VA Introduces Temporary Variance Allowing Veterans to Pay Buyer-Broker Fees
In a significant move to ensure Veterans stay competitive in the ever-evolving real estate market, the Department of Veterans Affairs (VA) has announced a temporary local variance. This variance allows Veterans to pay certain buyer-broker charges when purchasing a home using their VA loan benefits. Effective August 10, 2024, this groundbreaking change addresses the shifting landscape of real estate brokerage practices and its potential impact on Veterans’ homebuying opportunities.
Understanding the Current Landscape
Traditionally, VA regulations have prohibited Veterans from paying real estate brokerage charges when using their VA home loan benefits. This restriction was to protect Veterans from unnecessary costs, ensuring their well-earned benefits were used solely for purchasing a home.
However, recent changes in the real estate industry, like the proposed settlement agreement by the National Association of Realtors (NAR) in March 2023, prompted the VA to reevaluate its policies to keep Veterans competitive in the housing market.
The NAR Settlement
The NAR settlement, awaiting final court approval on November 26, 2024, is expected to significantly alter how buyer-broker commissions are handled. Key changes include:
- Removing offers of compensation from Realtor-owned multiple listing services (MLSs), meaning sellers won’t be able to advertise a specific commission to buyer-brokers through the MLS.
- Requiring buyer agents to have signed buyer representation agreements with clients before touring homes, outlining the compensation the buyer-broker will receive.
Impact on Veterans
The proposed NAR settlement disproportionately affects Veterans. That is because longstanding VA rules mandate that Veterans are barred from paying any brokerage or agent commissions when using their VA loan benefits to purchase a home. With the proposed settlement, sellers will no longer be allowed to advertise compensation for buyer agents to bring offers, which means Veterans would become disadvantaged compared to non-Veterans who are allowed to pay their own agent’s compensation without restriction. Simply stated, without a rule change, in many cases Veterans could be in a position where they are forced to be unrepresented during their home purchase because the rules prohibit them from hiring representation.
The Temporary Local Variance
In response, the VA has authorized a temporary local variance allowing Veterans to pay reasonable and customary buyer-broker charges, including commissions and other fees. This variance applies in areas where:
- Listing brokers cannot set buyer-broker compensation through multiple listing postings.
- Buyer-broker compensation can’t be established by or flow through the listing broker.
This variance aims to level the playing field for Veterans, ensuring they remain competitive even where traditional seller-paid buyer-broker commissions are no longer the norm.
Limitations and Considerations
Veterans cannot include buyer-broker charges in the loan amount and must assess if they have enough liquid assets to close the loan. Veterans must have sufficient cash to cover these expenses besides other closing costs.
The VA emphasizes that this variance does not mandate Veterans to pay buyer-broker fees but provides the option if necessary to stay competitive in their local market.
Encouraging Negotiation and Transparency
The VA encourages Veterans to negotiate buyer-broker compensation directly, irrespective of who pays. This aligns with the broader industry movement towards transparency and consumer empowerment in real estate transactions.
By negotiating buyer-broker compensation, Veterans can ensure fair and reasonable services that fit their budget and the current market conditions.
Disclosure Requirements
For transparency, the total buyer-broker charges paid by Veterans must be recorded in the appropriate sections of the Closing Disclosure. This ensures a clear representation of all home purchase costs, enabling Veterans to make informed decisions.
Lender Responsibilities
Additionally, lenders must:
- Upload the buyer-broker representation agreement with the sales contract package when requesting an appraisal, ensuring the VA fully understands the buyer-broker relationship terms.
- Retain the agreement in the loan file to demonstrate compliance with VA guidelines and maintain a clear audit trail.
Preserving Seller’s Option to Pay Buyer-Broker Fees
While the temporary variance allows Veterans to pay buyer-broker charges, it does not prevent sellers from offering to cover these fees for Veterans. This flexibility ensures Veterans can still benefit from seller-paid commissions when available, enhancing their market competitiveness.
Many sellers might still offer buyer-broker commissions to attract more buyers and facilitate quicker sales. By keeping this option, the VA ensures Veterans can seize these opportunities.
Seller Concessions
The VA does not classify seller-paid buyer-broker charges as seller concessions, potentially encouraging more sellers to offer this arrangement. This flexibility prevents exceeding the allowable concession limits set by the VA, providing more seller cooperation opportunities.
The Road Ahead
The temporary local variance announced by the VA is a proactive measure addressing the rapidly evolving real estate brokerage market and its potential impact on Veterans’ homebuying opportunities. By allowing Veterans to pay buyer-broker fees, the VA demonstrates its commitment to ensuring those who served our country can access the benefits they have earned.
Future Policy Development
As the industry evolves, the VA plans to develop a more permanent policy through a notice-and-comment rulemaking process. This will involve feedback from Veterans, real estate professionals, and industry experts to ensure any long-term changes effectively serve the needs of our nation’s heroes.
Ensuring Veteran Competitiveness
In the interim, the temporary variance allows Veterans to utilize their VA home loan benefits while staying competitive in the housing market. This flexibility showcases the VA’s dedication to the financial well-being and housing security of Veterans.
The Bottom Line
Allowing Veterans to pay buyer-broker fees through a temporary local variance is a significant step in protecting Veterans’ interests amidst a changing real estate landscape. This move showcases the VA’s proactive approach to ensuring that our nation’s heroes can access their benefits and remain competitive buyers.
Empowering Veterans
By enabling Veterans to negotiate and pay for buyer-broker services, the VA empowers them to navigate the homebuying process more effectively. This empowerment is crucial in today’s dynamic real estate market, where traditional practices are evolving.
Veterans can benefit by using platforms like AssumeList to find assumable loans and streamline their buying process.
