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Commission Lawsuit and Veteran Homebuyers: 6 Ways It Could Play Out

commission lawsuit va home loan buyers

In July 2024, new rules will go into effect that could spur home sellers to stop offering commissions for the buyer's agent.

Buyers may have to start paying upwards of 3% of the home’s price to their agent for some transactions – 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.

Veterans may have just been handed a major disadvantage in the market.

VA home loan buyers may not pay agent commissions, per the Department of Veterans Affairs (VA).

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.

While most industry professionals argue that buyers need representation, the VA doesn’t currently agree.

So what happens to military service members and veterans once the law takes effect?

Check your VA home loan eligibility with a reputable lender.

6 Potential Scenarios for Veterans After Rule Changes

There are plenty of possible outcomes for veterans, from status quo to a major shake-up for veteran-buyers.

Likely, it will be somewhere in between.

Below are potential scenarios for users of VA home loans.

1. Sellers Predominantly Continue to Pay Buyer’s Agents

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. In highly competitive markets, a seller may bypass offers requiring buy-side commissions. In theory, sellers could make a practice of removing all VA offers from the stack.

2. VA Changes Its Rule

The VA will be under significant pressure to change its rule.

In March 2024, NAR President Kevin Sears wrote an open letter to VA Loan Guaranty Service executive director John Bell. It stated the VA’s current rule will put veterans at a disadvantage in home sales where sellers don’t provide compensation.

VA could already be working on a solution, according to an official who is quoted in a recent HousingWire article: “VA is actively engaged with the Department of Justice to review the potential implications and evaluate how VA can best ensure that VA’s home loan program remains an attractive option for Veterans in the homebuying process.”

3. VA Buyers Forgo Agent Representation

Another outcome is that VA buyers attempt to 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.

4. Agents Think Twice About Working with Veteran Buyers

Agents can’t work for free. But working with a veteran could mean working pro bono.

For instance, an agent works with the buyer for two months. They finally get an accepted offer, but the seller is not offering buy-side commissions.

In this case, the agent does not get paid for their time. There are few agents who can afford to work for free, so many agents will either choose not to work with veterans, or warn the veteran that they can only make offers on homes with seller-paid commissions, limiting options.

5. VA Buyers Stop Using VA Loans

Veterans may have to use other loan programs to secure a home.

FHA, conventional, and USDA loans do not prohibit the buyer from paying their agent directly.

However, this could be a costly choice. VA loans are the best loan program on the market. They require zero down and no monthly mortgage insurance.

Using FHA on a $300,000 home purchase, the veteran would need a $10,500 down payment plus whatever they pay the agent. In addition, they would pay $135 per month in FHA mortgage insurance.

They could only get into a VA loan by doing a VA cash-out refinance after the purchase, paying closing costs twice.

Start your VA home loan. Find a lender here.

6. Veterans Make Offers Only on Unwanted Homes

Another less-than-ideal solution is for VA buyers to pick up fixer-uppers or homes that no one else wants.

In these situations, the seller could be willing to pay agent commissions to attract more buyers.

However, the VA is more strict about property condition than is FHA or conventional. The house may not pass the VA appraisal, in which case the veteran couldn’t use a VA loan anyway.

Veterans could be locked out of making offers on most homes on the market.

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.

Find a reputable VA lender to get started.

About The Author:

Tim Lucas spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. Tim has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.

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