Marcus Marion, CMA™ In the past, the official VA loan guidelines prohibited home buyers from paying real estate agent commissions. It was customary for the seller to pay for both the buyer and listing agent commissions, using funds generated from the sale of the home.
Now, the Department of Veterans Affairs has announced it will revise that rule, allowing home buyers with VA loans to pay a buyer’s agent commission fee. This is all related to a recent lawsuit involving the National Association of Realtors, which affects the way real estate professionals can charge commissions.
There’s a lot to unpack here, so let’s start at the beginning.
Original Rules for Agent Commissions and VA Loans
A VA loan is a mortgage loan that receives a guarantee from the federal government, through the U.S. Department of Veterans Affairs. This guarantee gives mortgage lenders extra protection from losses that might occur if a borrower defaults on the loan.
Like other government-backed mortgage programs, VA loans have specific rules and requirements for both the borrower and the property being purchased. One of those rules has to do with the paying of real estate agent commissions.
In the past, the VA has prohibited home buyers from paying agent commissions.
Here’s what it says in the current (spring 2024) version of VA Pamphlet 26-7, which is the official handbook for mortgage lenders:
“Fees or commissions charged by a real estate agent or broker in connection with a VA loan may not be charged to or paid by the veteran-purchaser. While use of ‘buyer’ brokers is not precluded, veteran-purchasers may not, under any circumstances, be charged a brokerage fee or commission in connection with the services of such individuals.”
The handbook goes on to explain that the VA doesn’t think this prohibition will “harm the veteran,” since property information is widely available from a variety of source.
But the rules regarding VA loans and agent commissions will likely be revised due to a major lawsuit involving the National Association of Realtors. Going forward, this could affect home buyers who want to use a VA loan to buy a house and want to be represented by an agent.
NAR Lawsuit Relating to Agent Fees
A recent lawsuit settlement by the National Association of Realtors (NAR) could change how home buyers pay real estate agent commissions.
Previously, listing agents would typically offer compensation to buyer agents, which was split between the two parties. Under the new agreement, listing agents can no longer automatically offer this compensation.
This shift has raised concerns, particularly for veterans using VA loans.
As explained above, current VA policy prohibits veterans from directly paying their buyer agents. This means that if sellers do not offer to cover the home buyer’s agent’s commission, the buyer might have a hard time finding a real estate agent who is willing to represent them.
Fortunately, the VA is taking steps to temporarily suspend this policy, allowing veterans to continue working with buyer agents while a long-term solution is explored.
The VA Will Announce a Rule Change in June 2024
In an effort to help military and veteran home buyers, the U.S. Department of Veterans Affairs (VA) has announced a temporary suspension of its policy prohibiting veterans from paying real estate agent commissions directly.
This decision aims to mitigate potential disadvantages faced by veterans in the housing market due to recent industry changes.
Michelle Corridon, the VA’s Deputy Policy Director, announced the forthcoming changes at a recent Mortgage Bankers Association (MBA) conference in New York. A circular outlining this temporary change is expected to be issued by June 12, 2024.
Industry experts and trade groups, including both the MBA and NAR, have expressed concerns that the lawsuit-related changes could leave veteran home buyers without professional representation.
In a statement, the MBA welcomed the VA’s move, highlighting the potential negative impact on veterans if no action were taken. “Failure to act would put VA buyers at a significant disadvantage – especially in today’s tight inventory market,” the MBA said.
Shannon McGahn, NAR’s Chief Advocacy Officer, echoed those concerns and praised the VA’s recent decision. “Without this change, thousands of veteran buyers could be denied access to professional representation in their pursuit of the American Dream of homeownership.”
Both groups agree that this temporary measure (and long-term policy changes that might follow) will give military home buyers an equal opportunity to compete in the housing market.
What Home Buyers Can Do in the Meantime
Despite this recent shakeup, the VA loan program continues to offer major benefits for eligible borrowers (primarily military members and veterans). It allows you to buy a home with no money down and without paying mortgage insurance.
Here are some things buyers can do in the short term, while these changes are unfolding:
1. Stay Informed: Keep an eye out for updates from the Department of Veterans Affairs. They’ll be issuing a circular within the next few weeks outlining the temporary suspension of the policy that prevents buyers from paying agent commissions. You can find updates on the VA.gov website or by following their social media channels.
2. Talk to a Lender: A VA-approved mortgage lender can explain the latest developments and how they might affect your specific situation. They might also be able to help you find a real estate agent who understands the VA program and is willing to work under the new guidelines.
3. Find a VA-Savvy Agent: Look for an agent who is familiar with VA loans and the recent policy changes. They can guide you through the process, explain how buyer agent compensation might be handled, and advocate for you during negotiations.
This situation is still evolving. By staying informed and communicating with a lender, you’ll be in a better position to navigate the home buying process and secure your dream home.
