This new law requires that any agreement to represent a buyer must be in writing, adding a new step to existing regulations. These written agreements outline:
- The services the real estate broker will provide
- The expectations for both parties
For the first time, a buyer has a legal representation agreement just like the seller. Much like agreements with financial advisors, attorneys, or accountants, these agreements ensure clarity regarding the process, responsibilities, and compensation. These agreements can be for a specific period, such as a week, a weekend, or even for viewing a single property.
In addition to Indiana's new state law, the National Association of Realtors (NAR) requires its members to adhere to a specific code of ethics and standards of practice, including the use of a buyer agency agreement.
NAR requires an agreement to be signed before a real estate broker shows a home, including virtual showings. This ensures that the relationship is formalized as early as possible.
The new Indiana law requires that buyer agreements:
- Be in writing
- Have an expiration date
The NAR requirement adds that agreements must:
- Specify the terms of compensation
- Include a disclaimer that broker compensation is negotiable
- Real estate brokers cannot accept compensation above what is agreed upon unless the agreement is amended
If a buyer is concerned about the cost of paying a buyer broker, it is important to understand:
- Buyer broker's commissions can be negotiated as part of the purchase agreement
- Most lenders now allow buyer broker commissions to be paid as part of the closing costs, reducing the direct financial burden on the buyer
- Many sellers may still offer compensation to a buyer's broker as an incentive to buyers
- Brokerages may have policies in place that require sellers to provide compensation to a buyer's broker as part of their office practice
Whether the seller pays a commission or offers a concession to the buyer for commission, any payment the buyer's broker receives either satisfies or offsets any financial obligation to the buyer. This flexibility ensures that buyers receive professional representation without incurring additional out-of-pocket expenses.
The new Indiana law and NAR requirements are designed to:
- Ensure that a buyer's relationship with their real estate broker is clear and formalized
- Provide buyers with a better understanding of what to expect
- Clarify the services real estate brokers provide and how they're paid
Buying a home is the largest transaction most people will ever make, and buyers deserve expert representation and clarity in that representation.
