Seller-Paid Buyer-Agent Commissions vs. FHA/Fannie/Freddie Concession Limits

When a seller pays the buyer's agent's commission, that payment normally counts as a "financing concession" — money the seller is contributing toward the buyer's costs — and FHA, Fannie Mae, and Freddie Mac all cap how much of that a seller can put in without the loan getting re-underwritten as if the price itself were lower. But since the NAR settlement, all three have said seller-paid buyer-agent commissions don't count against that cap — on one condition, stated three different ways, that none of them defines precisely: the payment has to stay "customary." This guide lays out exactly what each source says, in its own words, and why that word is the real thing to watch, not a settled rule.

The baseline: financing-concession limits, before any commission question

Under Fannie Mae's Selling Guide (B3-4.1-02, Interested Party Contributions), a seller — or another interested party — can contribute toward a borrower's closing costs, but only up to a cap tied to loan-to-value:

Freddie Mac runs the same kind of cap under its own Guide Section 5501.5. Go over the cap, and the excess doesn't just get disallowed — it gets treated as a reduction to the sales price itself, which forces the loan's LTV/CLTV to be recalculated. That's the mechanism buyer-agent commissions are being carved out of.

FHA — INFO 2024-12, March 28, 2024

This is worth naming precisely, because it gets mislabeled: FHA INFO 2024-12 is an FHA INFO bulletin, not a Mortgagee Letter. FHA INFO items are HUD Office of Single Family Housing industry-news publications with their own numbering — they don't amend the Single Family Housing Policy Handbook the way a numbered Mortgagee Letter does. This one is titled "Frequently Asked Question on Seller-Paid Commissions Related to the National Association of REALTORS® Settlement," published directly in response to stakeholder questions after the settlement was announced.

Its operative language, quoted in full:

"Under existing FHA policy, if sellers continue to pay buyer-side real estate agent commissions and fees as a manner of state and local law or custom, and if the commissions and fees are reasonable in amount, existing policy would not treat those payments as interested party contributions provided all other requirements are met."

Two conditions are stacked here, and neither is defined with a number: the payment has to be made "as a manner of state and local law or custom," and the amount has to be "reasonable." FHA closes its own bulletin with a direct acknowledgment that this isn't locked in: "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."

Fannie Mae — Selling Notice, April 15, 2024

Fannie Mae's notice, titled "Real Estate Commissions and Interested Party Contributions," opens by naming the settlement litigation directly (Burnett et al and Moehrl et al) and states plainly: "While there are no immediate changes to our Selling Guide policies, we are clarifying the current treatment of seller-paid real estate agent fees under our interested party contributions (IPCs) policy." The operative paragraph:

"Selling Guide B3-4.1-02, Interested Party Contributions (IPCs) permits interested parties (including property sellers) to make contributions to the borrower's closing costs subject to maximum limits ranging between 2% and 9% of the property value. Typical fees and/or closing costs paid by a seller in accordance with local custom, known as common and customary fees or costs, are not subject to the IPC limits… If a seller or seller's real estate agent continues to pay the buyer's real estate agent commission in accordance with local common and customary practices, these amounts are not required to be counted towards the IPC limits for the transaction."

Freddie Mac — FAQ, June 5, 2024

Freddie Mac's FAQ, "Buyer Agent Commissions Paid by Property Sellers or Their Agents," answers the question directly against Guide Section 5501.5:

"As noted in Guide Section 5501.5, borrower fees or costs that are customarily paid by the property seller according to local convention are not subject to maximum financing concession limits. Buyer agent fees have historically been fees customarily paid by the property seller or property seller's real estate agent. As long as this practice remains customary, buyer agent fees paid by the property seller or property seller's agent will continue to be excluded from financing concession limits."

Of the three sources, this is the most direct about the conditional. Freddie isn't saying the exclusion is a rule going forward — it's saying the exclusion holds for exactly as long as the underlying practice keeps being customary, full stop.

The real news: "customary" is doing all the work, and nobody defines it

Put the three side by side and the pattern is obvious — every one of them ties the exclusion to the same soft condition, worded slightly differently, and none of them commits to what would make that condition fail:

None of the three ties "customary" to a percentage of transactions, a specific MLS policy, a state statute, or a review date. That matters because the entire premise — sellers routinely paying buyer-agent commission — is exactly what the NAR settlement was designed to unsettle. Cooperative compensation came off the MLS. Buyer representation agreements with negotiated fee terms became mandatory in most states, including Texas under SB 1968. If seller-paid buyer-agent commission stops being the default norm in a given market — even a market as large as Texas, let alone a specific metro or price band within it — nothing in any of these three sources says what happens next, only that the exclusion described above stops applying and the commission falls back inside the ordinary 2–9% financing- concession cap. None of the three has published a numeric or geographic test for when that line gets crossed, and none has been updated since these original 2024 statements as of this writing.

Practically, that means a seller-paid buyer-agent commission that's clearly customary today in most Texas markets could, in principle, get swept into the concession cap tomorrow in a market where it stops being the norm — without any of the three agencies issuing new guidance to say so. Nothing forces a re-announcement when a local practice shifts; the conditional does the work silently.

Where this meets the Texas contract: TREC 20-19 ¶12C

Separately from the loan-investor concession-limit question above, the current TREC promulgated contract (Form 20-19) has its own rule about how a seller's contract-level concession interacts with brokerage compensation — and it's worth knowing because it's easy to conflate the two. ¶12C, EXPENSE LIMITATION, reads in full:

"C. EXPENSE LIMITATION: If a governmental loan program regulation prohibits Buyer from paying charges or fees, then the amount of any concession in 12A(1)(b) shall be first applied to pay such prohibited expenses and then to other Buyer's Expenses but not brokerage compensation or contribution."

This is a different mechanism from the FHA/Fannie/Freddie concession-limit question above — it governs how a seller's TREC-contract concession (¶12A(1)(b)) gets reallocated on the Texas contract itself when a government loan program blocks the buyer from paying certain charges. It doesn't create or remove FHA/Fannie/Freddie IPC treatment for buyer-agent commissions on the financing side. What it does confirm: TREC's own contract language explicitly walls brokerage compensation and contributions out of that concession-reallocation mechanism, regardless of how the loan investor or insurer treats the commission.