I am asked more and more often if a real estate Broker can pay a rebate to a Buyer after closing.
According to license law a rebate is legal. However, if the Buyer is getting a mortgage it must be approved by the lender. Without approval by the lender the Broker and Buyer may be committing lender fraud. The rebate should be disclosed in writing to the lender in advance of the mortgage approval and be fully disclosed on the HUD-1 prepared by the closing agent.
Why? If the Buyer takes cash from the transaction, that reduces the Buyer’s investment in the property and changes the lender’s down payment requirement agreed to with the Buyer. In most circumstances if a lender is made aware that the Buyer is receiving cash at or after closing, the lender will typically reduce the loan amount by that balance.
Some argue it is fully legitimate that a Broker give a portion of their commission back to the Buyer. I do not argue that point at all and support any legitimate business model a broker wishes to operate under. And according to Washington State license law it is perfectly acceptable for a Broker to give any portion of their commission. My point is that if it is not part of the purchase & sale agreement and the lender is unaware of the credit you are certainly operating in dangerous water. I personally believe the whole transaction must be free of any grey area and therefore subscribe to the theory that ALL parties get a complete picture of the transaction.
Keep in mind that at closing, as part of your closing papers for your loan, you will be asked to sign a document certifying that the lender has the complete agreement and that there are no other agreements between any of the parties. Here is a sample from a recent closing…
CERTIFICATION OF BUYER FOR FHA-INSURED MORTGAGE TRANSACTION
I certify that the terms of the Purchase and Sales Agreement dated on the above property, are true to the best of my knowledge and belief and that there are no other agreements entered into between me (us), and the Seller(s) or Real Estate Agent except those attached to this Purchase and Sales Agreement.
I certify that I (we) have no knowledge of any loans that have been or will be made to me (us) or loans that have been or will be assumed by me (us) for purposes of financing this transaction, other than those described in this sales agreement (including any addendums if any).
I certify that I (we) have not and will not be paid or reimbursed for any of the cash down payment.
If your Broker is unwilling to discuss this or any party of the transaction says “I just don’t want to know about it”, I would look closely at the business partners you have chosen and consider their motivations. Is your best interest what they have in mind?