In March of this year, the National Association of Realtors entered into a settlement resolving litigation over certain Realtor practices. The terms of the settlement became effective on August 17, 2024. Although no banks were parties in the lawsuit and are therefore not included in the settlement, banks may see some changes in real estate broker practices that will change how closing disclosures look.
At the heart of the lawsuit was a dispute over sellers offering compensation for the buyer’s agent, particularly the practice of advertising those offers on the Multiple Listing System (MLS). The terms of the settlement include a prohibition against offering compensation for the buyer’s agent on MLS and also a requirement that Realtors representing buyers enter into a written agreement that includes any compensation for which the buyer will be responsible.
The settlement does not limit the terms that can be negotiated between the buyer and seller. It does not prohibit sellers from offering other concessions on the MLS, or from negotiating, off MLS, seller compensation of the buyer’s agent. Because the settlement does not place restrictions on the terms that buyers and sellers can agree to, but rather only on Realtor actions, it should not affect how the bank generates the LE and CD or the information it uses to do so. The CD will still reflect the amounts agreed to, by the buyer or seller, in Box H. 12 CFR 1026.38(g)(4).
It isn’t clear yet exactly how the market will adjust to this change or what new norms will arise in the future. As a result of the settlement, however, it seems likely that banks could begin to see more transactions with buyer-paid broker fees. At Compliance Alliance, we have seen a little bit of this already with an increase member questions about disclosing buyer-paid broker fees.
The exact amount of the fee is often not going to be available to the bank when it prepares the loan estimate. Because the charges in Section H are not subject to a separate tolerance requirement beyond this “best information available” standard, the addition of buyer-paid broker fees should not create a cure requirement unless there is a concern that the loan estimate was not prepared in good faith.
The good faith requirement in Reg Z is that the LE be “consistent with the best information reasonably available to the creditor at the time it is disclosed.” https://www.consumerfinance.gov/rules-policy/regulations/1026/19/#e-3-iii If the information is not available at the time the LE is issued or the information changes after the LE is issued, it does not appear that a revised LE would be required or a tolerance issue would arise, because the requirement to issue the LE based on the best information available would have been met. If the bank does have information on the amount of buyer-paid realtor fees reasonably available to it at the time the LE is issued, however, those fees must then be estimated in the LE in order to meet the good faith requirement and avoid any obligation to cure those fees. As always, feel free to reach out to Compliance Hub’s Hotline if you have any questions or concerns.