In a recent open letter to the real estate community, New York Attorney General Eric Schneiderman reminded brokers that it is legal to give rebates to clients and urged them to do so.
Schneiderman said a section of New York Real Property Law has been amended to clarify that rebates, when a broker gives part of their commission to their client, are permitted. The legislative change came from an investigation into market factors that were preventing greater price competition among residential real estate brokers, he said.
The law, which was signed in December, can increase price competition, especially because more buyers are using alternative methods, like real-estate search websites that allow buyer-side brokers to offer more limited-service, lower-fee models, Schneiderman said. Brokers that use these models can accept lower commissions by rebating while also serving a larger number of clients, he said.
“Rebating by real estate brokers can greatly reduce the costs of buying and selling property and even facilitate new and innovative business models,” Schneiderman said in a statement. “I urge the real estate community to embrace this opportunity to be more competitive and improve the choices available to New York homeowners. I also encourage buyers and sellers alike to take advantage of your right to bargain with your broker for a lower commission.”
According to Don Cummins, director of legal services and professional standards administrator at the Hudson Gateway Association of Realtors, the new law eliminates ambiguity.
“The legislation was initiated by real estate licensees to ensure that they would not be charged with giving illegal kickbacks when credits or commission reductions are negotiated,” he said. “This has been a longstanding and common practice by real estate licensees, supported by multiple opinions from the New York State Department of State and the office of the attorney general.”
J. Philip Faranda, broker-owner at J. Philip Real Estate LLC in Briarcliff Manor, said he could see why the government clarified the law.
“The antitrust concern is to allow alternate business models,” he said. “They should be allowed; the consumer should have the choice.”
Yet, he said discounts don”™t often work in real estate. He said online real estate brokerage Redfin Realty used to offer 50 percent of its commission to consumers. In 2012 the company changed its model, offering a fixed-dollar refund for each listing instead. Another online brokerage, ZipRealty, discontinued its rebate program in 2011.
He said rebates have never gotten much traction in the real estate market because people do not trust cheap when it comes to something as financially significant as buying a home.
“If their value proposition is the cheapest, that does not mean the consumer is going to get the best outcome,” he said.
Similar to any industry, consumers should choose quality over price, he said, adding that a bad broker can lead to huge financial mistakes. Good brokers that have experience, local knowledge, strong advice, savvy and negotiating skills “are worth their weight in gold,” he said.
Clients have asked Faranda about rebates, but when he said he does not offer them, most of the time clients do business with him anyway, he said. While technology has led to more methods to buy a home, he said most people prefer going the traditional route.
“If anything, it validated those of us who are not considered alternative businesses models,” he said. “The consumers overwhelmingly go with what”™s considered the traditional real estate broker.”
