VA Temporarily Allows Buyer-Paid Broker Fees

Military homebuyers now have the option of covering buyer-broker fees

Last week, the U.S. Department of Veterans Affairs introduced a temporary rule change to help veterans remain competitive when purchasing a home.

The policy change comes as the industry braces for the new rules concerning broker compensation, stemming from a class-action settlement involving the National Association of Realtors (NAR).

Veterans, active-duty service members, and eligible spouses who use VA loans for home purchases can now utilize their VA loan benefits to cover their real estate agent’s commission (commonly known as the buyer-broker fee).

Key takeaways from the VA circular

In the two-page Circular 26-24-14, the VA announced a temporary variance for fees related to real estate broker or agent (buyer-broker) compensation.

A few specifics of the new policy include:

• Temporary Policy Revision. The VA has temporarily adjusted its policy to allow buyers to pay broker fees directly. The change is meant to ensure smoother transactions and offer more flexibility for veteran homebuyers.
• Effective Date: The policy change, according to a statement from the VA, is currently temporary and will go into effect on August 10, 2024, and remain in place until further notice. The VA plans to monitor how the settlement affects the real estate market before pursuing a more permanent policy.
• Effect on Loan Approval: The temporary policy adjustment is intended to have minimal impact on the loan approval process. Buyers must still meet all other VA loan requirements to qualify for their mortgage.
• Documentation Requirements: Buyers and brokers must provide appropriate documentation to validate the payment of broker fees. This includes a detailed summary of the fees and a statement verifying that the fees are customary for the area.
• Fee Cap: Although the VA now permits buyer-paid broker fees, there is a limit on the amount that can be charged. The fee must be reasonable and customary for the area, ensuring homebuyers are not overcharged.

What the VA’s temporary fix means for veterans and active-duty service members

The VA’s new temporary solution enables veterans and active-duty service members to shoulder buyer-broker fees, marking a substantial change that evens the playing field for them in real estate.

Prior to the new temporary fix, the VA strictly prohibited veterans from utilizing their VA benefits to pay fees to real estate professionals hired to represent them throughout the homebuying process. This previous rule was meant to protect veterans but inadvertently limited their ability to be competitive when buying a home.

Under the new rule, all buyer-broker fees must be reasonable and customary. Homebuyers can still request that sellers cover these charges, giving veterans flexible options without negatively impacting their competitiveness.

The history of buyer-paid broker fees

To fully understand the significance of the VA’s temporary policy changes, let’s first explore the background of buyer-paid broker fees.

In 2016, veteran homebuyers faced limitations that hindered their ability to compete in the real estate market. These limitations arose from a VA policy that prohibited VA mortgage borrowers from directly paying broker fees.

While other buyers could negotiate these costs, veterans were uniquely disadvantaged. Veteran homebuyers had to rely on sellers to cover these fees, putting them at a competitive disadvantage.

VA applauded for making the change

The changes have been well-received by many who had previously expressed concerns about potential disadvantages for VA borrowers amid the NAR settlement.

The Mortgage Bankers Association (MBA) has advocated for the VA to address this issue for months and is pleased with the temporary measure. “We now urge the VA to permanently amend its regulations to allow Veteran borrowers to pay reasonable and customary fees and commissions to retain agents representing their interests,” the MBA stated.

The National Association of Realtors (NAR) also advocated for change. NAR President Kevin Sears commended the VA, stating, “The VA’s home loan guaranty is the only program explicitly banning buyers from directly paying for professional real estate representation.” He commended the VA for revising their policy, allowing veterans and active-duty service members the same advantages as other buyers in a competitive real estate market.

The next steps for the VA’s new temporary policy change

According to the VA, the policy modification is presently temporary and is scheduled to take effect on August 10, 2024, with plans to remain in force until rescinded.

The VA intends to observe the impact of the settlement on the real estate market before determining a more permanent policy. Until the permanent change is effective, the temporary change will help VA homebuyers remain competitive, ensuring they possess every advantage in today’s real estate market.

The policy revision allowing veteran homebuyers to pay their brokers comes just ahead of an industrywide broker compensation change scheduled to go into effect later this summer.