Lisa Wozniakowski, the owner of Blue Ribbon Reality in Crown Point, said she decided to implement the new buyer agreement around May, which was three months before it was required under a national settlement agreement.
Wozniakowski, who is also this year’s president of the Northwest Indiana Realtors Association, said she wanted to enact the agreement sooner to help buyers begin to understand the change and to have experience in answering questions from fellow real estate agents.
The association’s buyer contract is four pages long, Wozniakowski said, and since she began implementing it only one person declined to sign the agreement. The person declined to sign the agreement before Indiana implemented it on July 1.
“I really have not had any issues,” Wozniakowski said. “This just proves our professionalism more. I am all for transparency.”
Christopher Jones, a real estate agent with @Properties with an office in Highland, said the buyer agreement has helped set parameters for who is representing who in the home-selling process.
“It’s a long time coming,” Jones said. “It should’ve happened a while ago because it’s positive for the industry.”
The National Association of Realtors in March settled a lawsuit brought against it and several major brokerages by home sellers who argued that the trade group’s rules governing homes listed for sale on its Multiple Listing Services unfairly propped up agent commissions.
The rules also incentivized agents representing buyers to avoid showing their clients listings where the seller’s broker was offering a lower commission to the buyer’s agent, according to the suit.
As part of the settlement, the NAR agreed to no longer require a broker advertising a home for sale on MLS to offer any upfront compensation to a buyer’s agent. The rule change leaves it open for individual home sellers to negotiate such offers with a buyer’s agent outside of the MLS platforms, though the home seller’s broker has to disclose any such compensation agreements.
The trade group also agreed to require agents or others working with a homebuyer to enter into a written agreement with them. That is meant to ensure homebuyers know going in what their agent will charge them for their services.
The rule changes represent a major change to the way real estate agents have operated going back to the 1990s and could lead to homebuyers and sellers negotiating lower agent commissions.
Before the rule change, agents working with a buyer and seller typically split a commission of around 5% to 6% that’s paid by the seller. This practice essentially became customary as home listings included built-in offers of “cooperative compensation” between agents on both sides of the transaction.
In Indiana there was a movement before the settlement to require a buyer agency agreement under state law, which went into effect July 1, said Peter Novak, CEO of the Northwest Indiana Realtors Association.
“We are already two months into this system and we have not seen any major shifts in the market one way or the other as it relates to buyers and sellers,” Novak said.
Jones said it took about two weeks for Realtors to get used to the settlement agreement, and after that, they got used to it. Jones, who also works in Illinois, said realtors there were nervous when the settlement agreement went into effect early last month, and he was able to assure them it went well.
“A lot of people were looking at Indiana because we did go almost six weeks starting,” Jones said.
Over the last few years, there has been a combination of increased home prices and “homes sell themselves,” Sara Coers, associate director for Indiana University’s Center for Real Estate Studies. That phenomenon translated into buyers noticing the cost for the seller agents included in the cost of the house, she said.
“They just felt like it was unfair because it basically put the brokers in a position to dictate fees that they thought negatively impacted the prices they were paying,” Coers said.
Previously, only sellers signed a listing agreement, which included payment for the commissions for the buyer and seller agent, when selling a house, Coers said, while buyers did not have to sign anything with a broker at the start of the home buying process.
Now, buyers sign agreements with their brokers upfront that state the broker will help them buy a house and that the buyers will pay the broker if the seller doesn’t, Coers said.
“The upside of that, it’s really more negotiable now. The downside of that is everybody will have their own deal and, in theory, there will be less regulation,” Coers said.
Sellers can still offer compensation to a buyer broker, but under the settlement, that amount can’t be listed on the MLS anymore, Novak said. Now, the buyer and their broker will have an agreement on commission in advance, which could still be set up to be paid by the seller.
Under the settlement, the plaintiff lawyers have stated the new system may drive down commissions and give buyers more control by providing them more transparency regarding who is paying the buyer’s agent and how much, Novak said.
“That’s all subject to negotiation between the buyer and the seller,” Novak said. “It really is just a shift in how Realtors may get paid.”
A potential slippery slope, Coers said, would be if a buyer and the buyer’s broker agree to a commission, but the seller doesn’t agree to pay that amount. That would affect the buyer most, who would then incur additional costs to pay commissions.
While the real estate industry ebbs and flows, Coers said the brokers who represent sellers will see more benefits under the new structure because they will still be hired to sell a house. In states like Indiana, where seller’s brokers can represent both the buyer and seller, the broker still leans more toward the seller so the seller would still have the upper hand, she said.
“I think we may see more dual agency, which could be harmful to the interest of buyers,” Coers said.
But what could also happen, Coers said, is the settlement could shift the market in a competitive way where buyers start offering to pay a little extra to sellers’ brokers to sweeten their offer on a house.
“Some people are expecting prices to change, to shift, based on this. Others are saying that may not happen at all, in fact, it may just become a new area of competition,” Coers said.
Buyers’ mentality has been that the price of a house includes commission and the commission is increasing the price of homes, Coers said, meaning a buyer has been thinking if a seller agrees to a 6% commission, the house costs 6% more than if no broker was involved.
“They’ve always thought price is price. The whole psychology of the American home-buying public may shift or may not,” Coers said.
Wozniakowski said the new buyers’ agreements mean that buyers and sellers sign contracts with their agents in advance of the home buying or selling process. With that, the process has become akin to signing forms before seeing a doctor or meeting with a lawyer, she said.
Since she started implementing the buyers’ agreements, Wozniakowski said she hasn’t yet calculated her commission for the year, but her commission has felt stable.
“Part of the trend I am seeing is that buyers are asking for the seller to pay that amount owed, so it is being negotiated,” Wozniakowski said. “At this point, I can say, on my listing side it’s the same and on my buyer side it’s the same.”
Jones said he’s heard from colleagues that commission numbers for July were strong.
The biggest change, Wozniakowski said, is meeting with buyers in advance to tell them about what skills she has that make her stand out as an agent.
“Written agreements with buyers does create more transparency and sets the expectations of both buyer and agent to avoid surprises or conflicts throughout the process,” Wozniakowski said.
Moving forward, Wozniakowski said it will be interesting to see how the NIRA organization numbers and a potential shift in the number of full and part-time agents.
“We need a little bit more time to determine,” Wozniakowski said. “But I do anticipate some people will probably leave.”
Jones said the effect of the settlement will show people the benefits of Realtors.
“I think it will make our industry stronger,” Jones said.
