On June 11, 2024, the U.S. Department of Veterans Affairs (“VA”) published Circular 26-24-14 to announce a new temporary local variance to guidelines that will allow buyers using VA-guaranteed home loan benefits to pay for certain real estate agent or broker compensation (“buyer-broker fees”) when purchasing a home.
Prior to this change, veteran purchasers could not be charged for buyer-broker fees when obtaining a VA-guaranteed home loan, under any circumstances. VA regulations strictly prohibit a veteran from being charged for real estate brokerage fees. The common practice has been for the seller to pay the veteran’s buyer-broker fees. However, under 38 C.F.R. §36.4313(d)(1)(ix), the Under Secretary for VA Benefits may authorize, in advance, charges that are appropriate for veterans to pay as proper local variances. This allows for an exception that the VA is utilizing until the agency engages in more formal rulemaking in the future.
The updated guidance is being put in place before a settlement agreement in the National Association of Realtors class action lawsuit regarding commissions becomes effective. If the settlement agreement allows home buyers and sellers to negotiate commission fees, the new VA local variance guidance will allow veterans to “pay reasonable and customary amounts for certain charges – including commissions and other broker-related fees – thus ensuring that they remain competitive in the rapidly changing housing market” said Under Secretary for VA Benefits, Joshua Jacob, in a recent press release. Eligible veterans, active-duty service members and surviving spouses of service members will be able to negotiate buyer-broker fees while buying property, similar to other purchasers, while still using VA-guaranteed home loan benefits.
Circular 26-24-14 authorizes a “temporary local variance” subject to the following conditions:
When a veteran is purchasing a home in an area where: (1) the listing brokers are prohibited from setting buyer-broker compensation through multiple listing postings; or (2) 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.
An invoice is not necessary to support the buyer-broker charge; however (1) the total amount paid, if any, by the veteran is to be recorded in lines 1 through 3 of section H on the Closing Disclosure, and (2) VA considers the buyer-broker representation agreement to part of the sales contract package, so lenders must upload the agreement as part of the package lenders use when requesting an appraisal. Lenders must also retain the agreement in the loan file.
Circular 26-14-14 encourages veterans to negotiate the amount of compensation being paid to the buyer-broker. Compensation can be paid by the veteran or the seller, but the VA does not consider seller paid buyer-broker charges as a seller concession.
Circular 26-24-14 is effective August 10, 2024, and will be valid until rescinded.
