A recent landmark settlement that could significantly change how real estate agents are paid could also have an adverse effect on a sector of potential home buyers who often rely on government-backed mortgages: military veterans.
The National Association of Realtors agreed to change its rules to settle a multitude of legal claims from home sellers who argued that the trade group’s policy on commissions forced them to pay excessive fees.
But there are also concerns that veterans will now opt to go unrepresented at the bargaining table because the Veterans Affairs loan prevents them from paying a commission to a buyer agent.
What is the Veteran Affairs loan?
The Veterans Affairs loan, or V.A. loan, is a privately funded mortgage backed by the U.S. 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 G.I. Bill of Rights, and it often comes with unwarranted stigma — they were once considered more complicated and harder to close than conventional loans, but the process has long been streamlined, with many of the bureaucratic hurdles that sellers worried about having long been eliminated.
About 28 million military veterans have used the loan since 1944.
What does the V.A. loan say about agent commissions?
One of the rules of the V.A. loan is that borrowers who use it aren’t allowed to pay commission to their real estate agents when buying a home — a mandate designed to shield them from additional costs. And until the N.A.R. settlement, this was rarely an issue, because of how commissions have long been paid: In the United States, most agents specify a commission of 5 or 6 percent, 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 listing the home on the market.
But when the N.A.R. settlement goes into effect in July, pending a judge’s approval, those offers of commission are likely to go away, thanks to changes to a key rule that a jury decided was anticompetitive. And without seller agents splitting their commission with buyer agents, buyers who use a real estate agent will now be expected to pick up the bill for their own agents’ services.
For V.A. borrowers, this isn’t possible.
“Buyer commission is now going to be part of the conversation in a way that it hasn’t been in decades,” said Chris Birk, vice president of mortgage insight at Veterans United, the country’s largest V.A. lender. “There’s still a lot of uncertainty about how this ultimately plays out in guidelines and in practice for veteran home buyers.”
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 about this,” said Jonathan Myers, a broker in Jacksonville, N.C., home to the Marine Corps Base Camp Lejeune and Marine Corps Air Station New River. He estimates that 80 percent of his clients are military. “We now have two choices. We can either cut our commission to ensure we look out for the veteran or we can hold the veteran to the contract and make them pay the difference.”
Does the government have a plan in place to respond to the rule changes in the settlement?
Not yet, but the Department of Veterans Affairs is having conversations with the Justice Department and key real estate industry leaders to “determine any potential implications for veteran borrowers related to this proposed settlement,” said Terrence Hayes, the V.A. press secretary, in an email.
Mr. Hayes added that the V.A. and Justice Department were working together “to help ensure that Veterans are neither overcharged for broker commissions nor otherwise disadvantaged in the home-buying process.”
“We will continue to monitor this very closely, and we will take steps as needed,” Mr. Hayes added.
Mr. Birk, from Veterans United, said there are a number of potential…
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