Realtor rebate for new house

[ri]

What's the difference between resale and new house when it comes to realtor rebate?

If the same relator represents the buyer for a resale there won't be a rebate, however for a new house the expectation is to have one?

What's the reasoning for that?

 

[Dr. CA Real Estate]

Some realtors won't do rebates on a resale because its more they can be more time consuming. Others, such as myself and Ive seen Martin say he does, will do rebates on resale. Often realtors will do bigger rebates for new builds since its less work.

 

[usctrojancpa]

What's the difference between resale and new house when it comes to realtor rebate?

If the same relator represents the buyer for a resale there won't be a rebate, however for a new house the expectation is to have one?

What's the reasoning for that?

Not sure what realtor/s you are talking to you, but I provide rebates for both resale and new home purchases so there's no reason for a realtor that is willing to provide you a rebate for a new home transaction to not provide you one for a resale home transaction.  My new home purchase rate is a higher % which there is less work involved compared to a resale purchase transaction.  The rebate structure that I have is sort of a work/effect model...the less work that I do the higher your rebate.  The rebates that I provide for resale transactions are a credit towards closing through escrow while my rebates for new home transactions are made via a check right after the close of escrow as the builders don't allow me to credit the buyers any of the commission through escrow for the buyer closing costs.  This rebate outside of escrow IS NOT TAXABLE to the buyer and I don't issue any 1099 to the buyer because it is not considered earned income to the buyer, it's a reduction of the cost basis to the home. Let me know if you have any other questions.

 

[irvinehomeowner]

#maxrebate

 

[Dr. CA Real Estate]

#maxrebate

Beyond maxrebate, they pay you to be your realtor for 'exposure'.

 

[Cares]

Yep for new homes, the realtor basically just has to walk in the door with you on the first visit to get the commission. So for my clients on new homes I will gift a much larger rebate. Similarly to USC, I will rebate a little bit but much less on resale homes since there is much more time invested and paperwork required for these sales.

 

[sleepy5136]

I'm assuming all these "rebates" will be discussed beforehand and not during contract right? Reason I'm asking is because I bought a new home instead of resale and I feel I did more work on it than the RE. I feel like its already too late and will be a slap across the face if I bring it up now.

 

[Dr. CA Real Estate]

I'm assuming all these "rebates" will be discussed beforehand and not during contract right? Reason I'm asking is because I bought a new home instead of resale and I feel I did more work on it than the RE. I feel like its already too late and will be a slap across the face if I bring it up now.

Generally yes. I always bring it up before a client does. Some clients just a verbal agreement is enough others like me to write a little formal email.

We are talking thousands of dollars here so it is well worth it for you to bring it up with whoever you used. If they are smart and looking long term they will take care of you for return business. Better late than never.

 

[usctrojancpa]

I'm assuming all these "rebates" will be discussed beforehand and not during contract right? Reason I'm asking is because I bought a new home instead of resale and I feel I did more work on it than the RE. I feel like its already too late and will be a slap across the face if I bring it up now.

Generally yes. I always bring it up before a client does. Some clients just a verbal agreement is enough others like me to write a little formal email.

We are talking thousands of dollars here so it is well worth it for you to bring it up with whoever you used. If they are smart and looking long term they will take care of you for return business. Better late than never.

Buyers should definitely agree upon the new home rebate before signing a contract to purchase and even before going out with your agent to register.  Probably best to get something in writing so there?s no misunderstanding at the 11th hour. 

 

[eyephone]

Yep for new homes, the realtor basically just has to walk in the door with you on the first visit to get the commission. So for my clients on new homes I will gift a much larger rebate. Similarly to USC, I will rebate a little bit but much less on resale homes since there is much more time invested and paperwork required for these sales.

Give Cares a try. He is very active on TI and seems very knowledgeable about RE, stocks, crypto.

 

[sleepy5136]

is buyer rebates taxable income? If so, is there a way for us to request it to be not taxable (i.e deduct amount from price of home, cover closing costs, etc)?

 

[Dr. CA Real Estate]

Its not taxable income and there are as you mentioned different forms it can take. Depending on if its a resale or new build some options are not available. A lot of the builder reps are incompetent and depending on the builder, the management has different orders on the topic, with typically the only option being a after close check.

 

[usctrojancpa]

is buyer rebates taxable income? If so, is there a way for us to request it to be not taxable (i.e deduct amount from price of home, cover closing costs, etc)?

There was a tax letter ruling stating that rebates to buyers, whether they are through escrow or outside of escrow, are not taxble to the buyer.  It's a reduction of cost basis in the home (aka when you sell the home the gain on sale is larger by the rebate amount).  I don't understand why so many agents and/or brokers try to 1099 buyers for the rebate amount so the tax letter ruling was very clear that no 1099 should be issued to the buyer.

 

[Dr. CA Real Estate]

SMH If there's one thing I dislike its unnecessary paperwork. If anyone reading receives a 1099 from a realtor on their commission rebate you'll have to have the realtor send you a corrected 1099-MISC, failing that you'll have to file by paper not including the amount along with a statement why. Ive read of this happening, luckily I don't know of any actual cases of this.

 

[Cares]

is buyer rebates taxable income? If so, is there a way for us to request it to be not taxable (i.e deduct amount from price of home, cover closing costs, etc)?

I have tried multiple times but no new home builder is willing to do a purchase price reduction via broker credit so it all has to be done outside of escrow. With that said this amount is not taxable, especially if your agent does not issue you a 1099-NEC. If your agent does happen to issue you one though, it is a full write off.

 

[usctrojancpa]

is buyer rebates taxable income? If so, is there a way for us to request it to be not taxable (i.e deduct amount from price of home, cover closing costs, etc)?

I have tried multiple times but no new home builder is willing to do a purchase price reduction via broker credit so it all has to be done outside of escrow. With that said this amount is not taxable, especially if your agent does not issue you a 1099-NEC. If your agent does happen to issue you one though, it is a full write off.

No builder has allowed either a reduction to the price or buyer credit towards closing costs with the agent rebate since 2011-2012 (last one that did was Taylor Morrison with Las Ventanas in Portola Springs).  The reasoning I got was that it's really a referral fee and that it is only earned after closing (BS in my opinion but whatever).  I find it funny that builders require agents and buyers sign a broker co-op agreement where one of the provisions states that the agent will not rebate any part of the commission in or outside of escrow.  Yeah ok, good luck enforcing that after the close of escrow.  haha

 

[sleepy5136]

is buyer rebates taxable income? If so, is there a way for us to request it to be not taxable (i.e deduct amount from price of home, cover closing costs, etc)?

There was a tax letter ruling stating that rebates to buyers, whether they are through escrow or outside of escrow, are not taxble to the buyer.  It's a reduction of cost basis in the home (aka when you sell the home the gain on sale is larger by the rebate amount).  I don't understand why so many agents and/or brokers try to 1099 buyers for the rebate amount so the tax letter ruling was very clear that no 1099 should be issued to the buyer.

Interesting. So in that case, why do they do it? Is it a tax incentive on their end to issue that 1099?

 

[usctrojancpa]

is buyer rebates taxable income? If so, is there a way for us to request it to be not taxable (i.e deduct amount from price of home, cover closing costs, etc)?

There was a tax letter ruling stating that rebates to buyers, whether they are through escrow or outside of escrow, are not taxble to the buyer.  It's a reduction of cost basis in the home (aka when you sell the home the gain on sale is larger by the rebate amount).  I don't understand why so many agents and/or brokers try to 1099 buyers for the rebate amount so the tax letter ruling was very clear that no 1099 should be issued to the buyer.

Interesting. So in that case, why do they do it? Is it a tax incentive on their end to issue that 1099?

Why, because they don't know any better and/or too lazy to find out the proper tax treatment....doesn't take much online research to find the answer. They are realtors and think that they have to push it off to the buyer because they don't understand they can take the rebate as a deduction on Line 2 of their Schedule C. Typically you issue a 1099 to vendors (including contractors) so that you can expense the amount on the tax return.

 

[Cares]

is buyer rebates taxable income? If so, is there a way for us to request it to be not taxable (i.e deduct amount from price of home, cover closing costs, etc)?

There was a tax letter ruling stating that rebates to buyers, whether they are through escrow or outside of escrow, are not taxble to the buyer.  It's a reduction of cost basis in the home (aka when you sell the home the gain on sale is larger by the rebate amount).  I don't understand why so many agents and/or brokers try to 1099 buyers for the rebate amount so the tax letter ruling was very clear that no 1099 should be issued to the buyer.

Interesting. So in that case, why do they do it? Is it a tax incentive on their end to issue that 1099?

Why, because they don't know any better and/or too lazy to find out the proper tax treatment....doesn't take much online research to find the answer. They are realtors and think that they have to push it off to the buyer because they don't understand they can take the rebate as a deduction on Line 2 of their Schedule C. Typically you issue a 1099 to vendors (including contractors) so that you can expense the amount on the tax return.

From the realtor's standpoint, it is less risk to them for audit if they issue you a 1099 and offload the income to the buyers instead of taking a large write off. So my guess is these guys are just afraid of audit and complications that come with it.

 

[sleepy5136]

is buyer rebates taxable income? If so, is there a way for us to request it to be not taxable (i.e deduct amount from price of home, cover closing costs, etc)?

There was a tax letter ruling stating that rebates to buyers, whether they are through escrow or outside of escrow, are not taxble to the buyer.  It's a reduction of cost basis in the home (aka when you sell the home the gain on sale is larger by the rebate amount).  I don't understand why so many agents and/or brokers try to 1099 buyers for the rebate amount so the tax letter ruling was very clear that no 1099 should be issued to the buyer.

Interesting. So in that case, why do they do it? Is it a tax incentive on their end to issue that 1099?

Why, because they don't know any better and/or too lazy to find out the proper tax treatment....doesn't take much online research to find the answer. They are realtors and think that they have to push it off to the buyer because they don't understand they can take the rebate as a deduction on Line 2 of their Schedule C. Typically you issue a 1099 to vendors (including contractors) so that you can expense the amount on the tax return.

So because I am in the process of buying a new construction home, I cannot have those credits be used towards escrow. So because the credit needs to be done outside of escrow, the agent is saying "its not a reduction in price, therefore we need to give you a 1099". Is this correct? I'm not able to find anything that says this.