Could the NAR settlement be a blessing in disguise for VA buyers?

Editor’s note: This is the second in a series of articles that will explore the effects of the landmark Sitzer/Burnett case, which was decided on Oct. 31, 2023, and has since reshaped the business practices for real estate brokerages and agents across the country.

As the real estate industry grappled with the fallout of the Sitzer/Burnett jury verdict and eventual settlement from the National Association of Realtors (NAR), a top concern was how changes to the agent commission structure would impact veteran homebuyers.

With NAR’s settlement requiring agents to have a signed buyer agency agreement with every buyer that spells out how much the agent will be paid in a transaction, many believed that buyers using a loan from the U.S. Department of Veterans Affairs (VA) would be disadvantaged.

Previously, under VA policy, although a veteran was allowed to use a buyer broker to purchase a home using their VA loan benefit, they could “not under any circumstances, be charged a brokerage fee or commission in connection with the services of such individuals.”

Due to this, many in the real estate industry feared that veterans would forego representation if there was no guarantee the seller would cover their buyer agency fees.

“Buyers agents will have to write that, as part of the offer, the buyer requests that the seller pays ‘X’ amount in buyer broker commissions, but that doesn’t leave very many options, especially when VA offers are already viewed less desirably and not as the strongest offer in a multiple-offer situation. It just adds yet another layer of difficulty to the transaction for a VA buyer,” Anthony Lamacchia, the broker-owner of Lamacchia Realty, told HousingWire in May.

But much to the industry’s relief, the VA announced in May that it would be issuing temporary guidance. Under the temporary fix, homebuyers using VA loans are able to pay for their agent’s commission.

“Before (the NAR) settlement takes effect (in August), VA has announced an update to help ensure that Veterans using the VA-guaranteed home loan benefit remain competitive buyers,” Valery P. Behr, program analyst at the department’s Loan Guaranty Service and Veterans Benefits Administration, said in a statement at the time.

“Specifically, eligible Veterans, active-duty service members, and surviving spouses who use their VA home loan benefits can pay for certain real estate buyer-broker fees when purchasing a home.”

The temporary guidance went into effect on Aug. 10, a week prior to the settlement-mandated business practice changes going into effect nationwide. The VA has indicated the policy is indefinite, saying it will stay in effect until rescinded.

Roughly five months have passed since the VA announced this temporary solution. It remains to be seen how long the policy will remain in place or if the VA is considering other alternatives.

In an emailed statement, a spokesperson for the VA wrote that the agency is “actively monitoring” the effects of the settlement.

“While the temporary guidance allowing Veterans to pay for certain real estate buyer-broker fees is in place, VA is considering making these changes permanent through a rulemaking process,” the spokesperson wrote. “This approach ensures Veterans remain competitive in the homebuying market without being disadvantaged by the settlement. The timeline for permanent changes will depend on the outcomes of ongoing assessments and stakeholder feedback.”

Amanda Tucker, chief risk and compliance officer at Atlantic Bay Mortgage, said that many in the industry find the uncertainty of the situation a bit unsettling.

“We continue to hear questions from Realtors and veterans about what ‘temporary’ means and how long it will be in effect for,” Tucker said. “If this remains temporary and is rolled back at some point — which I don’t think there is any indication of that happening — what would the effect be? We are all in this environment where we are familiar with what this looks like, so what will happen if that changes?”

Although the future remains murky, she said the current situation for VA buyers is in many ways better than it was prior to the commission lawsuits and NAR settlement.

“Given the guidance the VA issued, we have really seen the VA product and program transactions really smooth out,” Tucker said. “Those are not the loan transactions that we continue to see some confusion around. As the lender, having the opportunity to point back to that clear guidance when we are working with Realtors, in terms of documentation needed on a transaction, is incredibly helpful.”

In addition to sorting out issues that would have arisen for VA buyers due to the terms of the NAR settlement, Tucker said the VA’s temporary guidance has also improved the situation for VA buyers in states where buyer agency agreements were mandatory prior to the NAR business practice changes.

“There would be times in the past where a veteran would sign a buyer agency agreement because it was mandatory in their state, and by the time they come to us, the lender, the veteran has already committed on some level to compensate their buyer broker, so that left us in a space where we either have to work to get the document voided or it would automatically preclude the veteran from using a VA product,” Tucker said.

“So, this guidance has really kind of leveled the playing field for veterans, who are now able to have the opportunity to work with a professional, who they could compensate themselves if they so choose. Additionally, it is not precluding them from considering a home where the seller is not willing to pay any portion of the buyer broker compensation.”

Tucker also believes the discourse surrounding VA loans earlier in the year brought more visibility to the loan product. This has helped to decrease some of the confusion and lack of understanding about the product.

“I think you’ve really seen Realtors take a deeper dive into VA products and programs,” Tucker said.

Todd Armstrong, a veteran and a San Diego-based Compass agent who heads the brokerage’s military division, shares a similar view.

“There absolutely is a better understanding now,” Armstrong said. “Part of it also is that there is a limited pool of buyers right now, and sellers and their agents have to consider every offer they get, so it behooves them to educate themselves on the VA process.”

Armstrong said the San Diego market has cooled considerably since the height of the pandemic-induced homebuying frenzy.

“It has shifted to a buyer’s market or very close to it, but it is definitely more balanced than it was before,” Armstrong said.

Due to this, Armstrong said most sellers are either openly offering to cover buyer broker compensation or are willing to entertain offers that ask for buyer broker compensation — just as long as they are able to net the sale proceeds they want.

While the situation is good for the time being and is allowing VA buyers to take advantage of the no down payment benefit of the VA loan, Armstrong is concerned about what may happen in the future when the market heats up again.

“We already have enough difficulty getting our offers accepted competing with cash and conventional mortgages, so I think it will be even harder if we are negotiating to have the commission covered and others are not,” Armstrong said. “So, even though it might just be a 2% ask, in my opinion, it very well may knock them out of the running against other offers.”

With agents reporting that a seller’s willingness to offer — or consider offering — buyer broker compensation is currently dictated by the strength of the market, time will tell how VA buyers fare under hotter market conditions.