Will FHA Loan Requirements Change Following the NAR Case?

April 10, 2024

When CBS News reported that 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,” the news sent shockwaves through the real estate industry.

Thanks to the suit, sellers can potentially pocket the savings they realize by not paying the old traditional 6% MLS listing fee. That could also lead to home sellers offering to (thanks to the savings) pay buyer-side real estate fees.

One issue that affects FHA loans is whether or not a house seller can pay those real estate commissions for the buyer without breaking FHA loan rules on “inducements to purchase.”

According to CBS News, “Homeowners are generally on the hook” to pay real estate commissions when they sell a home, “although sometimes the fee is split between the buyer and seller.”

Who Is Affected?

According to CBS, “Almost 9 in 10 home sales are handled by real estate agents affiliated with NAR,” and transactions involving the agency typically require a commission of 6% to be paid by home sellers in exchange for listing the property on the Multiple Listing Service, or MLS.

CBS reports that the court case resulted in removing the 6% commission requirement. How that affects the industry long-term remains to be seen, but the FHA and HUD seemed to be deluged with questions about this news.

FHA Policy

That resulted in the FHA issuing a statement addressing the “inquiries received from stakeholders regarding payment of real estate agent commissions” to clarify FHA loan policy in this area. Can a home seller, no longer bound by a 6% commission fee, offer to pay the buyer’s RE fees to sweeten the deal?

From the FHA official site:

“FHA has received questions from its stakeholders regarding 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 effect at press time, sellers who pay reasonable “buyer-side” real estate agent commissions as a housing market custom, FHA’s existing policy “would not treat those payments as interested party contributions provided all other requirements are met.”

That means no penalties or definition of that payment as an “inducement to purchase” by an “interested party,” which typically results in a dollar-for-dollar reduction in the loan amount where applicable. At press time, FHA policy is NOT to view seller-paid real estate fees as inducements.

“FHA will continue to monitor the real estate marketplace for changes resulting from the settlement for potential impacts to its policies and will address additional questions as they develop.”

What’s Next

This is likely not the FHA’s final word on this issue but the agency typically takes its time in formulating new regulations based on such developments.

We could see a lengthier FHA loan policy related to real estate fees and other such costs but the FHA and HUD may draft a proposed final rule and place it in a period of public comment before it decides on the final version of such policy.

If you aren’t sure how these developments affect your FHA loan transaction, discuss your concerns with a participating FHA lender.

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