Case Study 20.1 — When the Contract Started Saying Who Pays the Buyer's Agent

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Case Study 20.1 — When the Contract Started Saying Who Pays the Buyer's Agent

The 2024 changes to buyer-agency compensation practice, and what they moved into the purchase agreement

A note on currency. This case describes a real, public, and unfinished development. The litigation is documented in federal court records; the settlement and its practice changes are documented in the settling parties' own public materials. But market practice is still adjusting, agency guidance on the lending treatment has been issued and clarified more than once, and reasonable practitioners in different markets are doing different things. Everything below that concerns how a payment is treated for loan purposes must be verified against the current Fannie Mae Selling Guide, Freddie Mac Seller/Servicer Guide, HUD Handbook 4000.1, or VA guidance for the program in front of you. Do not carry any of it in your head as a rule. Figures reported in press coverage and court filings are cited here as reported; verify them at the source.

Background: how buyers' agents were paid, and why nobody thought about it

For most of the modern history of American residential real estate, a home buyer's agent was paid in a way the buyer never saw.

The mechanism was indirect. A seller signed a listing agreement with a listing broker specifying a total commission. The listing broker, through the local Multiple Listing Service, made a unilateral offer of compensation to any cooperating broker who brought a buyer. When the transaction closed, the commission came out of the seller's proceeds and was split between the two brokerages according to the terms of that offer.

Look at what that structure did to the buyer's experience. The buyer's agent showed them houses, wrote their offers, negotiated on their behalf, and shepherded them through inspection and closing — and the buyer received no invoice, signed no fee agreement in many markets, and frequently believed the service was free. The money was real, it was substantial, and it moved through the seller's side of the settlement statement.

To a mortgage loan officer, this arrangement had one enormous and largely invisible virtue: the buyer's agent's compensation was not the buyer's problem, and therefore was not the loan file's problem. It never appeared in the buyer's cash to close. It never had to be sourced, documented, or tested against a contribution limit. It simply was not in the transaction as far as the loan was concerned.

That is what changed.

The issue: a private antitrust challenge to how compensation was communicated

Beginning in 2019, a series of private antitrust lawsuits challenged this structure. The central allegation, put plainly, was that rules requiring a listing broker to make a blanket offer of compensation to buyer brokers as a condition of listing a property in the MLS operated to inflate and standardize commissions, and that home sellers bore the cost.

Two cases became the reference points. Moehrl v. National Association of Realtors was filed in the Northern District of Illinois. Sitzer/Burnett v. National Association of Realtors — commonly referred to by the Burnett name after the case was reorganized — was tried in the Western District of Missouri.

In late October 2023, the Burnett jury returned a verdict against the National Association of Realtors and certain brokerage defendants. Damages were reported at roughly \$1.78 billion, an amount subject to trebling under federal antitrust law — which put the exposure, as widely reported at the time, in the neighborhood of \$5 billion before any settlement or appeal. Several large brokerage defendants had already settled or settled shortly afterward.

In March 2024, NAR announced a proposed nationwide settlement. As publicly reported, it included a payment of approximately \$418 million over roughly four years, and — far more consequentially for the transaction — a set of practice changes. The settlement received preliminary court approval in the spring of 2024 and final approval later that year.

The practice changes took effect on August 17, 2024. Two of them matter for this chapter:

Offers of compensation to buyer brokers may no longer be communicated through a Multiple Listing Service. Compensation remains negotiable and a seller may still agree to pay a buyer's broker — but that offer cannot be published as an MLS field. It has to be arranged somewhere else, which in practice frequently means the purchase agreement.
An MLS-participant agent working with a buyer must enter into a written agreement with that buyer before touring a home, and that agreement must specify the compensation the agent will receive — a specific, objectively ascertainable amount, not an open-ended term — with the agent prohibited from receiving more than the amount specified.

Neither change caps a commission. Neither change makes anything free. What they did was make the buyer's agent's compensation an explicit, negotiated, written term of the transaction, agreed to by the buyer, and — when the buyer wants somebody else to pay it — a term that has to be written into a contract.

What it shows: a cost moved into a document the loan officer reads

Here is the structural consequence, and it is the reason this case belongs in a chapter about purchase contracts.

WHERE BUYER-AGENT COMPENSATION SITS                  [structural, not a rule]

  BEFORE                                AFTER
  ─────────────────────────────────     ─────────────────────────────────
  Arranged between brokers via the      Agreed in writing between the
  MLS, before the buyer existed.        BUYER and their agent, before
                                        the buyer tours a home.
  Paid from seller proceeds.
                                        Paid by: the buyer directly, OR
  Invisible to the buyer.               negotiated into the purchase
                                        contract for the seller or
  Not in the buyer's cash to close.     listing broker to pay, OR some
                                        combination.
  Not a lending question.
                                        POTENTIALLY in the buyer's cash
                                        to close. POTENTIALLY an
                                        interested-party contribution.
                                        A LENDING QUESTION.

Three specific things now land on the loan officer's desk that did not before.

First, a possible new line in cash to close. If a buyer agrees to pay their agent directly and the seller does not cover it, that is money the buyer must produce — and every dollar of it is a dollar not available for the down payment, for closing costs, or for reserves. A first-time buyer with \$38,000 in verified assets and a 4.16-month reserve position, which is the Linden Street profile, does not have an unnoticed several thousand dollars sitting spare. Whether and how such a payment can be financed, credited, or counted is a program question, not a preference, and the answer belongs to the current guide.

Second, a possible new interested-party contribution. If the compensation is negotiated into the purchase contract as something the seller or the listing broker will pay on the buyer's behalf, it sits in exactly the territory §20.7 describes: money moving from a party with a financial interest in the sale, toward the buyer's side of the transaction. Fannie Mae and Freddie Mac addressed the treatment publicly after the practice changes were announced, and the guidance has been clarified as practice has evolved. This book will not print the rule, for exactly the reason §7.1 of the style guidance gives: an answer that was correct in one guide version may not be correct in the next. Read the current guide for your program, and ask your underwriter before you tell an agent anything.

Third, a new document you may be handed and should not interpret. Buyer-representation agreements are now routine where they were once uneven. They are contracts between a consumer and a licensee, they contain compensation terms, and borrowers will ask you what they mean. The answer is the same one §20.4 gives about the purchase contract: you can tell them what a dollar figure does to their cash to close and their reserves, and you cannot tell them what the agreement obligates them to do.

Outcome, and what remains unsettled

As of this writing, the settlement is final and the practice changes are in effect. What is not settled is more interesting, and honesty requires naming it:

Market practice varies. In some markets, sellers routinely continue to pay buyer-broker compensation, negotiated into the contract, and buyers experience little change. In others, buyers are paying directly with far greater frequency. There is no national answer and there was never going to be one.
The Department of Justice has continued to take an interest in how buyer-broker compensation is arranged and disclosed, and its positions have not been fully resolved through litigation. Further change is plausible.
Lending treatment has moved and may move again. Guidance on how these payments interact with contribution limits, with cash-to-close calculations, and with program-specific rules has been issued, refined, and in some cases made temporary. VA policy on whether and how a veteran may pay buyer-broker compensation, in particular, has been the subject of specific and time-limited guidance. Verify it, every time, for the specific program.
Whether commission levels actually change over time is an empirical question that will take years of data to answer, and anyone telling you the answer now is guessing.

The lesson

Three, and they generalize well beyond this case.

A cost that moves into the purchase contract becomes a lending problem. That is the single transferable insight. For decades, buyer-agent compensation was outside the loan file because of how it was arranged, not because of what it was. Change the arrangement and it walks straight into cash to close, into the contribution analysis, and into the borrower's reserve position. The loan officer's job did not change; the contract did, and the contract governs the file.

The rules that move are exactly the rules you must not memorize. This case is a live demonstration of the changing-numbers discipline. A loan officer who learned a treatment in one quarter and repeated it confidently in the next has told an agent something false with total sincerity. Read the current guide. Ask the underwriter. Say "let me confirm that" out loud, which costs you nothing and is the mark of a professional.

When a consumer's costs become explicit, somebody has to explain them — and it should not be you, except for the part that is yours. Buyers now sign an agreement about compensation, often early, often under time pressure, often without much context. Their agent owes them that conversation. You owe them the adjacent one: here is what a payment of that size does to your down payment, your closing costs, and the reserves your approval depends on. That is a genuinely useful contribution and it stays entirely inside the boundary this chapter draws.

Discussion questions

Before August 2024, buyer-agent compensation was economically real and financially invisible to the buyer. Name two other costs in a residential transaction that are real to the buyer and invisible to them, and say what a loan officer's obligation is with respect to each.
A buyer's agent tells you their client has agreed to a 2.5% buyer-agency fee and asks whether "we can just roll it into the loan." Write your answer. It should be correct about who decides, honest about what you do not know, and specific about what you will find out and by when.
If a seller pays a buyer's agent's compensation through the purchase contract, is it an interested-party contribution? Describe how you would determine the answer for a specific file, naming the documents you would consult and the person you would ask. Do not answer from memory.
The practice changes require a written buyer agreement before touring a home — which means the consumer signs a compensation agreement before they have found a property, applied for a loan, or spoken to you in most cases. What does that sequencing imply about when a loan officer should be having the cash-to-close conversation?
This case began as private antitrust litigation, not as regulation. Compare that to the origin of the other rules in this book — TRID, the Loan Originator Compensation rule, the SAFE Act. What is different about a market practice that changes because of a settlement rather than a rulemaking, and what does that difference imply about how quickly the answer can change again?
A colleague says: "Nothing really changed. Sellers still pay buyer agents in my market." Assume they are describing their market accurately. Is the statement a good basis for how they run their files? What would you say to them?