Courtesy of Trey Van Dyke, Esq. – BPE Law Group
News broke on Tuesday, June 11, 2024, that the Veterans Administration (“VA”) had issued a significant change to its rules regarding what Veteran-Buyers are allowed to pay for in a real estate transaction when using their VA home loan benefits. Relieving mounting uncertainty for Veterans and real estate professionals, Circular 26-24-14 was issued by Direction of the Under Secretary for Benefits, and authorizes a temporary local variance that allows Veterans to pay reasonable and customary amounts for any buyer-broker charges (including commissions and any other broker-related fees), subject to some requirements:

a.      The home the Veteran is purchasing is in an area where listing brokers are prohibited from setting buyer-broker compensation through multiple listing services (“MLS”); OR buyer-broker compensation cannot be established by, or flow through the listing broker;

b.     Buyer-broker charges are not included in the loan amount;

c.      Buyer-broker charges paid or to be paid by the Veteran are to be considered in whether the Veteran has sufficient cash to close the loan; AND

d.     The buyer-broker representation agreement is uploaded, as a part of the purchase agreement, along with the package lenders use when requesting a VA appraisal.

This variance comes on the heels of significant changes to the real estate industry after the National Association of Realtors® (“NAR”) recently settled a growing number of class-action commission lawsuits aimed at changing the way commissions work. That settlement agreement, among other things, prohibits sellers from disclosing a cooperative commission on an NAR-affiliated MLS listing, and requires that an NAR-affiliated buyer’s agent enter into a buyer-representation agreement with their client before the agent shows any houses. The NAR settlement agreement also prohibits the buyer’s agent from accepting a cooperating commission from the seller in excess of the amount agreed upon in the buyer representation agreement. This led many industry leaders to express concern about the fate of Veterans, who are prohibited by 38 CFR § 36.4313(b) from paying for real estate commissions themselves. That section states that “no brokerage or service charge or their equivalent may be charged against the [Veteran using a VA loan] or the proceeds of the loan….”

Regulation changes for federal agencies must follow a methodical and lengthy bureaucratic process called rule promulgation because of a combination of important constitutional factors involving due process and legislative branch delegation of authority to the executive branch agency. Without getting into a Constitutional/Administrative Law lecture, the process is set up to allow sufficient input from industry leaders and to provide timely notice of regulation changes. But this process takes a very long time and the NAR settlement agreement changes are currently scheduled to take effect in August 2024. That’s where this temporary local variance comes into play.

The same regulation, 38 CFR § 36.4313, but subsection (d), lists permissible fees and charges applicable to all VA guaranteed loans. As a reminder for our readers those are:

i.           VA appraisal fees requested by the Veteran or his/her lender;

ii.           Recording fees, recording taxes, etc.;

iii.           A credit report;

iv.           Taxes, assessments, and insurance chargeable to the Veteran for that tax year;

v.           Hazard insurance;

vi.           A survey, if required by Veteran or lender (except for condos, which require approval);

vii.           Title examination and insurance fees;

viii.           The actual amount charged for flood zone determinations (see more info);

ix.           “Such other items as may be authorized in advance by the Under Secretary for Benefits as appropriate for inclusion under this paragraph (d) as proper local variances.”

This last subsection provides the Under Secretary for Benefits the authority to make the temporary local variance, which was done in Circular 26-24-14 allowing the Veteran to be charged a commission fee for hiring a buyer’s agent. Keen readers may be wondering if the inclusion of buyer agent commissions on the list in subsection (d) conflicts with the language of subsection (c), which expressly prohibits charging the Veteran commission fees… well, yes it probably does. However, considering the temporary measure will immediately help Veterans navigate these real estate industry changes I doubt there will be much opposition; and have faith that the formal change to 38 CFR § 36.4313 will eventually this out in the rule promulgation process.

In the meantime, real estate agents that market to Veterans should communicate this change when discussing the buyer-representation agreement with Veterans. Loan officers using VA guaranteed loans should also read the Circular for specific requirements that come out of this, namely: 1) total amount paid by Veteran needs to be on lines 1-3 of section H of the closing disclosures; 2) include the executed buyer-representation agreement along with the RPA when requesting a VA appraisal; and 3) keep the buyer-representation agreement in the loan file.

The information presented in this article is not to be taken as legal advice. Every situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.