REALTOR Commissions

You may have read about the proposed settlement in the antitrust lawsuit with the National Association of Realtors and, if so, you may have some questions. The two primary issues in the lawsuit were 1) agent compensation agreements and 2) transparency as to how agents are paid. 

The lawsuit claimed that the way listing agents disclosed an offer of compensation to a buyer’s agent established a “normal rate” for commissions, thus the allegation of price fixing. But commission has always been negotiable and may depend on many factors, including home price, referral fees, number of transactions with a specific client, number of agents involved and average time on market.

The lawsuit also brought to light that some states do not have clear and transparent fee agreements, and agency relationship disclosures and contracts. Fortunately, one aspect of the proposed settlement has recently become law in Indiana. In March, Governor Holcomb signed into law a bill requiring written representation agreements between real estate brokers and homebuyers. 

How does this affect real estate in Indiana?

1. As of July, to be represented by a real estate agent with obligations of confidentiality and fiduciary responsibility and more, buyers need to sign a contract with their chosen real estate agent. The Buyer Agent Contract outlines the fee that will be payable to the buyer’s real estate agent when the buyer purchases a home. On the Purchase Agreement, the buyer can ask the seller to pay their real estate agent fee at closing. This is similar to how a buyer can ask a seller to pay for closing costs. It is negotiable.
   
   
2. Starting in July, real estate firms representing the seller may no longer post the amount of compensation offered to a buyer’s agent in the multiple listing service (MLS), as was commonly done for decades. However, buyers and sellers may negotiate broker compensation as part of a Purchase Agreement, just like closing costs, taxes or other fees. The option for sellers to cooperate on buyer broker compensation is most important for first-time home buyers who often have less cash and are greatly affected by rising prices, rising interest rates and low housing inventory with competitive bidding situations. However, these buyers still deserve expert assistance and representation through the process. 

While there have been news stories predicting that these changes will greatly change the way Americans buy and sell homes, as a REALTOR of over 30 years I believe this is not likely to have a sizable effect on home prices. Home prices are driven by supply and demand, and these changes do not alter supply and demand.  

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