Correcting the record on real estate compensation, professional representation
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The National Association of Realtors recently reached a settlement on several class-action lawsuits over seller commissions; while no Indiana associations were involved in the suits, the proposed resolution will require changes here – but none as seismic as the headlines aimed at capturing the attention of the casual observer.
The deal would eliminate broker compensation offers on Multiple Listing Services and require written contracts between homebuyers and their real estate brokers, a policy that’s already been signed into state law by Governor Holcomb with the support of Indiana’s Realtors.
Confirming in writing that homebuyers understand what to expect from their brokers (and how they’re paid) is pro-consumer common sense. We’re pleased that Indiana has been a step ahead of the national settlement in making this a requirement for all real estate licensees.
Most Realtors I’ve spoken to are ready to adapt. But national media coverage of the settlement has done a disservice to local Realtors and the value of they provide to clients. The record needs to be corrected as we look towards the spring homebuying season and emerge from five years of legal turmoil.
Let’s start with false claims about “standard” commissions: Broker compensation has always been negotiable. Neither NAR, any state or local Realtor association nor any MLS set or suggest commission levels. MLSs do facilitate offers of compensation among real brokers; this option goes away under the proposed settlement.
Listing brokers commonly make offers of compensation to brokers representing buyers, but these offers aren’t mandatory. Once the proposed settlement is approved, compensation will continue to be negotiated among buyers, sellers and their brokers outside the MLS.
These changes have sparked wildly exaggerated predictions of falling commissions cascading into lower home prices. Unattributed “housing experts” cited by the New York Times even suggested the settlement “could trigger one of the most significant jolts in the U.S. housing market in 100 years.”
Does anyone believe modifying MLS fields will make a bigger impact than introduction of the thirty-year mortgage in the 1950s? Deliver a bigger market shock than the Great Recession? Dwarf the Federal Reserve tightening cycles of the 1980s and 2022-2023?
These claims strain credulity as they distastefully attack Realtors and devalue their work. The process of buying or selling a home is complex and fraught with life-changing decisions. Realtors are market experts who represent their clients with specialized knowledge and a strict code of ethics, bound by legal and fiduciary obligations. They are professionals who deserve fair compensation.
They don’t deserve to be used as convenient scapegoats for the myriad issues affecting housing affordability, from local NIMBYism to federal fiscal and monetary policies.
The U.S. is short millions of housing units relative to population demand, including an estimated statewide deficit of at least 30,000 homes in Indiana. Over the last decade, the number of homes for sale on an average day across the state has dropped 70%, declining by half just since 2018 – and in that five-and-a-half years, the median sale price of these homes surging from less than $160,000 to more than $240,000 today.
Now consider the unprecedented burst of pandemic-driven demand, inflation driving up building costs and whittling away homebuyer savings, and mortgage rates more than doubling since the end of 2021.
Real estate commission practices haven’t changed significantly for decades, so it’s hard to see broker compensation as the culprit. But it’s certainly easier to blame Realtor associations and MLSs; there’s no class-action litigation that can repeal the laws of supply and demand, after all.
In fact, Realtorsv have been fighting for policies and programs to expand housing inventory here in Indiana, lobbying for historic levels of state investment in new housing development and reducing the residential infrastructure costs that often hold back much-needed home construction projects that bring new supply to the market.
At the federal level, we’ve supported bipartisan solutions like Senator Todd Young’s Neighborhood Homes Investment Act and the ‘Yes In My Backyard’ (YIMBY) Act designed to assess the impact of onerous land use and anti-growth policies.
Realtors have also been the leading champions of property tax relief, building on reforms like Indiana’s constitutional tax caps that have saved Hoosier homeowners billions of dollars since 2011. When it comes to the inventory pressures pushing prices up and protecting homeowners’ hard-earned equity and property rights, local Realtors are part of the solution – not the problem.
And that will continue to be the case as we look forward a post-lawsuit future. Indiana Realtors have earned the trust of their fellow Hoosiers with expertise and service, and as neighbors who share their vision for thriving communities and a stronger Indiana. They’ve built close bonds with state and local officials as advocates for homeowners and taxpayers and partners in economic development. And our local Realtor associations continue to maintain the most comprehensive, competitive local marketplaces for housing inventory to serve consumers.
This is value that Indiana homebuyers and sellers can count on as they consider one of the largest transactions most of us will ever undertake, despite national narratives and pundits who seem eager to undermine the importance of professional representation instead of offering real insights and ideas on rebuilding confidence in our housing market.
