Last updated on May 15th, 2022 at 09:40 pm
The prospect of getting cash back from your realtor when making a home purchase is extremely attractive. Unfortunately, most Canadians are blissfully unaware that this is even an option. Instead, Canadian homebuyers indirectly pay thousands (or tens of thousands) of dollars to realtors when they buy a home. These costs really add up and can make saving for a down payment even more difficult. In this article, I’ll explain why you should negotiate with your realtor and how you can ask for cash back when purchasing a home!
Overpriced Real Estate Services
To many Canadians, realtors are a necessary part of the overall home buying process. They help you find a suitable property, advise you when making an offer, and help you navigate topics such as financing, closing, and inspections. To others, realtors are blood-sucking leeches who are next-in-line for a hot tech company to swoop in and make redundant! My view is somewhere in the middle. Yes, I believe realtors are probably vastly overpaid for the services they offer, but they aren’t totally useless. I just wish their services were more in-line with the effort and advice they gave me and not inflated to cover their cost to market themselves and sustain their ego.
The Opportunity for Negotiation
Living in the Greater Vancouver area, many realtors here are local celebrities. Their faces are plastered all over bus stops and billboards. Their “for sale” signs are nailed into the soil of lawns all over town. Some realtors have gotten so big that you can’t visit a city without seeing at least one (or sometimes, a dozen) “for sale” sign with their face on it.
They’ve become so prolific because the top calibre realtors make a ton of money. Typical realtor fees in my area are 6.4% on the first $100,000 and 2.3% on the remaining amount. If you bought a home for around $800,000, as we did, the realtor commission comes to just over $22,000. This commission is split between the buying agent and the selling agent, so each would earn $11,000 on the sale. These huge commissions mean that even after brokerage fees and advertising, some top realtors in the Greater Vancouver Area earn 7-figure incomes.
Now, it’s not typical for an average realtor to sell multiple properties per month or even a single property per month. But it does illustrate that a full-time realtor making a sale most months can earn considerable income. Many of the full-time realtors advertised in your community are earning a healthy 6-figure salary. If you’re anything like me, the fact that realtors can earn so much money for what seems like so little work can be rather annoying. Especially when you’re the one paying them!
Cash Back on Real Estate
These days, home buyers are doing more legwork than ever before. You can find property assessments, school catchments, crime maps, and transit scores, all without even speaking to a real estate agent. You can also visit open houses without your own buying agent. So why even get a real estate agent? Realtors understand this, and that’s why some sites have popped up where realtors offer discounted rates for their services. Think “One Percent Realty” and other reduced-commission realty services.
The good news is that you don’t even need to go with one of those reduced-commission realty services. Instead, you can find a realtor you like and simply ask them for cash back. Shocking, right? In some areas in the U.S., it was shocking enough to outright ban the practice and not allow realtors to offer cash back to their clients. These bans were put in place because of influential real estate brokerages and their realtors. Luckily for home buyers, most of these bans have since been reversed. And in Canada, you’ll be happy to hear that getting cash back from your realtor is allowed coast to coast!
Asking Your Realtor for Cash Back
When I got serious about buying a home, I knew I would need to find a suitable realtor to help guide me and provide advice as needed. But, of course, I didn’t want to pay – even indirectly – the typical, outrageously expensive realtor fees. So, to avoid at least some of these realtor fees, I planned to ask a few realtors if I could get cash back on closing. Instead of earning the entire commission, I’d ask my agent to share a sizable amount of it with me. Sounds novel, right? The surprising thing is that it worked.
The first realtor I contacted was someone I met at an open house. He was knowledgeable and established in our area. He was successful, but not too successful. I simply texted him and asked if he would be my buyer’s agent under the following terms:
- I didn’t need his help to find a home.
- He would help me make offers and close.
- He would pay me 30% of his commission.
It seemed like a crazy thing to do. As far as I knew, negotiating a realtor’s commission wasn’t common practice. But, to my surprise, he instantly said yes to my offer. I was amazed that it is just that easy. The only requirement was that I sign a form on closing to state that I received 30% of the commission, and so I would be liable for income tax on that portion.
Working With a Cash Back Realtor
Despite not needing help to find a home, my realtor did end up helping me a lot. He set up an automated filter to email me whenever a property matching my criteria came on the market. He even went to numerous open houses with me just to tag along and provide advice on the properties. All in all, it was quite a good experience, and I was happy to have his guidance – especially when I knew I’d be getting a sizable amount of cash back.
Getting Cash Back From My Realtor
A few days after we closed, my realtor met my wife and I in a coffee shop near our new home. He brought his chequebook and handed us a cheque for the agreed-upon 30% of his commission. This ended up being a little under $3,500. We were thrilled to be getting this money and immediately put it to use furnishing our home.
I always knew how much realtors made before I bought my house, but getting this cheque made it feel much more real. Our realtor stuck with us for over a year while we shopped around for the perfect home. In that time, he had sold more than 15 homes (according to his website) and helped buyers purchase many more. With that in mind, it’s easy to get a rough idea of just how much this average – or perhaps slightly above average – full-time realtor was bringing home.
Taxes on Your Cash Back
If you a purchasing a home to live in, you may not be required to pay income tax on the cash you receive. Some of the discount realty services I’ve researched boast that no tax is expected to be paid on the cash back. However, other property buyers have been issued T4A’s, perhaps mistakenly, indicating that the realtor believed that the rebate was taxable income.
A tax interpretation from 2012 sought to clarify the issue and explained that the rebate would be non-taxable “if the property acquired is used by the purchaser for personal purposes, for example if the property is the purchaser’s principal residence.” However, your mileage may vary, and it’s best to consult a tax professional before making any decisions that could expose you to extra taxes.
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