VA Updates Rules About Veteran Homebuyers Paying Agent Commissions
This post was updated June 11, 2024 after the release of the release of VA Circular 26-24-14 regarding veterans paying buyer-agent commissions.
The Department of Veterans Affairs (VA) announced that veterans may start paying their real estate agent when purchasing a home, effective August 10, 2024.
This announcement, called a Circular, changes a long-standing rule that said veterans may not pay buyer-agent commissions when using a VA home loan. If the veteran-homebuyer wanted an agent, the home seller would have to pay.
The change came just in time.
On August 17, 2024, new real estate rules go into effect that could make the homebuyer responsible for their Realtor's commission, not the seller. Buyers could start paying upwards of 3% of the home’s price to their agent – more than $12,000 on the median U.S. home price.
This follows a paradigm-shifting lawsuit and resulting settlement by the National Association of Realtors (NAR) in March 2024 that changed the 110-year-old commission rule.
New commission rules would have been major problem for veteran homebuyers.
The old rule, specifically Chapter 8, page 8 of the VA Home Loan Lenders Handbook states:
“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.”
The Handbook goes on to say that property information is widely available, so veterans don’t need an agent. In short, the VA doesn’t believe buyer’s agents are valuable. At least, that was their stance.
But most industry professionals argue that buyers need representation. And, it's possible that the home seller's Realtor would not work with an unrepresented buyer -- veteran or not.
Now, VA home loans will be aligned with the rest of the industry, allowing the homebuyer to pay their agent's commission if they need to.
What the VA Announcement Says
The two-page Circular, in essence, says that veterans using the VA home loan may pay their real estate agent directly. It does, however, cover other issues. But the language is technical. Here's a breakdown of the announcement in more understandable terms.
- Prior, the VA did not allow the Veteran to pay the real estate agent that was helping them buy a home (the "buyer's agent" or "buyer-broker.") If the buyer used an agent, the seller would have to pay their commission.
- Now, VA allows the Veteran to pay their agent directly in areas where the seller's agent can't publish the buyer-agent commission on the MLS
- The veteran may not wrap the agent commission into the VA loan
- The lender must verify that Veteran has enough cash to cover the agent commission, closing costs, and down payment, if any. For example, if the closing costs are $8,000 and buyer's agent commission is $5,000, the lender must verify that the veteran-buyer has $13,000 in checking/savings accounts
- The buyer's agent commission must show up on the Closing Disclosure, the document that details all transaction charges
- The buyer's agent commission must show up in the sales contract.
- The sales contract is used in the appraisal process, therefore the buyer's commission charges become part of the appraisal process and loan documentation
- The seller may pay for the buyer's agent. The rule does not mandate that the buyer must pay.
Will the VA Update Its Rules Again Later?
The VA has deemed this rule change as temporary. It was meant to address a rapidly-approaching change in the market that may have left veterans with few options when buying a home.
The agency states, "VA will develop a more permanent policy, through a new notice-and-comment rulemaking, as the real estate brokerage market restabilizes and new practices take hold."
No one knows how the NAR settlement will play out in the real world. Will sellers continue to pay buyer-agent commissions? Will buyer-paid commissions be the new norm? The VA is waiting to issue a final rule until the market determines new norms and public comment is received.
While the temporary rule change is a victory for buyers using the zero-down VA home loan, it still could leave veterans with a hefty bill for their agent.
How might veterans deal with this extra cost?
How Veterans Might Pay for Their Agent
We cover strategies to pay for your buyer's agent in our article "6 Ways To Afford A Buyer’s Agent If Sellers Stop Paying." We summarize some of these ideas here.
1. Find Homes Where the Seller's Agent Still Pays
The NAR settlement did not state the seller can’t pay the buyer’s agent. It only said the buyer’s agent commission may not be advertised in the listing.
Sellers could continue to pay the buyer’s agent. This will attract better buyers: many sellers don’t want to work with unrepresented buyers.
This outcome has been all but proven in Washington State, where sellers are already off the hook for paying buy-side commissions. The effect: nearly zero.
“We really haven’t seen a big shake-up in the compensation being offered by sellers,” said Washington State agent Sharon O’Mahony in a recent Seattle Times article.
Still, veterans can’t rest easy yet. It's still unknown what percentage of sellers will offer buyer agent commissions.
2. Opt Out of Using an Agent
A veteran-buyer could go it alone.
This isn’t an ideal scenario for veterans, though.
First, a home purchase is much more complex to navigate than many assume. It’s more than finding a suitable home, which anyone can do online.
From negotiating repairs to knowing what to do with a county sewer assessment, a buyer’s agent provides context that even experienced buyers likely lack.
In addition, a seller’s agent may not want to work with an unrepresented buyer, further limiting inventory for veterans.
3. Find a Flat-Fee Agent or Real Estate Attorney
Real estate agents will start to get creative to continue to make a living. Some will create flat-fee services where you pay a known fee upfront for certain, yet limited, services. For example, you might pay $2,000 for an agent to work up the contract and perform some basic negotiation.
4. Save More
The VA home loan does not require a down payment. This allows the veteran -- more than the typical buyer -- to cover their buyer-agent costs.
How Should Veterans Prepare?
Because it’s impossible to tell how the changes will shake out, veterans should consider buying a home as soon as possible.
Sellers are still paying buyer-agent commissions. But that may not be the case as rule changes roll out and the market adapts.
