Does The VA Want Unrepresented Buyers of Real Estate?
The Veterans Administration (VA) likes to say what a buyer, who is a veteran, can be charged and what the veteran can not be charged, when using a VA mortgage.
It used to be that the veteran did not have to pay for a wood destroying insect report, even though, the VA required that there be one for the transaction. Typically, the seller would pay for it. Fortunately, this was not a very high cost inspection. VA now allows for the buyer to pay this cost.
Another fee which the VA does not allow for the veteran to pay is the Broker Fee. This fee is designed to cover administrative costs of the Brokerage. Typically, real estate brokers would pay this directly from their commissions as a cost incurred, thereby reducing their paycheck.
Note, these costs, which the VA states that the veteran can not pay, are still costs. They do not simply go away, but instead are paid by someone else.
Another cost which the VA states that the veteran can not pay, is the Buyer's Broker's commission. Typically, in the past, this was not an issue, because the Listing Broker usually offered to pay a reasonable portion of the Buyer's Broker's commission.
On a real estate transaction, which did not use a VA mortgage, the Buyer's Broker could get the commission directly from the buyer, for the amount which the Listing Broker did not offer to pay. The Buyer's Broker can not do this on a transaction involving a VA loan.
Consider the following scenarios:
The buyer has agreed to pay X% of the purchase price as consideration for the real estate services which the Buyer's Broker will provide.
Scenario 1: The Listing Broker has agreed to pay X% of the purchase price to the Buyer's Broker to cover the buyer's required commission. Nothing further needs to be done. Everyone is satisfied.
Scenario 2: The Listing Broker has agreed to pay (X + 1)% of the purchase price to the Buyer's Broker. The buyer's obligation is met and the Buyer's Broker makes a little bit more. A properly written Buyer Agency Agreement will allow for this scenario.
Scenario 3: The Listing Broker has agreed to pay (X - 1)% of the purchase price to the Buyer's Broker. In this scenario, the buyer would still owe 1% of the purchase price as consideration to the Buyer's Broker. The Broker can get this amount directly from the buyer, unless the transaction involves a VA loan. Depending upon the amount, the Broker may waive this difference which would be due from the buyer.
In today's real estate market, especially since the National Association of Realtors recently lost a case, which is, at least, tangentially related to this topic, Listing Brokers are offering amounts to the Buyer's Brokers, which are far from sufficient to cover the buyer's commission obligation.
In some cases, the amount being offered is as low as $0.00.
When nothing is being offered from the Listing Broker and when the Buyer's Broker can not receive the commission directly from the buyer, then the Buyer's Broker would not get paid.
This is not only a concern for Brokers, but it is, also, a concern for veteran buyers. In order for a contract to be valid, it must have consideration by both parties. In a real estate contract, usually, the consideration given by the Broker is that the Broker will provide representation to the buyer in the acquisition of real estate, while the consideration given by the buyer will be a monetary amount.
This is an issue which should be addressed by the Veterans' Administration or more and more veterans will find themselves working through the complexities of purchasing a home on their own.