In a move designed to help military service members, veterans and eligible spouses stay competitive in the current housing market, the Department of Veterans Affairs (VA) announced Tuesday that it will temporarily allow VA borrowers to pay their own buyer agent fees in certain situations.
The new policy, which goes into effect on Aug. 10 and is outlined in VA Circular 26-24-14, creates a local variance to the existing rule that typically prohibits VA loan borrowers from paying any real estate commissions.
However, following the landmark $418 million class-action lawsuit settlement agreement reached in March between a class of home sellers and the National Association of REALTORS® (NAR), homesellers are no longer required to compensate buyer’s agents as part of their closing fees, as has been standard practice in the industry.
The housing industry and military homebuyers have eagerly anticipated the VA’s announcement since the NAR settlement, which has left military borrowers somewhat in limbo. NAR said it has worked closely with Congress and the VA, including holding hundreds of meetings on Capitol Hill in May, to find a workable solution.
“The VA’s home loan guaranty is the only program that explicitly bans buyers from directly paying for professional real estate representation,” NAR President Kevin Sears said in a statement. “We applaud the VA for revising this policy and allowing veterans and active-duty service members the same advantages as other buyers in a competitive real estate market.”
Some major VA lenders also applauded the VA’s policy shift.
“With today’s temporary guideline change, the Department of Veterans Affairs continues to ensure Veterans and military families are able to compete in the homebuying marketplace,” Chris Birk, VP of mortgage insight at Veterans United Home Loans, said in a statement.
He added, “These adjustments recognize that in some instances military families must be allowed to pay real estate agent fees in order to achieve the American dream of homeownership. These changes give VA buyers the same flexibility as their conventional counterparts.”
VA buyer-broker compensation policy details
The new VA loan policy applies to situations where:
- Listing agents cannot set buyer-broker compensation: This could be due to regulations or policies implemented by local real estate boards.
- Buyer-broker compensation cannot be established by the listing broker: In some cases, the fee structure for the buyer’s agent may be negotiated separately from the seller’s agent commission.
Under the new policy, VA borrowers can pay “reasonable and customary amounts” for buyer agent services, but there are some notable limitations, including:
- Buyer-broker fees cannot be included in the VA loan amount. This means borrowers need enough cash on hand to cover these costs out of pocket, in addition to their down payment and closing costs.
- Buyer-broker fees will now be considered in a borrower’s VA loan eligibility. VA borrowers will have to demonstrate that they have enough assets to cover the total costs of their home purchase—including their agent’s commission.
- Documentation requirements. A formal invoice isn’t required, but VA borrowers must record the total amount paid to their real estate agent on their closing disclosure form. Additionally, the buyer’s agent representation agreement must be included in the loan file.
The VA encourages military borrowers to negotiate their real estate agent’s fee, regardless of who ultimately pays it. Sellers are still permitted to cover the buyer agent fees, and the VA will not treat those payments as seller concessions, which are subject to limitations.
The VA said the policy is temporary until a permanent resolution is adopted through formal rulemaking after the real estate market stabilizes.
VA borrowers with questions about the new policy can submit a request through VA’s ServiceNow customer portal, or by calling the VA at (877) 827-3702, Monday through Friday from 8 a.m. to 6 p.m. ET.
