Is it Legal?

Yes it is – as long as it is done legitimately.  As per the rules set forth by the California Department of Real Estate, the rebate mustl comply with the following guidelines to be legal:

1. The rebate must come from the broker
2. the rebate must be disclosed to all parties
3. The rebate must comply with lender guidelines if financing is used to purchase the property

As long as all three of these are followed, a cash rebate to the buyer from the realtor’s commission is legal. 

Regarding compliance with lender guidelines (#3), many lenders will not allow cash back at closing.  If this is the case, the rebate will come in the form of a concession, whether it be a reduction to the sales price or a concession to the closing costs or prepaid items the buyer would normally be charged. 

http://www.usdoj.gov/atr/public/real_estate/rebates.htm