For some homebuyers, cashback rebates can save thousands in real estate

When Mehrdad Khayeri bought his dream house in the Greater Toronto Area earlier this year, he scored a big bonus: nearly $35,000 back. It was a perk he negotiated through a cashback agreement with his real estate agent.

“My wife and I did the bulk of the heavy lifting,” Khayeri said, describing how they found most of the listings that interested them. “With so many online tools nowadays, like House Sigma and MLS … the [agents] are actually doing maybe less work.”

His agent still earned 2.5 per cent commission on the sale price for helping him buy the home but gave about three-quarters of the fee to Khayeri. It’s a practice that could become more common as homebuyers push back on commissions that have soared alongside housing prices over the past few years.

“I mean, 2.5 per cent on a few-hundred-thousand-dollar house is very different than 2.5 per cent on a million-dollar house.”

Changing roles

In Canada, the home’s seller usually pays a commission to real estate agents on both sides of the transaction as they assist with buying and selling the home. Some agents are willing to offer a cashback rebate to home buyers, which works as a kind of discount on the total purchase price.

The amount of the rebate depends on the percentage agreed upon and the final purchase price. In Vancouver and Toronto, where the average home currently sells for more than $1 million, a cashback agreement can add up to serious savings.

Alex Kvitnitsky, who works with brokerage firm Justo, gives as much as 50 per cent of his commission to clients. “That’s money that you can use to offset your land transfer tax cost, you can offset legal costs, you can allocate it towards renovation,” he said.

Kvitnitsky finds the incentive helps bring in more business. He said his customers range from first-time homebuyers to investors and are often far along in the process by the time they come to him.

As the real estate industry changes, his fees are changing too, he said.

“Buyers are now very, very savvy. They want to be a part of the process. And so they do their own research. They look for their own properties.”

Shifting industry

Real estate commission rates vary across the country. But what many homebuyers don’t realize is that they have evolved according to industry norms and aren’t set in stone.

Tom Davidoff, an associate professor in real estate and strategy at the University of British Columbia, described cashback rebates as consumer-friendly. “Commissions are very rich and I think it’s a good thing if these things are negotiated,” he said.

Most real estate agents in Canada are free to give cash back — the Canada Real Estate Association code of conduct states that commission rates are “solely the choice of those providing the services.”

However, some look down on the practice and argue smaller fees could lead to worse…