Military Finances 201: Real Estate Agent Fees Have Changed. What You Need to Know
As I covered in my previous article on Real Estate fees, the National Association of Realtors (NAR) has agreed to change its rules on agent commission fees starting in July 2024. Well, the dust has finally settled, and we have some more information on what the new "normal" will look like.
The Old System
Traditionally, sellers have paid the agent fees for both the seller's and buyer's agents, typically amounting to around 5-6% of the home's purchase price. This total amount is usually split equally between the two agents. As a buyer, you have had no say in what these fees would be and may not have been aware that they could be negotiated.
What's Changed?
Starting in July 2024, buyers are responsible for paying their own real estate agent's commission. This means that as a buyer, you will need to factor in approximately 2-3% of the home's cost as part of the cash you bring to closing. The exact percentage is negotiable, so it's important to shop around for the best value.
VA's Response to the Real Estate Agent Fee Changes
In response to the NAR settlement, the Department of Veterans Affairs (VA) has announced a temporary local variance that allows Veterans to pay for certain buyer-broker charges when using their VA-guaranteed home loan benefit. This variance is effective as of August 10, 2024, and is intended to ensure Veterans remain competitive buyers in the rapidly shifting real estate brokerage market.
According to VA Circular 26-24-14, the temporary local variance allows Veterans to pay reasonable and customary amounts for any buyer-broker charges (including commissions and any other broker-related fees), subject to the following conditions:
- The home the Veteran is purchasing is in an area where listing brokers are prohibited from setting buyer-broker compensation through multiple listing postings, or buyer-broker compensation cannot be established by or flow through the listing broker.
- Buyer-broker charges are not included in the loan amount.
- Buyer-broker charges paid or to be paid by the Veteran are to be considered in determining whether the Veteran has sufficient liquid assets to close the loan.
- While an invoice is not necessary to support the buyer-broker charge, the total amount paid, if any, by the Veteran is to be recorded in lines 1 through 3 of section H ("Other") on the Closing Disclosure. Additionally, VA expects lenders to upload the buyer-broker representation agreement as part of the package lenders use when requesting an appraisal and retain the agreement in the loan file.
It's important to note that this temporary variance does not prevent the seller of the home from paying for the Veteran's buyer-broker charges. VA also encourages Veterans to negotiate the amount to be paid to their buyer-broker, whether the Veteran or seller pays the amount.
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.
What This Means for Homebuyers
Homebuyers are now required to sign a written agreement with their agent before touring a home. This contract must explain the buyer-broker fee, as negotiated by the homebuyer and the agent, and the specific services that will be provided by the agent.
The seller may agree to offer compensation to your agent, but the offer cannot be shared on the MLS. Buyers may also ask sellers to pay the buyer's agent's compensation, even if the seller's agent did not advertise seller-paid compensation on a platform other than the MLS.
Buyers can still accept concessions from the seller (up to 4% of the appraised value of the property), such as offers to pay closing costs. Also, because buyers' agents cannot receive compensation over the amount negotiated with their client, any seller-paid offers of compensation higher than the amount negotiated by the buyer may be negotiated as a seller concession to defray the buyer's closing costs.
What This Means for Home Sellers
Sellers can offer compensation to buyer brokers. However, the seller's agent must clearly disclose and document the seller's approval of the payment, or offer, that will be made to the buyer brokers.
This compensation amount cannot be included on the MLS listing. The seller's agent may advertise the listing on other social media, flyers, and websites other than the MLS platform.
Sellers can still offer buyer concessions (up to 4% of the appraised value of the property), such as offers to pay closing costs.
What Should Veterans Do?
When finding an agent to work with, make sure to ask questions about compensation and understand what services are included. It is also your right to negotiate the fees prior to signing a written contract. You should work with your agent to understand how the VA-guaranteed home loan benefit applies to your situation, with the full range of choices when both buying or selling a home.
Military Finances are Different!
As an Active or Retired Senior Military Officer or NCO, the recent changes in real estate agent fees uniquely impact your home buying process. The VA's temporary adjustment to allow payment of buyer-broker fees with your VA loan benefit keeps it competitive with traditional mortgage options. Navigating these new rules while optimizing your military benefits requires specialized knowledge. That's why working with a financial advisor who understands the intricacies of military finances is crucial. If you'd like to learn how we can help you make informed decisions about all of your financial decisions, use the button below to schedule a free initial consultation.
