Friday, June 28, 2024 – A Message from Kevin Sears, 2024 NAR President:

Dear NAR members,

I’m reaching out to share an update from Washington, D.C., where I was excited to be this week with members of NAR Leadership for an important meeting with the Department of Justice Antitrust Division to discuss the issues the DOJ is reviewing in the real estate industry. We were pleased that, from the DOJ side, the meeting was led by U.S. Assistant Attorney General Jonathan Kanter, a top decision maker and leader on antitrust policy at the Department. We were also happy to have alongside us Gary Acosta, CEO of the National Association of Hispanic Real Estate Professionals and strong real estate policy advocate.

This meeting was a big step in our process to have meaningful dialogue with the DOJ, directly between leaders, about the issues that matter to us as REALTORS®. While there is much more work to be done, the meeting was productive as we try to find “common ground” on topics that define how we do business and support the dream of home ownership in America.

At the end of our meeting, my first question was, “when can we meet again?” We are committed to continuing the conversations with the DOJ on topics such as the value REALTORS® bring to real estate transactions, the critical importance of competition in our industry, offers of compensation, listing availability, consumer choice, and promoting access to homeownership for all.

Coming out of the meeting, there were some clear takeaways we wanted to share with you regarding areas of DOJ focus. As we all work together to prepare ahead of the August 17 practice change implementation date, please keep the following in mind:

Developing new or revised forms: I encourage all members involved in creating new or revised forms to evaluate them for clarity and emphasis on consumer choice. The settlement empowers buyers and brokers to negotiate and mutually agree to services and compensation that work for them. REALTORS® should work with consumers to ensure they fully understand the options available to them while continuing to seek fair compensation for their services. We’ve compiled tips on developing written buyer agreements here, and I encourage you to take a look.

Implementing and adhering to settlement provisions in good faith: The DOJ raised concerns regarding industry participants using potential avenues to “circumvent” the coming practice changes. To be clear: NAR—and I personally—oppose any attempts to circumvent the settlement. The practice changes should be implemented fully and in good faith, in the service of promoting consumer empowerment, consumer choice, and healthy competition. Answers to questions about how to approach the practice changes in detail are available in our FAQ, and we will continue to provide resources as we navigate the days ahead.

While conversations are ongoing, it does not prevent additional DOJ action: Our recent meeting marks an important step forward in maintaining a productive relationship with the DOJ. However, we expect the DOJ to continue making inquiries into industry practices. Please reach out to the NAR legal team for support requests or questions.

As always, thank you for your membership and all that you do to make homeownership dreams a reality. We will continue to keep you updated as our conversations with the DOJ progress.

Thank you,
Kevin Sears
2024 NAR President

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March 22, 2024

According to NAR:

The recently announced settlement raised several questions regarding access to mortgages and the ability to finance agent commissions.

In short, under the settlement, buyers still have the same options when it comes to compensating their representative. That is, the listing brokers can compensate the buyer broker, the seller can compensate the buyer broker, or the buyer can compensate their broker directly.

Based on conversations with contacts at agencies, we believe buyers should still be able to get financing from Fannie Mae, Freddie Mac, and the FHA under these scenarios.  However, none of these agencies will allow the buyer to finance a commission into the mortgage at this time.  The VA has not addressed whether it will change its requirement prohibiting VA buyers from paying the commission. NAR will continue to work with our partners in the lending community to gain greater clarity on guidance from the agencies and to maintain the steady flow of funding for closing home purchases.

Will buyers still be able to obtain a mortgage after the settlement? 

Yes, based on our interpretation of the regulations, buyers should still be able to get financing from Fannie Mae, Freddie Mac, and the FHA if the listing broker compensates the buyer’s broker or if the seller pays the buyer’s broker directly. However, none of these agencies will allow the buyer to finance a commission on the mortgage at this time. NAR is working to get clear verification on this point.

Based on information in the guides that Fannie Mae, Freddie Mac, and the FHA provide to lenders, nothing has changed the ability of buyers to get a mortgage through them.  Each of these agencies specifies limits on how much a seller or broker can contribute to the buyer to pay for services typically paid by the buyer.  These payments to the buyer are called interested party contributions (IPCs). The agencies exclude fees “traditionally” or “customarily” paid by the seller from the IPCs.  These IPCs may vary from 3% or up, so adding a commission could take up room otherwise used for closing costs or rate buydown concessions. Thus, despite being a seller concession on the sale contract, a seller-paid commission is not included in the IPC.  This interpretation is not expected to change when this settlement is complete.

However, if sellers paying the buyer agent’s commission ceases to be the norm in the future, regulators will need to change the definition of IPCs to exclude seller-paid commissions or raise the IPC limit.

See Fannie Mae’s selling guide, Part B3-4.1-02, Interested Party Contributions, and Part B3-4.1-03, Types of Interested Party Contributions (IPCs). Also, see pp. 420 of the Fannie Mae Selling Guide: “Typical fees and/or closing costs paid by a seller in accordance with local custom, known as common and customary fees or costs, are not subject to Fannie Mae IPC limits.”

See FHA’s discussion of IPCs and exclusion of seller-paid real estate commissions here. 

Can real estate commissions be financed?

Financing commissions is not feasible under the current structure of the residential mortgage finance system, and there is no clear short-term legislative or regulatory fix. NAR is working to get clear confirmation on this point.

• Banks would treat such a loan as a personal loan that would have higher rates and they would limit access to those loans to borrowers with better credit profiles.  Furthermore, that personal loan would add to the buyers’ liabilities and make it harder to qualify for the mortgage they are seeking.
• Fannie Mae, Freddie Mac, and FHA do not allow commissions to be added to the balance of the mortgage. Simply put, investors will only lend against the asset they can take back and sell in a foreclosure. An investor would not be able to take back and sell the commission for a service like a real estate brokerage.
• Finally, there are significant limits to adding commissions to the mortgage rate.  Several rules that make up the foundation of mortgage finance would need to be changed by the regulators and Congress.  Those rules took years to develop, implement, and refine, and changing them could take years, potentially a decade or more. 

If you have questions, please reach out to RACM’s CEO Colleen Pappas via email at [email protected] or phone at 508-832-6600.

We will update resources as new ones come out.

Links & Resources:
https://singlefamily.fanniemae.com/media/38401/display 

https://www.hud.gov/sites/documents/16-11ML-ATCH5.PDF