Can an Agent Use Commission to Pay a Buyer's Closing Costs?

This question comes from the Tennessee Association of Realtors Hotline, where agents can ask questions regarding Tennessee real estate law :

QUESTION: Is it still allowable for a real estate agent to apply a portion of her percentage of commission to the purchase price for a buyer? If so, what is the proper way to word this in a contract?

ANSWER: NO, this is no longer permitted. We recently discussed this issue with the Tennessee Real Estate Commission, and they are of the opinion that the new statute regulating cash gifts, Tenn. Code Ann. 62-13-302(b) will NOT allow the paying of closing costs for their client. This new law states "A real estate licensee shall not give or pay cash rebates, cash gifts or cash prizes in conjunction with any real estate transaction. As part of the Tennessee Real Estate Commission's general rulemaking authority the commission may regulate the practices of real estate licensees in regard to gifts, prizes or rebates that are
not otherwise prohibited by law."

This is a change in the previous rules governing this type of activity. The Real Estate Commission is of the opinion that the paying of closing costs would amount to a cash gift. You can still offer to cut your commission, but this would require that the sales contract be amended in order to reflect that the price has been changed. For example, if you are offering to reduce your commission by $1,000.00, the sales contract would have to be amended demonstrating that the sales price has been reduced by $1,000.00.


To be clear, sellers are allowed to help with a buyer's closing costs, but usually only up to 3% on a conventional loan.

And please don't ask me to cut my commission. It makes me cranky.