Are Real Estate Commission Refunds (Rebates) to Clients Legal?
Short answer: Yes — when properly disclosed, routed through escrow, and compliant with DRE, lender, and RESPA rules.
Yes — a California broker may rebate or refund part of their commission to a client if it is fully disclosed, documented in escrow, and not a referral kickback. Lenders must approve any credits when a loan is involved.
1) DRE Rules (State Law)
California law permits a broker to share earned commissions with a principal to the transaction when:
- All parties are informed (disclosure in writing).
- The refund/credit is paid through escrow and appears on the settlement statement.
- The payment is not a referral fee to an unlicensed person for sending business.
Authority commonly cited: California Business & Professions Code §10137 and related DRE guidance on commission sharing/rebates.
2) Federal RESPA (12 U.S.C. §2607)
RESPA prohibits unearned fees and kickbacks for referrals. However, a rebate to your own client reflecting part of your earned commission is generally permissible, so long as it is not conditioned on using another settlement service (e.g., specific lender or title).
3) How It’s Shown on the CD
Most commonly displayed as “Broker Credit to Buyer” (or to Seller) on the Closing Disclosure or final settlement statement. Credits can be applied to:
- Buyer’s closing costs, and/or
- Cash to close (if permitted by lender and program).
If financed, the lender must approve all credits because they affect cash-to-close and loan calculations.
4) Pitfalls to Avoid
- Advertising vague “cash back” without clarifying escrow treatment.
- Paying the refund outside escrow without prior disclosure and approvals.
- Tying the rebate to referrals or to the use of a specific third-party provider.
5) Best-Practice Documentation
- Use a short, signed Commission Refund Disclosure (amount/percent, timing, and escrow treatment).
- Reference the rebate in your Buyer Representation or Listing Agreement, as applicable.
- Retain escrow instructions and the Closing Disclosure showing the broker credit.
Tip for websites: when describing refunds, prefer phrases like “broker credit through escrow”, and consider tagging with #commission-rebate or #broker-credit for search clarity.