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How the NAR Settlement Impacts Veterans Buying Real Estate

The History of Buyer Agency

Before the 1990s, when Buyer Agency was created, for a real estate buyer to see and potentially purchase a home, they had to contact the listing agent. If the buyer wanted to buy a house, they entered a purchase offer without representation since the listing agent represented the seller only. Some buyers utilized attorneys to draw up purchase offers; this came with a cost.

Everyone has heard the term “Buyer Beware,” and that was the environment in real estate before the development of Buyer Agencies. With a Buyer Agency, a licensed real estate broker would enter into an agreement with a buyer to represent them, pledging loyalty and fiduciary duty to that buyer.

The MLS (Multiple Listing Service) had been around since the 1960s, but after the buyer agency launch, listing brokers could offer cooperative compensation to the buyer broker who brought the buyer and consummated the sale.

How it All Worked, Works, and Will Work

Before Buyer Agency
  • The listing brokerage represented the seller.
  • Buyers had to contact each brokerage to see the homes they had listed.
  • There was a sense of “Buyer Beware” in the market.
  • Negotiation power was in the hands of the seller.
  • No one was ‘paid’ on behalf of the buyer. The listing brokerage kept all commissions.
  • Buyers paid their closing costs, attorney fees, and down payment obligations.
Since Buyer Agency
  • Buyers could enter into a Buyer Agency Agreement and be fully represented by a licensed broker.
  • Utilizing their buyer agent, buyers could see a collection of homes that matched their criteria.
  • Through their fiduciary duty, buyer agents could protect the buyer from disadvantage.
  • Both the buyer and seller had negotiating power.
  • Cooperative compensation was born; thus, listing brokerages offered a portion of their commission to the buyer broker who consummated a sale.
  • In some states, attorneys are still used in real estate transactions.
Future of Buyer Agency
  • Buyers can still have representation but must agree to a compensation plan with the buyer broker in addition to their other closing costs and down payment obligations IF they choose to be represented. Or find an agent willing to work at risk of not getting paid.
  • Buyer agents can include compensation requests in a purchase offer, possibly resulting in the buyer losing the home if a competing offer doesn’t include compensation requests.
  • Real estate commissions are identified as VA NON-ALLOWABLE FEES, meaning a VA or FHA buyer cannot pay a real estate agent even if they want to.
How Those Who Brought the Lawsuit Hurt the Consumer

To elaborate on real estate’s past, sellers never paid the buyer’s agent. Instead, they paid the listing broker, and the listing broker offered cooperative compensation to the buyer’s agent. This compensation was disclosed on the MLS; thus, buyer agents knew what they would be paid before showing a home. Buyer agents still worked without guaranteed payment since they were compensated after a sale was consummated. Buyer Agency Agreements included a section to reference compensation to the buyer broker, but the agent would acquire that payment from the listing broker through cooperative compensation.

In some cases, buyer brokers would charge fees to the buyer, but this practice was not common outside of ‘marketing fees’ or ‘transaction fees. For VA home buyers, any fee related to commission or marketing and transaction fees were forbidden to be charged to the buyer. In these cases, the buyer broker would waive fees on behalf of the VA buyer.

To elaborate on real estate’s future, we find ourselves in a real quagmire. Currently, VA home buyers and other government loan product users such as FHA are at a complete disadvantage. The new ruling prohibits the listing broker from listing any offer of compensation on the MLS. Listing brokers will only negotiate for their fees when listing a home; thus, listing commissions will be reduced. This is what enticed the lawsuit. The success of the lawsuit may, on the surface, seem like a good thing for home sellers in America, but for VA and FHA buyers, not so much.

Real Estate Brokerages are currently scrambling to establish new methods of representation and compensation. However, since the ruling has removed any obligation from the seller to compensate anyone on behalf of the buyer, these expenses have been passed to the buyer. Whereas sellers typically pay their closing costs and commissions out of the equity in their property, buyers must now prepare to cover down payment obligations, closing costs, and real estate commissions if they intend to be represented. Buyer agents will now seek compensation from the seller, not the listing broker, and these requests will impact the value of a buyer’s offer. If two buyers offer the same amount on a home and one includes a commission request but the other does not, you can see which one the seller would accept.

For VA and FHA buyers, this situation positions them in the worst possible scenario. Not only has the VA home loan gained a reputation over the years as being a more complicated loan to close, thus creating a disadvantage for VA home buyers, but now, with the forced payment of buyer agent commission on any VA Home Buyer purchase offer, they are at a COMPLETE disadvantage. Even if a VA home buyer has the money to pay for agent representation, the VA Loan will not allow them to do so. *1

As a result, if you are a Veteran and want to purchase a home using your VA Eligibility and you want to be represented, you must find an agent who understands the ability to get paid is uncertain, not guaranteed, and hinders any offer presented on your behalf. Even if buyer brokers change commissions to a flat fee, these are still VA NON-ALLOWABLE Fees and cannot be paid by the VA Buyer.

The fear of those in the industry is that this ruling has taken us back to before the buyer agencies. VA Buyers may be forced to enter the real estate market without representation to be competitive on any purchase offer. This might be avoided if the industry was in a clear buyer’s market. However, nationally, we are still in a seller’s market*2 with limited inventories, even though interest rates are the highest*3 in over twenty years.

Is there any way around this?

There will be trouble once the VA Loan removes buyer agent commissions and fees as non-allowable on a VA Home Purchase. But, even then, many first-time homebuyers or low-income families will still need help paying real estate fees in addition to standard closing costs, ranging from $7000 – $20,000 in the State of Florida.

One caveat is that a Veteran selling their home can pay brokerage fees. In this case, the VA Seller might agree to compensate their agent for both the listing services and future buying services. This would require the VA Seller to utilize the same agent to sell their home and purchase a new property.

For now, if you cannot find an agent to represent you, or if you continue to lose out on home purchases because of agent commissions and are considering entering the market without representation, please be sure you have an Attorney review any contract you intend to present or execute.


Toni Hedstrom, PA Licensed Referral Director, Compass Florida, LLC

National Association of Realtors®

The Settlement Agreement between Defendant and Plaintiffs






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