to lower the sales price of the home (they are sensitive about keeping values stable for appraisal purposes).

what happens when an agent gives a portion of their commission to the buyer on a resale house?  does it have to be used towards closing costs also? 

If the resale home is being financed, the lender will limit the credit up to the total closing costs (includes the initial reserve impound funds) along with the cost of an interest rate buydown.  The amount of the credit that doesn't get used goes back to the buyer's agent/broker.  If the home is bought for CASH, all of the credit can be used regardless of closing and will reduce the amount the buyer has to bring into escrow to close on the transaction. 

 

[irvinerealtor]

The credit is limited up to the closing costs (lender costs, interest rate buydown, impound reserves, upfront PMI payment, etc) and design center upgrades for financed buyers.  The homebuilder will not allow the credit to lower the sales price of the home (they are sensitive about keeping values stable for appraisal purposes).

what happens when an agent gives a portion of their commission to the buyer on a resale house?  does it have to be used towards closing costs also? 

The short answer is: No.

The better answer is: There are a thousand different ways to get what you want done, and some old dogs have learned better tricks than others.

-IR2

 

[guava]

I have been helping my client to get new home at Sagewood in Pavilion Park.  ( Great Park Neighborhoods )

Does anyone know if Sagewood allow broker co-op credit in escrow?

 

[qwerty]

I have been helping my client to get new home at Sagewood in Pavilion Park.  ( Great Park Neighborhoods )

Does anyone know if Sagewood allow broker co-op credit in escrow?

Your the the agent? And u don't know this?  Nice.

 

[eyephone]

I have been helping my client to get new home at Sagewood in Pavilion Park.  ( Great Park Neighborhoods )

Does anyone know if Sagewood allow broker co-op credit in escrow?

I believe that's the first thing you should asked when you walked in the sales office with your client. Ask for the form to fill out.

It might be too late now to ask for the co op credit. 

 

[irvinerealtor]

I have been helping my client to get new home at Sagewood in Pavilion Park.  ( Great Park Neighborhoods )

Does anyone know if Sagewood allow broker co-op credit in escrow?

Don't know if I'm understanding your question correctly, but maybe you've already qualified for the broker co-op and you're asking if the credit can be used (in escrow) towards lowering the purchase price or paying for improvements?

If so, the current answer is most likely still "no". The broker receives payment only after the home has actually closed escrow. You can work out a rebate directly with your buyer, perhaps towards improvements made AFTER the close of escrow has occurred and the home has been recorded in their name.

-IrvineRealtor

 

[littlebirdie08]

Please help

My broker sent me a check after we closed of escrow ( less 25% tax ).  Does he suppose to give me 1099 or anything else to prove that I paid 25% of the amount.  He didn't ask for our information. 

Thank you,

 

[jmoney74]

well don't tell the tax man.. he is paying the taxes for you so seems fine.

 

[qwerty]

Please help

My broker sent me a check after we closed of escrow ( less 25% tax ).  Does he suppose to give me 1099 or anything else to prove that I paid 25% of the amount.  He didn't ask for our information. 

Thank you,

Rebates from realtors/broker are not taxable income as the money is originating from loan proceeds that the borrower is paying back. Here is the link
http://www.redfin.com/about/press/releases/pr-irs-ruling

Your realtor/broker should deduct the rebate he gave u as a business expense so he won't pay taxes on the amount he refunded to you.

You need to get in touch with your agent/broker or his broker and tell them to give u the 25% they withheld incorrectly and that you should not be 1099'd. If you get 1099'd the irs will view that as income, which it is not. Your realtor/broker could be stupid and not know what they are doing or they are trying to pull a fast one on you

 

[littlebirdie08]

Thank you for your suggestion.  After two emails, I got his response
  It is against the law for a broker to share his commission with anyone except a real estate licensee as a party to the transaction. In this case I must pay tax for my whole commission which is $13000. I give you a gift (not a refund) $6500 in which I  will pay IRS  $ 1625 or may be more. $4875 check you received is my pocket money as my gift to you and you don't have to pay tax for it.

I know it is legal here in CA to divide the commission.  Any suggestion on what should I do?

 

[qwerty]

Thank you for your suggestion.  After two emails, I got his response
  It is against the law for a broker to share his commission with anyone except a real estate licensee as a party to the transaction. In this case I must pay tax for my whole commission which is $13000. I give you a gift (not a refund) $6500 in which I  will pay IRS  $ 1625 or may be more. $4875 check you received is my pocket money as my gift to you and you don't have to pay tax for it.

I know it is legal here in CA to divide the commission.  Any suggestion on what should I do?

send him this: http://www.brewerfirm.com/articles/article-splits-kickbacks-fees.html#footnotes

"First let's examine State law. Under California law a broker can pay compensation only to another broker or to a duly licensed salesperson through the employing broker. Even if someone is otherwise entitled to a commission split, if they are unlicensed at the time the compensation is earned it is illegal to compensate that person. It is illegal for a broker to employ or compensate an unlicensed person for acts that require a license.

Payment to someone employed by the broker to perform clerical services or other office functions is not illegal. However, if that person performs services requiring a license, such as answering questions about a listing, promoting a property, or holding an open house, it may be a violation.

Also under California law a broker can share a commission with a party to the transaction, provided that person is not doing any work that would require a license. While this seems to make it OK to split a commission with the buyer or seller, a moment's consideration suggests situations where the line becomes less distinct. For example, what if the buyer writes up his or her own purchase offer containing a request for a portion of the commission. Would not the drafting of the purchase offer be an act requiring a license?"

im guessing you didnt do any work, your agent did all of the work and therefore you can legally get the rebate. you are not being compensated. Also, it is clear your broker doesnt understand that he will not get taxed on the 13000, he may get 1099'd for the entire 13K (plus all other transactions during the year) but he can deduct the 6,500 he paid you as a valid business expense and therefore he only pays taxes on the remaining 6,500 he earned.  I would discuss this with them one more time and if they still refuse I would sue in small claims court and then have the money garnished. Just depends on how much hassle you want to go through. Another thing you can do is do a yelp review or start a new thread hear with their name and how he/she screwed you.

 

[irvinehomeowner]

Yes... even if it was a 1099 situation, it's up to you to pay the taxes not him. He can reduce his income by the amount he paid you so he won't get taxed on the entire commission. How is he calculating how much tax to pull from your share? That's not for him to decide.

Send him the Redfin link too.

 

[qwerty]

littlebirdie - here is the IRS ruling that show your broker/agent can deduct the rebate he is paying and therefore he is not getting taxed on the 13K. its a quick read, just 3 pages
http://www.irs.gov/pub/irs-wd/0721013.pdf

 

[socal78]

I give you a gift (not a refund) $6500 in which I  will pay IRS  $ 1625 or may be more. $4875 check you received is my pocket money as my gift to you and you don't have to pay tax for it.

I'd use his own words on him.  If it's a "gift", there is a $14,000 annual exclusion for gifts so taxes wouldn't even be paid on this "gift".  Even if they were, he / the donor, would pay the taxes unless special arrangements were made stating otherwise. He can verify it with the IRS.

IRS: FAQ's on Gift Taxes

IRS: What's New in Estate and Gift Tax

 

[qwerty]

I give you a gift (not a refund) $6500 in which I  will pay IRS  $ 1625 or may be more. $4875 check you received is my pocket money as my gift to you and you don't have to pay tax for it.

I'd use his own words on him.  If it's a "gift", there is a $14,000 annual exclusion for gifts so taxes wouldn't even be paid on this "gift".  Even if they were, he / the donor, would pay the taxes unless special arrangements were made stating otherwise. He can verify it with the IRS.

IRS: FAQ's on Gift Taxes

IRS: What's New in Estate and Gift Tax

good try, but remember, the issue at hand is the agent/broker thinks he is paying taxes on the 13K which is why he is making the rebate net of the taxes he thinks he is going to be liable for. the idiot is calling it a gift because he is probably thinks he is covering his ass thinking its actually illegal to give the buyer a rebate.

 

[littlebirdie08]

The broker was only with me at the first visit.  It was a year ago, I haven't seen him since.  He's done nothing for me after that.  I initially asked him that I want 50% of his commission since he doesn't have to anything beside showing up with me.  He  agreed that he will give me back 50% of his commission on an email before we went to the model houses.  I had to contact him about three weeks after I closed regarding the rebate.  He didn't answer my email until two weeks later.  Anyway,  I've been reading about the subject and even consider suing him in small claim court.  I trusted him and now I feel angry and stupid. 
Again, thank you everybody, especially qwerty for your advice. 

 

[bones]

/
T/

 

[eyephone]

The broker was only with me at the first visit.  It was a year ago, I haven't seen him since.  He's done nothing for me after that.  I initially asked him that I want 50% of his commission since he doesn't have to anything beside showing up with me.  He  agreed that he will give me back 50% of his commission on an email before we went to the model houses.  I had to contact him about three weeks after I closed regarding the rebate.  He didn't answer my email until two weeks later.  Anyway,  I've been reading about the subject and even consider suing him in small claim court.  I trusted him and now I feel angry and stupid. 
Again, thank you everybody, especially qwerty for your advice.

I would just tell him on the phone or in person, that you will contact your lawyer if this situation is not resolved. (Hopefully he would comply)

But I wouldn't take him to court over $1600. The court fees, the time, researching laws/case law. I don't know too much about the rules/laws regarding this subject. But I noticed from other members posts - the words "broker can." It will be a different situation, if he didn't give you the money.

 

[Irvineshopper]

You also have to be careful about loan fraud.  if you took a loan on this property and received money that was not disclosed to the lender, you are at risk, especially if the loan goes into default.  The only way that I would share a commission (as a broker or a buyer) is in escrow, fully disclosed.

 

[eyephone]

You also have to be careful about loan fraud.  if you took a loan on this property and received money that was not disclosed to the lender, you are at risk, especially if the loan goes into default.  The only way that I would share a commission (as a broker or a buyer) is in escrow, fully disclosed.

Just curious - what happens if the loan goes in default relating to your scenario?