Q&A: Here’s a question that a Wisconsin credit union recently asked The League’s Legal Affairs team, along with our answer. Do you have a compliance question? Contact The League’s Compliance Hotline at (608) 640-4050 or email.
Q. On August 17th, there was a change to the way commission is paid to Realtors. From what I understand, before anyone can view a property listing, they would need to sign a buyer agency agreement spelling out any buyer paid Realtors commission (that normally is paid 100% by sellers). Will we now be required to ask for a copy of the buyer agency agreement to verify any additional costs to our borrowers? Also, would we also need to list this commission charge on our preliminary Loan Estimate? If so, what line would that be inserted on?
A. The new real estate commission rules that are now in effect require the parties in a sale to explicitly agree to their agents’ commission rate, as well as to who pays the commission. So buyers may become responsible for paying their agents some or all of their commission, depending on what the seller is offering a buyer’s agent as compensation. Starting Aug 17, 2024, buyers will need to sign an agreement that discloses their broker’s commission.
As a lender, you have to make your best efforts to gather all the information and to determine what fees the borrower will have to pay and include them on the loan estimate. If the credit union is aware that the borrower will by paying real estate commissions, then they should be included on the loan estimate. If the fees aren’t fees for services the credit union requires as a condition of the loan (real estate agent fees are good examples) I believe they will go in in Section H – Other, and assuming you include them in good faith on the LE, they aren’t subject to tolerance limits at all.
The disclosure of realtor commissions on TRID disclosures is driven by Reg. Z § 1026.37(g)(4):
(4) Other. Under the subheading “Other,” an itemization of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate, a descriptive label of each such amount, and the subtotal of all such amounts.
This is from the commentary:
4. Examples. Examples of other items that are disclosed under § 1026.37(g)(4) if the creditor is aware of those items when it issues the Loan Estimate include commissions of real estate brokers or agents, additional payments to the seller to purchase personal property pursuant to the property contract, homeowner’s association and condominium charges associated with the transfer of ownership, and fees for inspections not required by the creditor but paid by the consumer pursuant to the property contract. Although the consumer is obligated for these costs, they are not imposed upon the consumer by the creditor or loan originator. Therefore, they are not disclosed with the parenthetical description “(optional)” at the end of the label for the item, and they are disclosed pursuant to § 1026.37(g) rather than § 1026.37(f). Even if such items are not required to be disclosed on the Loan Estimate under § 1026.37(g)(4), however, they may be required to be disclosed on the Closing Disclosure pursuant to § 1026.38. Comment 19(e)(3)(iii)-3 discusses application of the good faith requirement for services chosen by the consumer that are not required by the creditor.
The Loan Estimate must be based on the credit union’s good faith – best information reasonably known to the credit union at the time of disclosure. If it is not customary and standard for the borrower to pay any of the real estate commissions due, then it shouldn’t be disclosed unless otherwise detailed in the sales contract or obtained through some other form of due diligence on the credit union’s part. I was informed by one credit union who attended a Central Wisconsin Board of Realtors (CWBR) webinar that they said that it may become the norm to ask the buyer’s agent to provide the buyer’s agency agreement to the credit union. Or as they said, a communication specifically stating how much of the compensation the buyer will be paying.
If the amounts are not disclosed on the loan estimate because the credit union is not aware of the fees when the loan estimate is issued, the commissions will, however, need to be disclosed on the Closing Disclosure based on § 1026.38(g)(4)-4.
(4) Other. Under the subheading “Other” and in the applicable column as described in paragraph (g) of this section, an itemization of each amount for charges in connection with the transaction that are in addition to the charges disclosed under paragraphs (f) and (g)(1) through (3) for services that are required or obtained in the real estate closing by the consumer, the seller, or other party, the name of the person ultimately receiving the payment, and the total of all such itemized amounts that are designated borrower-paid at or before closing.
Commentary to this section says:
1. Costs disclosed. The costs disclosed under § 1026.38(g)(4) include all real estate brokerage fees, homeowner’s or condominium association charges paid at consummation, home warranties, inspection fees, and other fees that are part of the real estate closing but not required by the creditor or not disclosed elsewhere under § 1026.38.
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4. Real estate commissions. The amount of real estate commissions pursuant to § 1026.38(g)(4) must be the total amount paid to any real estate brokerage as a commission, regardless of the identity of the party holding any earnest money deposit. Additional charges made by real estate brokerages or agents to the seller or consumer are itemized separately as additional items for services rendered, with a description of the service and an identification of the person ultimately receiving the payment.
You may be interested in these NAR Settlement FAQs. Financing FAQs are towards the end, starting at question 105.
108. Does the settlement change access to mortgages for buyers?
No.
Under the settlement, buyers still have the same options when it comes to compensating their real estate representatives. 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.
Buyers will still be able to get financing from Fannie Mae, Freddie Mac, and the FHA under these scenarios.
The FHA confirmed this in a letter after NAR sought to affirm our interpretation of existing guidance.
Likewise, Fannie Mae and Freddie Mac published explicit confirmations that commissions for buyer brokers paid by the seller would not count against the buyer.
However, none of these agencies will allow the buyer to finance a commission into the mortgage at this time. (Updated 7/8/2024)
And this Wisconsin business article, Few changes expected in WI after real estate agent commission settlement:
The head of the Wisconsin Realtors Association predicts only “minimal” changes following a national settlement related to commissions, due in part to Wisconsin’s existing consumer protections.
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“We’ve always required a buyer’s agent to enter into a written contract to identify what services they’re going to provide to a buyer before negotiating property on their behalf,” he said. “We’ve had that in place. A lot of states haven’t; they don’t require any written agreement for buyers. And I think that was one thing that they wanted to be addressed.”