Do I have to sign an agreement to view a home in Indiana?
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The real estate landscape underwent a medium-sized overhaul as a result of the National Association of Realtors/Department of Justice settlement that received final approval in November of 2024. Before we get into it, it should be expressed that real estate agents, unless also licensed to practice law, are not attorneys. This is not legal advice. This is simply an explanation of the changes to our profession as we have perceived them. Think of it as commenting on a meal, despite no real ability to cook for yourself.
The two biggest changes that are great to talk about in tandem because of how intertwined they are once implemented are:
- The amount of commission a seller or listing firm is offering a buyer’s firm on each listing can no longer be advertised through the MLS or any site that receives direct syndication from the MLS.
- Prior to touring any houses, a “written buyer agreement” must exist between the buyer and the agent/firm they’re working with, and this agreement must meet certain criteria. It must specify the rate of compensation for the agent (regardless of who or what party pays it) or disclose how the amount will be determined. It must be an objectively ascertainable compensation amount and not be open-ended. It must include a statement that the buyer’s agent/firm cannot receive compensation greater than the amount agreed to. It must disclose that broker commissions are not set by law and are fully negotiable. And lastly, it must include any provisions that would be required by state law.
Regarding the first change, through at least our firm’s empirical experience in the market in the time since, there is now an added step or two in the process of helping a buyer when shopping for houses. Because buyer agent commission is no longer publicly advertised through the MLS or sites like Zillow or Redfin, we now have to contact the listing agent directly to inquire about commission being offered to a buyer’s agent/firm. Additionally, in some states, we have to have a written agreement that establishes an agreement for the commission to be paid to the buyer’s agent/firm at closing. A few added steps that, in practice, are fairly simple to navigate.
Regarding the “written buyer agreement”, there are a lot more considerations to be had and situations to discuss. In no particular order…
First, the amount of misinformation that has been shared on the topic is astounding. And we do not assume malice from the parties sharing incorrect updates to the public. We acknowledge that this is a VERY complicated topic. We also acknowledge that this written agreement should probably have been given a different name than “written buyer agreement”. Many parties are assuming this means a written buyer AGENCY agreement, or possibly an EXCLUSIVE written buyer agency agreement. And that’s not true, at least not in the settlement terms.
In “written buyer agreement”, you’ll notice the words “agency” and “exclusive” are not present. And this is likely intentional. Per the National Association of Realtors, consumers should consider all forms of written buyer agreements that are allowed per state law. This could be agency, exclusive agency, non-agency, transactional, customer, etc. But we have seen and heard countless times where Realtors are saying that “by law” or “per the terms of the NAR settlement”, exclusive buyer agency must exist in order to tour homes. THIS IS NOT TRUE.
A Realtor or a Realtor firm (“Realtor” being a term that denotes a person or company licensed to sell real estate that’s also a member of the National Association of Realtors) MAY choose to hold their own business policy that states exclusive buyer agency must exist in writing in order to tour homes. That’s completely fine and well within their rights. It’s presenting this rule to consumers as the law or a rule set at the national level that is misleading.
Again, we do not assume malice. The terms “written buyer agreement” and “written exclusive buyer agency agreement” are so similar, misunderstandings are bound to happen. Further, many agents may trust the firms they are aligned with to give them correct information, and that may not happen without the occasional mistaken understandings being shared. If someone was told the wrong thing and trusted the information, as the source has been trusted on other topics, it’s tough for them to know they’re wrong until they’re presented with the facts. But for consumers, we do want to express what is correct and verifiable.
Next, we get into the pickle that now exists for a buyer who may be expected to agree to a fee from their agent without knowing what fees are being offered from the homes they’re interested in. This is the biggest conundrum we hope will be worked out in the coming years following the NAR/DOJ settlement. Basically, the issue is a buyer’s agent wants to get their buyer to sign and agree to a hypothetical 3% fee. The buyer’s agency form may denote that the initial attempt to secure compensation will be from the seller. But there’s nearly nowhere you could go without directly contacting the listing agent for each house listing to ascertain the rate of compensation the seller is offering to the buyer’s agent. So any difference between what the seller is offering and what the buyer agreed to pay would likely have to be paid by the buyer.
That’s a potentially BIG commitment without knowing all the info. Let’s say the buyer agrees for their agent to receive 3% of a purchase that will be $800,000. During the house hunt, the buyer falls in love with a listing and then finds out the seller of that house is offering 1% commission. Now, the buyer would need to pay $16,000 out of pocket at closing to their agent (the remaining 2% of their agent’s fee). This is in addition to their down payment, lender fees, title fees, etc. A term they ASSUMED would be covered by another party, without KNOWING it would be. Or…they pass on the house. Or…they try to offer more for the house and ask for the additional commission to be covered by the seller. And that last tactic is risky for two reasons. First, the home may not appraise for a higher sale price. And second, now if the buyer one day in the future needs to sell, they have to sell for even more to cover the cost of selling, since they bought the home higher than they initially planned to.
Next, there are agents in the market whose firms are directing their agents to get written exclusive buyer agency agreements at the onset of touring homes and specifying a higher fee (usually 3% is what it seems to be but not a figure that’s not legally set in stone), but then telling the buyer that if the home they end up finding is a lower commission, the agent will agree to reduce their fee. But what security is there that the agent will honor this if/when it occurs? And further, why such a push to establish the fee if the conflicting direction is that you’re not going to adhere to the fee if the seller is offering a different amount? If this is starting to make less and less sense to you, you’re actually doing great in your comprehension.
Now, we get to the interesting part. Remember when we said that all this has to comply with state law? Well, recently, Alabama became the first state in the country to pass a law directly confronting the silliness of the NAR/DOJ settlement terms. House Bill 230 was recently passed unanimously by Alabama lawmakers and signed off on by the governor – this bill bans the practice of forcing buyers to sign binding contracts just to see houses. Instead, the written agreement must exist BEFORE PLACING AN OFFER. And in our opinion, this approach makes a ton more sense. Because at that point in a buyer’s process, they likely know the full implications of their agent’s fee, including what portion, if any, will be paid for by the seller if the buyer presents an acceptable offer. There’s obviously going to be some difficulty in trying to set a national standard regarding how real estate transactions are to work but expecting that standard to work in accordance with all 50 states’ laws, and it’s our opinion that Alabama has set a great precedent that we hope other states will look at, understand the logic, and mirror the same policies.
As it pertains to White Stag Realty, we really do shy away from locking buyers into Exclusive Buyer Agency Agreements at the onset of touring homes. Every situation could be a little different, as is the nature of real estate, but our intentions are to not lock buyers into contracts until we have all the information necessary for both parties, our firm and the buyer clients that choose to hire us, to make sound decisions and eliminate surprises that can have striking financial implications. We regularly also draft exclusive buyer agency agreements that are specific to the property our buyer clients are offering on, the rationale being that if the seller doesn’t accept that offer, we are acknowledging that possibly the next house our buyer wants to offer on may be offering different terms for our compensation. The goal here is to be as fair to our buyers as we can while complying with the NAR/DOJ settlement terms.