A recent landmark settlement that could significantly change how real estate agents are paid could also have a knock-on effect on a sector of potential homebuyers who often rely on government-backed mortgages: military veterans.
The National Association of Realtors agreed to change its rules to settle a slew of lawsuits from home sellers who argued the trade group’s policy on commissions forced them to pay excessive fees.
However, there are also concerns that veterans will now choose not to be represented at the negotiating table because the Veterans Affairs loan prevents them from paying a commission to a buyer.
What is a Veterans Loan?
A Veterans Affairs loan, or VA loan, is a private mortgage financing backed by the US Department of Veterans Affairs that is best known for allowing veterans to purchase a home with no down payment. The loan was created in 1944 as part of the GI Bill of Rights and often comes with an unjustified stigma – they were once considered more complicated and harder to close than conventional loans, but the process has long since been streamlined, with many of the bureaucratic hurdles for sellers worried that they have long since been eliminated.
About 28 million military veterans have used the loan since 1944.
What does the VA loan say about agent fees?
One of the rules of the VA loan is that borrowers who use it are not allowed to pay a commission to their real estate agents when they buy a home – a mandate designed to protect them from additional costs. And until the NAR settlement, that was rarely an issue because of the way commissions had long been paid: In the United States, most agents set a 5 or 6 percent commission, paid by the seller. If the buyer has an agent, the seller’s agent agrees to share a portion of the commission with that agent when the home is listed on the market.
But when the NAR settlement takes effect in July, pending a judge’s approval, those commission offers are likely to disappear, thanks to changes to a key rule that a jury found anticompetitive. And without sellers’ agents splitting their commission with buyers, buyers using an estate agent will now have to foot the bill for their own agents’ services.
For VA borrowers, this is not possible.
“Buyers’ commission will now be part of the conversation in a way it hasn’t been in decades,” said Chris Birk, vice president of mortgage information at Veterans United, the nation’s largest VA lender. “There is still a lot of uncertainty about how this ultimately plays out in the guidelines and in practice for veteran homebuyers.”
Some agents specialize in military buyers. Those agents say the rule change has them uncomfortably stuck between a rock and a hard place.
“I was livid when I heard that,” said Jonathan Myers, a realtor in Jacksonville, NC, home to Marine Corps Base Camp Lejeune and Marine Corps Air Station New River. He estimates that 80 percent of his customers are military. “Now we have two options. We can either lower our commission to make sure we take care of the veteran, or we can keep the veteran on the contract and make him pay the difference.β
Does the government have a plan to respond to the rule changes in the settlement?
Not yet, but the Department of Veterans Affairs is in talks with the Department of Justice and key real estate industry leaders to “determine any potential impacts to veteran borrowers related to this proposed settlement,” said Terrence Hayes, the VA’s press secretary. , in an email. .
Mr. Hayes added that the VA and the Department of Justice are working together “to ensure that veterans are not overcharged for realtor fees or disadvantaged during the home buying process.”
“We will continue to monitor this very closely and take action as necessary,” Mr Hayes added.
Mr. Birk, of Veterans United, said several possible solutions were being considered to address the rule change, including the possibility that the Department of Veterans Affairs would make buyers’ commissions a fee veterans are allowed to pay.
NAR is the professional organization representing the real estate industry. How does it respond to rule changes?
NAR, which agreed to the terms of the settlement on March 15, has contacted the Department of Veterans Affairs to change its policies on VA loans, a process that requires coordination with the Department of Justice.
The group’s president, Kevin Sears, sent a letter March 27 to the VA’s executive director, saying NAR is committed to working with the VA to find solutions in the wake of the settlement.
βIn this highly competitive market, we are concerned that current VA policies place veterans at a significant disadvantage compared to traditional purchasers,β Mr. Sears wrote.
How are military buyers responding?
Some are worried.
Others, like Heath Campbell, a retired air control electronics operator who now runs a martial arts studio in Jacksonville, NC, admit they were unaware of the settlement and its potential effects.
Mr. Campbell and his husband are considering selling their home in Richlands, NC, which has more than doubled in value since they bought it in 2012, and buying a new property closer to his work. He’d like to use his VA loan when he buys, he said, and despite the fact that more than a quarter of Jacksonville residents have a connection to the military, they weren’t aware of the news of the settlement.
βI’ll be honest with you. We don’t personally engage in much social media outside of business. We don’t have cable. We don’t even watch TV,” he said.
As word spreads, however, some agents are trying to think creatively. Naval Surface Warfare Office retiree Joe Knipp, who now owns GI Joe Homes, a Northern California real estate firm that exclusively serves military buyers and sellers, said he has developed potential solutions with his brokerage team. They are considering turning his company into a real estate law firm that could charge legal fees rather than commissions. The VA loan does not prohibit the payment of legal fees.
Other agents who specialize in military buyers say their biggest concern is that veterans will simply choose not to use an agent.
“Most likely you’re going to see a lot of people not being represented and you’re going to see the market shift to more dealers only working with sellers because that’s where they can make sure they’re getting their commission,” Deonte said. Cole, a retired Marine Corps veteran who now works as a realtor in Tampa, Florida. “It creates a more difficult situation for the buyer.”