April 9, 2024
It was a legal move that stunned the mortgage industry. The National Association of Realtors (NAR) agreed “to pay $418 million over roughly four years to resolve all claims against the group by home sellers related to broker commissions,” according to a CBS News report.
The settlement also affects how much in real estate commissions may be paid by the seller. The old 6% requirement has been eliminated.
Federal agencies, including the FHA and HUD, are now working to assure customers and clients that the news won’t upend certain aspects of the FHA loan process.
The Settlement
Thanks to the proposed settlement, sellers may potentially pocket the savings they get by not having to pay the old traditional 6% MLS listing fee. Could those savings encourage some home sellers to pay buyer-side real estate fees to make the sale more attractive?
Or would a house seller paying those real estate commissions for the buyer violate FHA loan rules on “inducements to purchase?”
According to CBS News, house sellers are “generally on the hook” for real estate commissions when they sell a home, “although sometimes the fee is split between the buyer and seller.”
Who Should Take Note?
According to CBS, most home sales “are handled by real estate agents affiliated with NAR,” and transactions like these required a commission of 6%.
This amount was paid by home sellers in exchange for listing the property on the Multiple Listing Service also known as MLS for short.
CBS reports the proposed settlement mentioned above resulted in losing the 6% commission requirement. As a result, the FHA and HUD were flooded with questions about the news.
FHA Policy On Inducements To Purchase
The FHA released a policy statement addressing “payment of real estate agent commissions” to clarify FHA rules to answer important questions like this: Can a home seller, no longer bound by a 6% commission fee, offer to pay the buyer’s RE fees to sweeten the deal?
FHA Guidelines
From the FHA official site, the FHA notes a large volume of questions related to how the proposed settlement agreement will affect the treatment of seller-paid buyer real estate broker fees in transactions using FHA-insured mortgage financing.”
Under FHA loan rules in HUD 4000.1, home sellers who pay for a buyer’s real estate agent commissions as a “reasonable and customary” housing market practice should know that FHA would not treat those payments the same “as interested party contributions” with the caveat being that “all other requirements are met.”
That means that for FHA home loans, there would be no penalties or definition of that payment as an “inducement to purchase,” which could result in a dollar-for-dollar reduction in the borrower’s FHA loan amount.
At press time, FHA policy is that seller-paid real estate fees are not considered by the FHA or HUD as inducements to purchase.
“FHA will continue to monitor the real estate marketplace for changes resulting from the settlement” in the meantime.
What To Know
Is this the FHA’s final word on the issue? Likely not. What could happen in the coming months includes potential rule changes issued via FHA mortgagee letter, but that’s not the only avenue for change.
FHA loan policy related to real estate fees and other such costs may be revised. What does that process look like? Typically the FHA and HUD draft a proposed final rule (depending on the issue) and hold a public comment period.
Then a final rule may be drafted and put into place, or further revisions may occur.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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