How the NAR Commission Settlement Impacts VA Buyers

UPDATE (6/11/24) -- The VA released temporary guidance today that allows Veterans to pay real estate agent commissions when buying a home. The update aims to ensure that VA buyers aren't disadvantaged in the marketplace when a landmark court settlement takes effect later this summer.

The short-term policy change allows VA buyers to pay their buyer's agent, which until now had been a cost Veterans weren't allowed to cover. The fee must be reasonable and customary for the Veteran's housing market.

VA buyers can also still ask sellers to pay this fee at closing. Having a seller pay the buyer's agent commission doesn't count against the VA's 4% cap on seller concessions.

The policy update takes effect on Aug. 10, which is a week before the proposed National Association of Realtors settlement becomes effective.

The Loan Guaranty Program plans to develop permanent guidance about buyer-broker commissions in the coming months.

See our earlier story about the settlement and potential impact on VA buyers:

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A recent court settlement proposed by the National Association of Realtors is poised to change the way homebuying works in this country. But without corresponding updates to the VA home loan program, this shift could put Veterans and military members at a disadvantage.

The proposed settlement would effectively usher in a new era of buyers and sellers negotiating and paying real estate commissions. By eliminating mandatory commission fees listed on multiple listing services (MLS), the settlement aims to foster a more competitive and transparent market where buyers and sellers can negotiate agent fees freely.

The Impact to Veterans

The serious hurdle for Veterans and service members is that VA home loan program prohibits buyers from paying real estate agent commissions – period.

Here’s what the VA guidelines say in full:

“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. Since information on property available for purchase and financing options is widely available to the public from a variety of sources, VA does not believe that preventing the veteran from paying buyer-broker fees will harm the veteran.”

–VA Lenders Handbook, Chapter 8

This policy, designed to protect Veterans from additional financial burdens, could wind up leaving Veteran and military homebuyers behind.

The proposed NAR settlement could significantly reduce the willingness of real estate agents to work with VA buyers, potentially leading to a decrease in accessible housing options for Veterans and service members. The impacts could be especially severe for those in competitive markets, where the allure of higher commissions from non-VA clients may steer agents away from Veteran buyers.

The upfront costs associated with paying a buyer’s agent might also price some Veterans out of homebuying.

“In situations where no offer of compensation is offered from a seller, VA buyers are immediately at a disadvantage, potentially forcing them to forego professional representation, lose a property market entirely,” Kevin Sears, president of the National Association of Realtors, wrote in a recent letter to VA loan program officials. “The VA home loan guaranty program is a vital homeownership tool that provides Veterans with a centralized, affordable, and accessible as a benefit they earned for their service to our nation. NAR wants to ensure that VA buyers remain active participants in the real estate market to achieve the American Dream of homeownership.”

Getting Left Behind

The NAR's proposed settlement, valued at $418 million, arises from antitrust lawsuits accusing the association and its members of artificially inflating commission rates.

This longstanding model has ensured that buyers, particularly those leveraging VA loans, are not responsible for covering real estate agent commissions. However, the settlement's push toward commission negotiation directly between buyers and agents threatens to leave Veterans behind, as their VA benefits explicitly prevent them from paying these fees.

While Veterans face unique obstacles, the shift could also impact first-time and low-income buyers who may struggle to afford additional upfront costs. This demographic, which often benefits from seller-paid commissions, may find homeownership increasingly out of reach.

Last year, the average VA purchase loan was about $370,000. Based on that figure, a VA buyer would need more than $11,000 in cash to pay a 3% real estate agent commission out of pocket.

Potential Solutions

As the real estate industry grapples with these impending changes, stakeholders from all sides are calling for careful consideration of the impacts on Veterans and vulnerable buyers. Solutions may include legislative or policy adjustments to ensure that VA loan benefits fully protect Veteran homebuyers in this new landscape.

One possibility is that real estate commissions become an allowable fee for VA buyers, which could give them the same flexibility as their civilian counterparts.

VA officials announced in late May that a temporary fix would be issued before June 12. A formal change in VA policy is expected to come some time after.

The settlement is still awaiting court approval. If approved, changes to MLS listings would be effective by the middle of August.