Jay Thompson is a former brokerage owner who spent over six years working for Zillow Group. He retired in August 2018 but can’t seem to leave the real estate industry behind. His weekly Inman column publishes every Wednesday.
It seems like every day, some agent in a real estate Facebook group poses a question like this:
“How do you respond to a client that asks you to give them back a portion of your commission?”
Objection handling is a topic of discussion that has been around since the first real estate transaction. Commission objections are probably faced most frequently by agents.
So it gets super-annoying to deal with the commission rate objection only to have to turn around and handle the commission rebate objection again.
Welcome to real estate, where lots of things are annoying and unfair. But ignoring them doesn’t make them go away. You have to learn to deal with them.
And judging by the frequency that real estate commission rebates pop up in agent discussions, handling that one is rapidly becoming a more frequent occurrence.
Responses generally fall into four categories (in order of frequency):
- ‘Oh, hell no.’
- ‘That’s illegal!’
- Terrible advice
- Great advice
Here, we’ll talk through the common responses agents receive on Facebook threads, and we’ll suss through what doesn’t work and why and go through strategies that do work.
Before we dive into the specifics of these response categories, let’s take a quick look at what commission rebates are, what they are not and why consumers ask for them.
What are commission rebates?
A commission rebate is what it sounds like exactly — returning a portion of the agent and brokerage’s commission to a buyer or seller. And contrary to popular belief, real estate commission rebates are perfectly legal in 40 states.
A commission rebate is not a “kickback” According to the Cornell Law School Legal Information Institute, “A ‘kickback’ is a term used to refer to a misappropriation of funds that enriches a person of power or influence who uses the power or influence to make a different individual, organization, or company richer. Often, kickbacks result from a corrupt bidding scheme.”
But what about RESPA?
“But RESPA!” many agents proclaim when dealing with a commission rebate request. “RESPA makes rebates illegal!”
Wrong. RESPA is the Real Estate Settlement Procedures Act, “enacted by Congress in 1975 to provide homebuyers and sellers with complete settlement cost disclosures. RESPA was also introduced to eliminate abusive practices in the real estate settlement process, prohibit kickbacks, and limit the use of escrow accounts.”
The kickbacks referred to in RESPA apply to settlement services, enticing agents to refer clients to them. Before RESPA, it was relatively common for agents, brokerages, and franchises to receive cash or gifts from title companies in return for business sent to them.
A properly disclosed commission rebate is not a kickback. It’s a rebate. There is a legal difference between the two.
Why are clients asking?
Why do consumers ask for a commission rebate? Maybe because it’s the highest amount of money on the settlement statement other than the sale price? In other words, real estate commissions cost consumers a lot of money — to the tune of $100 billion in 2020. $100 billion, with a “B,” is a lot of coin by any definition.
I’m in the camp that believes an agent deserves every nickel of the commission they receive. However, it’s pretty easy to understand why a consumer might ask for a commission rebate. That line on the settlement statement showing how much commission is paid is eye-opening and hard to swallow. It’s fundamental human nature to see a number like that and think, “Whoa, that’s a lot of money.”
From a consumer’s perspective, agents can do better by demonstrating the value they add to a transaction. You work your tail off for your clients. You earn your money. Yes, it can be painful and seem unfair to have to explain this to some clients, but it comes with the job. Demonstrating your “value proposition” has long been the topic of many an article, training class and coaching session. You just have to figure out what works best for you. Let’s get into it.
4 common Facebook group responses — what works and what doesn’t
So let’s take a look at those common replies agents tout in Facebook groups to requests for a commission rebate.
1. ‘Oh, hell no.’
Just as it’s easy to understand why consumers ask, it’s also easy to understand why most agents’ initial reaction, when asked about a rebate, is, “Oh hell no.” After all, that’s your paycheck we’re talking about here.
I don’t know anyone who sells real estate on a non-profit basis. You have a mortgage to pay, children to feed, a business to grow. The last thing you want to do is give up a portion of your hard-earned paycheck.
It’s true that “No.” is a complete sentence. Of course, you’re free to simply reply with, “No. Next question?” or something along those lines. The problem is, that’s a short, curt statement that is likely to alienate your client. Generally speaking, alienating clients is a bad business practice.
Go ahead and think, “hell no,” but be prepared to offer more detail. Maybe even show a little empathy. There are ways to answer “no” without being curt to a client who is about to put a lot of money in your bank account.
2. ‘That’s illegal!’
As a former brokerage owner, this is the response that drives me utterly insane. Why? As mentioned above, it’s perfectly legal in 40 states. That’s 80 percent of the U.S., which means if you respond to a client’s rebate request with, “I can’t, that’s illegal!” there is an 80 percent chance you are wrong.
Suppose you look at the population of the United States (331.5 million in the 2020 Census) and the 10 states where commission rebates are still illegal (40.8 million). In that case, you only have a 12 percent chance of being correct if you claim, “That’s illegal!” when asked about a real estate commission.
You’re a real estate professional. You need to understand your state laws when it comes to real estate. That’s a massive portion of your value-add to clients.
Commission rebates are legal unless you live in
- Alabama
- Alaska
- Iowa
- Kansas
- Louisiana
- Mississippi
- Missouri
- Oklahoma
- Oregon
- Tennessee
Someone reading this who lives outside those 10 states is thinking right now, “You’re wrong, Jay. I know it’s illegal in my state.”
Double-check
Google, “real estate commission rebates in <my state>.” See that giant list of brokerages in your state offering commission rebates? There is your first clue that you are mistaken about your rebate law.
Do you think all those agents and brokers are skirting state law? Don’t believe Google? Ask your broker. Check with your state Realtor Association. If you live where 88% of the U.S. population lives, you need to understand that commission rebates are legal, whether you like that or not.
Pop off with, “that’s illegal!” to a client who knows better (and many do), and you’re going to look quite foolish.
3. Terrible advice
Threads on the rebate request question are chocked full of bad advice. “Tell them to f**k off!” is always bad advice. “Look, I have to pay taxes out of my commission!” is bad advice. Trust me, your client pays taxes too and doesn’t give a hoot about your tax obligations.
For years the advice of many an “expert” has been to take out a dollar bill and start cutting off hunks of it to show where the commission money goes–this part goes to my broker, and this part to the IRS, and this part to my expenses. Have you seen the price of gas lately?
Guess who else has to buy gas out of their paycheck? Yep, your clients. Seeking sympathy for your expenses will almost always backfire. Everyone has expenses. Yes, you may have more than your clients, but getting into a pissing contest over who has more expenses and using them to justify your commission won’t fly with most of today’s savvy consumers.
Firing clients for asking
Here is an actual response from a recent thread on commission rebates that garnered over 1,000 comments:
“I just fired one for asking. I had been working with him thru most of the Pandemic.”
Really? Fired them just for asking? What a complete waste of their, and more importantly, your time. I might have tried, “oh hell no” first.
The equity comparison
And for the love of all the kittens on the internet, please don’t say, “Sure. You want a third of my money, I’ll take a third of the equity in your home.” That math doesn’t even work. A third of your commission is likely quite close to 1% of the home price, not a third. Are you going to ask for equity for two-thirds of the commission you’re retaining? Really?
The doctor or lawyer discount strategy
Ditto with, “Do you ask your doctor or lawyer for a price reduction?” One, you’re not a doctor or lawyer. Two, I have asked for and received price reductions from both doctors and lawyers. You might, too, if you ask. Your client might have requested and received them. Now, what are you going to do?
Taxes
Finally, know what you’re talking about. In addition to false claims about the legality of commission rebates, I see many agents providing responses like, “Sure, I’ll just 1099 you, and you can pay taxes on it!”
This strategy can easily backfire. One, what are you going to say if your client replies, “OK, no problem!” Two, it’s an incorrect statement. As tax expert, attorney, and author Stephen Fishman writes:
“The IRS says that a cash rebate paid to a buyer of property at or after closing is an adjustment in the price, and is therefore not taxable income to the buyer. Rather, the buyer should subtract the amount of the rebate from the home’s basis. This will, of course, increase any potential profit when the home is sold.”
If you chose not to believe Fishman, perhaps you’ll believe the IRS.
4. Great advice
Unfortunately, the great tips and advice are few and far between when it comes to social media threads where agents lament consumers’ nerve to ask for a commission rebate.
A firm no
Here is a short and sweet comment that is good advice:
“They are going to ask, you have to be comfortable and confident in saying no. In most cases I have seen, the conversation ended there, and we moved on to the next subject.”
Best response ever
In a recent discussion about handling commission rebates, Christi Borden, with Better Homes and Gardens Gary Green provided the single best response I’ve ever seen:
“I understand your wanting to ask, but I would expect that you value my years of experience and depth of knowledge as much as my other clients do. Otherwise, you would not have chosen to work with me.
“My commission is X percent of the sales price so that both myself and my broker can continue to serve our clients, such as yourself, at the highest level of professionalism and also support our families. Shall we move forward?”
See, isn’t that far more professional and effective than, “F**k off, you’re fired”?
You can say no to commission rebate requests. Just do it politely, professionally, and with some empathy — and per your state laws. Your client is not evil for asking; don’t take it so personally.
Jay Thompson is a real estate veteran and retiree who lives in the Texas Coastal Bend, as well as the one spinning the wheels at Now Pondering. Follow him on Facebook, Instagram and Twitter. He holds an active Arizona broker’s license with eXp Realty. “Retired but not dead,” Jay speaks around the world on many things real estate.
