In the past few months, there has been more focus than ever on the way that real estate agents (especially buyer agents) earn commissions. The U.S. District Court ruling in the Sitzer case is far from being final, but that hasn’t stopped people (both those inside the industry and those outside it) from discussing the potential impacts to real estate agents. As the case focused specifically on cooperating commissions given to buyer’s agents, that is obviously a primary focus. For those agents representing buyers who are using VA loans, the focus should be even more intense.
First, we should lay out what I hope most of you know. As a condition of funding from the Department of Veterans Affairs, VA buyers are subject to certain specific rules that are often more strict than those that come with conventional loans. In particular, the VA limits certain fees that a buyer may pay. Among those fees are real estate commissions. In a co-op situation that isn’t a big deal, but if the listing agent is not offering co-op commission it could put you and your client in an awkward position.
The best way to avoid that awkward position is to communicate with your client up front. If the client is using a VA loan, explain to them up front (i.e., before they sign the buyer brokerage agreement) that they are prohibited from paying commissions. They may instruct you to do something like inserting a clause into the contract that allows for the seller to pay the buyer broker commission rather than the listing agent (Virginia REALTORS® has such a clause in our Standard Clause Booklet). They also may state that they only want to view houses with co-op commission offered. However, that choice has to be theirs and theirs alone. You cannot alter the MLS searches to only show homes that offer co-op commission. You might also want to discuss foregoing the commission on the buy side for the promise of a future listing agreement. While all of these are options, we strongly discourage you from simply avoiding all VA buyers completely. Not only does that do a great disservice to the men and women who have so bravely served our country, but it could also lead to potential fair housing violations. As a reminder, military status and source of funds are both protected classes under Virginia law. While DPOR has not interpreted the source of funds designation to prohibit sellers from choosing not to accept VA loans, an agent choosing not to work with buyers who use those loans could be a very different situation.
As always, if you have any specific questions, feel free to contact us on our Legal Hotline.