Real estate video: Tips for first-time homebuyers
Tips for first time homebuyers
Evan Frank/IndyStar, Wochit
A new state law and a settlement in a lawsuit against the National Association of Realtors will mean big changes for Hoosiers who are buying or selling homes, including the potential for significantly lower home sales commission costs.
Whether you’re thinking of buying or selling, here’s what to expect.
What these changes require
The main change affecting buyers, which became law in Indiana July 1 after state legislators passed House Enrolled Act 1068, is that they must sign a written contract with a real estate agent before touring any home. The agreement must include an end date, the law states.
Similarly, a settlement requires more than 21,000 Realtors in the group’s Indiana chapter to start routinely signing such agreements by Aug. 17.
Previously, agents might tour properties with potential clients so both parties could feel out the working relationship. Now, buyers should expect to sign an agreement outlining what services agents will provide before they start house-hunting. These agreements must also detail how the agent will be paid, typically upon the purchase of a house.
Agents stressed in interviews with the IndyStar that a buyer who signs an agreement is by no means obligated to buy a home or to stay with that Realtor forever. Contracts could expire or end with the consent of both parties.
The other new rule established by the NAR settlement will affect how Realtors — a distinction meaning an agent is a member of NAR, the trade association comprising more than 1.5 million Realtors — who work with homebuyers are paid.
It’s been common practice for a seller and their agent to include an offer to pay the buyer’s agent. Homebuyers are shelling out a lot of money as is, the thinking goes, and sellers may have better standing in the transaction.
What’s unlikely to change is that, once a deal is done, both agents will earn a commission that’s a percentage of a home’s selling price. But Realtors working as buyer-agents must now negotiate fees with sellers and their agents separately from a home’s listing in industry databases, often referred to as Multiple Listing Services.
Lawsuit: As spring homebuying season kicks off, a NAR legal settlement could shrink realtor commissions
What these changes mean for sellers, buyers, Realtors
Sellers stand to benefit most from the new rules, industry experts told IndyStar. They should no longer take for granted that they must pay their listing agent and the buyer’s agent a standard commission fee.
In class action lawsuits against NAR, attorneys representing homeowners argued that the commonly used commission rate of 5-6% — 2.5-3% for each agent, paid by the seller — was unfairly inflated by the Realtors. The Consumer Federation of America, a nonprofit consumer advocacy group, estimates the settlement will save sellers and buyers tens of billions of dollars over time as commission rates fall.
These changes are also meant to formalize the relationship between buyers and real estate agents, which can be an amorphous mix of late-night conversations and spontaneous home tours that might end without a purchase, agents said.
Annie Caruso, a real estate broker and president of the Metropolitan Indianapolis Board of Realtors, said the new law codifies what has long been best practice: Put agreements into writing.
Buyers should know they’re dealing with licensed professionals who bring rigor to the home-buying process, not just touring homes on a lark, she said. Realtors and sellers should know that potential buyers have a legitimate interest in purchasing a home.
Often, “buyers out there are just like, ‘Oh, I just want to see that house,’ and will call their friend who’s a Realtor to open the door,” Caruso said. “That’s not necessarily fair to the sellers who are putting their house on the market.”
Buyer contracts must include a specific amount or rate of compensation for the services an agent provides — not an open-ended clause saying the buyer-agent will earn as much as a seller is willing to pay. Contracts must also include a “conspicuous” reminder that fees and commissions are fully negotiable, not set by law, NAR reports in a fact sheet.
“It gives the Realtor the chance to articulate the value in what they bring,” Bernice Helman, NAR’s regional vice president for Indiana, said in an interview, “and it gives the buyer the opportunity to negotiate and clearly set out the terms of that agreement and what they’re willing to compensate that agent.”
Mark Fisher, CEO of the Indiana Association of Realtors, said 90% of more than 21,000 Realtors across the state had implemented both changes weeks ahead of the Aug. 17 deadline.
How Realtors are responding to new Indiana law
NAR says that, although it’s not required, the vast majority of people choose to work with Realtors when buying or selling a home. Licensed real estate agents in general can support buyers facing a small inventory of homes in their price range and help sellers to fetch a good offer.
Several agents told IndyStar that the new rules heighten the stakes of initial buyer consultations. They must prove their expertise and value from the get-go, while buyers should scrutinize the fine print before signing any agreement.
Alex Montagano, an agent of more than 12 years who works with Lockstep Realty, said he and his team have met with multiple customers who weren’t comfortable signing a contract since the law took effect July 1. But for the most part, he said, agents have found that explaining the new law and the terms of payment provides an early opportunity to show their chops.
“Now there’s transparency in terms of how much money everyone is making and how they’re paid,” he said.
Gaby Pitts, president of the local chapter of the National Association of Hispanic Real Estate Professionals, worried at first that changes in how buyer-agents got paid could overburden her Latino clients, many of whom are first-time homebuyers.
Echoing concerns from NAHREP CEO Gary Acosta, Pitts said that asking would-be buyers from cash-strapped households to pay their agent’s commission on top of a new mortgage could put homeownership out of reach.
But Pitts has so far been able to negotiate fair commission rates for herself with sellers and their agents, she said. Although sellers can’t include commission fees for a buyer’s agent in their official home listing, they can pitch them offline to make a deal more attractive.
“If you show your value, then you’ll be fine,” Pitts said of agents. “The strong ones will survive.”
The Consumer Federation of America recently published detailed criteria for evaluating both buyer and seller contract forms. For more information, view the buyer’s sheet and the seller’s sheet on the organization’s website.
Email IndyStar reporter Jordan Smith at JTsmith@gannett.com. Follow him on X: @jordantsmith09