Good news this week for home sellers as lenders update closing costs sellers are permitted to pay for the buyers.
Why this is Big News
The recent proposed settlement from NAR on the commission lawsuit prohibits listing what the seller is offering to the buyer agent in the MLS. Sellers can still offer buyer agent compensation or agree to pay buyer closing costs. The recent agreement also mandates buyers sign a buyer agent agreement showing how much the buyer will pay their agent.
The confusion could arise, depending on how the contract is written, if the payment is compensation or concession. The reason that matters is because lenders put a limit of how much a seller can pay for the buyer, and it varied depending on how much buyer is putting down and what type of loan they were applying for. This is why it’s imperative lenders update closing costs concession rules.
Fannie Mae (FNMA) selling guide B3-4.1-03 allows interested party contributions to make contributions to buyer’s closing costs. The seller is considered an interested party, so this is allowed. FNMA has also said they will not count buyer agent commission paid by seller on behalf of the buyer towards the IPC (Interested Party Contribution) limits. In other words, the seller can still pay the buyer closing costs, if need be, and any commission paid by seller will not be counted against the buyer’s concession limits.
Concession Limits
Under FNMA guidelines, interested parties can contribute between 2-9% of buyer’s closing costs depending on the loan. If a buyer needs more than 2% in closing costs paid on the loan, working in the buyer agent commission would have been impossible if they computed that fee as a limit. Sellers were worried because limiting buyers means potentially longer time on the market and fewer buyers. In a shifting market with rising interest rates, that would not be good for home sellers.
What is Changing
So far, nothing much. Home sellers have always had the option to pay the buyer agent side. Lenders clarifying their position will give sellers comfort. Sellers can still attract buyers to their properties, and the payment of commission on buyer’s behalf will be allowable. Lenders understand the needs of buyers and sellers. Had lenders not clarified, buyers would be harmed because they would not be able to purchase a property when the seller is not paying the buyer agent commission in many cases. Sellers would be hurt too. Had lenders not allowed this, they would have lost many buyers who can no longer purchase their property.
Status Quo
As of right now, the only thing changing is the fee the seller is offering to pay as compensation cannot be listed in MLS. A seller can list a concession they’re willing to pay, but most sellers will not do that because the concession could be used for anything. Listing agents may charge more to work with unrepresented buyers because their costs will be greater, and the seller wouldn’t want to pay for buyer agent compensation through the listing agent and as a mandatory concession.
How It Might Work
We believe most sellers will not offer a concession in MLS. We haven’t seen the new forms yet, because the settlement hasn’t been approved yet. Our thinking is sellers will still agree to pay buyer agent compensation. In most cases that information will not be in MLS. Buyer agents will be forced to call listing agents. Depending on the answer, buy will need to make a decision if they want to view that home. If a seller is not offering to pay a buyer agent compensation, many buyers will pass on seeing the home. Other buyers might view it, and if they like home ask seller to pay buyer agent anyway through their offer. Other buyers may go directly to the listing agent, but they may have to wait to see it depending on schedules. Efficiencies will be lost.
Considering Selling?
Call Brett or Sande Ellis 239-310-6500 We’ll walk you through the changes. Marketing will become more important than ever, and nobody markets like the Ellis Team at Keller Williams Realty. We can discuss your options, and talk about the pros and cons of each decision, and how it will affect your bottom line.
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