For years, home sellers have covered the cost of paying real estate agents on both sides of the transaction. But a recent class action lawsuit settlement against the National Association of Realtors and other parties is changing how buyers and sellers pay their agents.
“Moving forward, buyers will need to negotiate compensation directly with their agent,” says Chris Birk, vice president of mortgage insight at Veterans United Home Loans. “Shoppers will also have to sign an agreement with an agent before they can tour homes.”
The policy change left open questions for those planning to use VA loans, which don’t allow buyers to cover agent commissions. The U.S. Department of Veterans Affairs stepped in with a temporary revision to the rule, allowing buyers the option of covering the fee. Here’s how the change will affect VA loan buyers starting this month.
[Read: Best VA Loans.]
Changes to the VA Loan Program
VA loans, which are mortgages guaranteed by the U.S. Department of Veterans Affairs, offer valuable benefits to service members, veterans and eligible surviving spouses. They allow military members to buy homes with no money down, no mortgage insurance and with below-market interest rates.
VA loans also keep closing costs low for borrowers. The loan program provides a list of standard and typical fees the borrower may pay at closing, such as an appraisal fee, recording fees and a maximum 1% lender origination fee.
“The real estate agent commission isn’t one of those standard and typical fees,” says Josh Jampedro, vice president of Home Loan Advisors. “But the VA doesn’t want a veteran to be at a disadvantage, so they’re now allowing the buyer to pay their real estate agent.”
Without this change, VA buyers may be forced to go through the homebuying process without a real estate agent’s representation. That could leave them vulnerable to entering deals that aren’t in their best interests.
The VA announced the policy update in mid-June as a temporary change to take effect Aug. 10. “But the loan program made clear that it will create a more permanent policy as this major transition in the homebuying ecosystem takes root,” Birk says.
How Other Mortgage Programs Are Addressing the Change
Aside from VA loans, no other major mortgage program prohibits buyers from covering their own agent’s commission fees. But the National Association of Realtors and the Mortgage Bankers Association wanted clarification on those current underwriting rules.
In a letter to regulators and the government-sponsored enterprises, or GSEs, that purchase home mortgages, the trade associations wanted to know: If a seller decides to cover the buyer’s agent commission, does that count toward limits on interested party commissions?
These “IPCs” allow interested parties, which include property sellers, to make contributions to the borrower’s closing costs. These are subject to maximum limits that vary with each loan program.
Here’s how each major loan program is treating buyer’s agent fees in association with interested party commissions:
Conforming conventional loans. Lenders that write conventional conforming loans typically follow standards set by Fannie Mae and Freddie Mac, two GSEs that purchase mortgages on the secondary market. In April, Fannie and Freddie clarified that buyer’s agent commissions are not subject to financing concession limits. Either the seller or the buyer can cover the buyer’s agent commission.
Federal Housing Administration loans. This federally backed program allows borrowers with lower credit scores and small down payments to potentially qualify for mortgage loans. FHA policy allows sellers and other parties to contribute toward a buyer’s closing costs, as long as the amount doesn’t exceed 6% of the property’s purchase price.
In March, the FHA released a statement confirming sellers can continue paying buyer-side real estate agent commissions and fees. The payments won’t be treated as part of the 6% IPC limit as long as the commissions and fees are “reasonable in amount.”
U.S. Department of Agriculture loans. USDA loans help low-income borrowers buy homes in designated rural areas for no money down. The loan program allows sellers to pay for some of the buyer’s closing costs. That amount can’t exceed 6% of the sales price. Funds that cover a buyer’s real estate commission fees are not included in the interested party contribution limitations.
[Read: Best Mortgage Lenders]
How Will Buyers Pay the Fee?
Going forward, buyers may have higher upfront expenses in the homebuying process. Most VA loan borrowers won’t need to worry about covering a down payment, but they’ll need to consider how they’ll pay for a potential buyer’s agent commission in addition to their closing costs.
“I think a good number of VA buyers will still ask home sellers to pay their agent’s commission,” Birk says. “In some cases, buyers will need to come up with this money at the closing table.”
The industry is waiting to see how the new rules affect buyers in the coming months, says Jazmine Glasgow, broker and co-owner of Maritime Mortgage. The VA loan policy change is temporary, and some real estate experts are predicting how the rule may evolve.
“The VA will probably put a maximum on the amount a borrower can pay toward the commission,” Glasgow says. “They’re probably going to put some sort of way to finance it or roll it into the loan the same way the funding fee is.”
[Read: Best Mortgage Refinance Lenders.]
Negotiating Your Buyer’s Agent Commission
In previous homebuying transactions, the seller paid the listing agent a fee that equaled about 6% of the home’s purchase price. Typically, half of the commission went to the listing agent and the other half went to the buyer’s agent.
That commission has always been negotiable, but a February survey from LendingTree revealed only 31% of homebuyers or sellers have tried getting a lower fee. Out of the people who attempted a negotiation, 64% were successful.
If you’re planning an upcoming home purchase, you’ll need to figure out how to handle your buyer’s agent commission. Here are some tips on how to negotiate and save money:
Enter a short-term agreement. Instead of agreeing to work with a real estate agent from beginning to end, offer to sign a short-term contract to view one specific home or to tour a few over the course of a brief period. “These ‘touring agreements’ don’t require the buyer to pay anything or to commit to using the agent to actually buy a home,” Birk says. Once you choose an agent you want to work with, you’ll need to sign a buyer’s agreement that spells out details like the amount of compensation and how you’ll pay it.
Discuss expectations upfront. After finding an agent you might want to work with, ask what their commission is, what you’ll receive in return and when the commission is due. “A lot of agents are offering different tiers of service now,” Glasgow says. “From those tiers, you can figure out what you need and how much it’s going to cost you.”
You’ll also need to determine how your agent wants to be paid if you end up canceling your home search. For instance, will you pay a fee to end the service?
Negotiate in dollars instead of percentages. In the past, agent fees were usually calculated as a percentage of the total purchase price. So a 3% commission on a $200,000 home, for instance, would cost $4,000. But home prices have surged in recent years, inflating real estate agent commissions in the process. For example, a 3% commission on a median-priced home in Boston in August 2024 would cost nearly $25,000. Discussing your agent’s commission in terms of dollars instead of percentages could help keep the amount transparent and fair for both of you.
Ask the seller to cover the fee. VA loan borrowers can ask sellers to pay for certain closing costs, such as the funding fee, loan origination fee and prepaid taxes. These seller concessions can’t exceed 4% of the total home loan. The new VA rule says agent commissions don’t count against the 4% cap, so you can still ask the seller to pay for your buyer’s agent fee.
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The NAR Settlement Will Affect VA Loans Beginning This Month ? Here’s What New and Existing Borrowers Need to Know originally appeared on usnews.com
