Which of these scenarios would violate indiana rules for real estate licensee compensation?

This code comprehension resource, distributed during the November 2019 REALTORS® Conference & Expo, sets forth two FAQs that clarify the right of cooperating brokers to negotiate commissions with listing brokers. The scenarios covered by the FAQs reference Standards of Practice 3-3 and 16-16.

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Q: There is a home in the MLS that I think my buyer client would love, but the commission being offered by the listing broker is lower than I want to be paid. It’s so low that it won’t cover the time or effort I put in to representing the buyer throughout the transaction. I want to do the right thing. What can I do?

A: Since you believe that your buyer client would love the house, you have an ethical duty to show the listing to your client. But you have a few options to address the fact that the compensation being offered is inadequate. First of all, buyers and sellers can negotiate the commission paid to their brokers and agents at any time. When representing a buyer, you should consider using a buyer agency agreement that sets forth the services you will provide and establishes what compensation your client will be responsible for paying. Often, the buyer agency agreement explains that you will first seek to be compensated in the amount set forth in the listing, but that if that amount is inadequate, you will expect the client to make up the difference between _____ and the compensation provided by the listing broker. It is entirely up to you how you will fill in the blank. The buyer agency agreement is between you and your client, so you and your buyer can negotiate the terms of that agreement at any time.

Additionally, with one exception, you could ask the listing broker to negotiate the offer of commission. The one exception is that you may not submit an offer to purchase that is contingent upon an increase in the commission paid to you by the listing broker. An offer of that nature is thought to be inconsistent with your fiduciary duty to the client. This request can be made at any time during the transaction, even after showing the property or submitting an offer to purchase on behalf of the client.

You could also have a conversation with your buyer client about the commission being too low to cover your time and costs incurred in connection with representing that client. If your client so wishes, he or she could make the decision to condition the offer to purchase the property on an agreement by the seller to pay an additional specified amount. The buyer and the seller are the parties to any contract to purchase the listed property. They can negotiate the terms of that contract as they see fit. Just make sure that your client completely understands the pros and cons of submitting an offer with that type of contingency, and make sure not to pressure your client in any manner that is inconsistent with your fiduciary duty to that client.

Q: Wait, doesn’t Standard of Practice 16-16 prohibit me from negotiating my commission after showing, during the purchase offer phase, or after we have an accepted offer?

A: Absolutely not! Except for the fact that you cannot make an offer to purchase contingent upon an increase in compensation paid to you by the listing broker, you can negotiate your commission with the listing broker at any time during the transaction. Standard of Practice 16-16 is designed to protect sellers and listing brokers from having purchase offers “held hostage” by cooperating brokers demanding a higher commission to be paid by the listing broker. Standard of Practice 16-16 provides as follows:

REALTORS®, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker’s agreement to modify the offer of compensation.

This Standard of Practice never prohibits negotiations between the listing broker and a cooperating broker at any time during the transaction. In fact, Standard of Practice 3-3 expressly authorizes the listing broker and cooperating broker to come to an agreement to change cooperative compensation, and that can happen before a property is shown, after showing, or even after an offer is accepted.

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Complete a Free Practice Assessment

Below are eight free Indiana real estate practice exam questions that will closely resemble your licensing exam. Review these questions and see what you know! The answers are provided beneath the question set.

  1. Impose a civil penalty of as much as $50,000.
  2. Indict licensees guilty of criminal matters.
  3. Recommend jail time for licensees who commit crimes.
  4. Suspend, deny, or revoke a real estate license.

2. Indiana listing agent Simone gave her client a closing statement. How long does the law require Simone to retain a copy of this statement for her records?

  1. Five years
  2. One year
  3. Seven years
  4. Three years

3. Sheperton Realty, an Indiana brokerage company, receives notice that the Indiana Real Estate Commission wants to inspect the brokerage records. Which of these is a true statement?

  1. "The brokerage is obligated to produce its records upon request by the commission.
  2. The brokerage must convey copies of all its records to the offices of the Indiana Real Estate Commission within five business days.
  3. The brokerage must notify all clients of the audit prior to submitting any records for review by the commission.
  4. The brokerage must provide its records for inspection within 24 hours.

4. Regal Realty has two branch offices along with its main office. Managing broker Trish may manage ______.

  1. "Only the main office
  2. The main office and any one of the branch offices
  3. The main office and any or all of the branch offices
  4. The main office and the closest branch office

5. When advertising real estate, which of these actions is required of an Indiana licensee?

  1. Identifying clearly that the property advertised for sale is being offered by someone licensed in real estate, not a private party
  2. Including the licensee’s name, photo, license number, and the address of the associated broker company in all ads
  3. Providing contact information for the Indiana Real Estate Commission
  4. Using a “blind” ad when advertising rental property

6. What is true about an Indiana licensee’s affiliation with a broker company?

  1. "A licensee can transfer companies as often as desired without approval from anyone.
  2. A licensee may affiliate with more than one broker company as long as the licensee has a managing broker designation.
  3. A licensee may affiliate with more than one broker company as long as the managing brokers consent.
  4. A licensee may only affiliate with one broker company at a time in Indiana.

7. Which one of these individuals needs an Indiana real estate license?

  1. "An appraiser who is appraising real estate
  2. An attorney who is assisting a client in understanding a sales contract
  3. An individual selling his own home
  4. Someone performing real estate services for others for a fee

8. In Indiana, which one of these scenarios would require a real estate license?

  1. Henry is an attorney who's helping his clients, the Smiths, negotiate a short sale of their home.
  2. Janice is searching for a new home for a friend moving into town. After the friend buys a property, Janice will receive 2% of the sales price for her time.
  3. Peter is unlicensed but assists his employer Debbie, who's a licensed broker, by finding tenants for units in the apartment building she manages.
  4. Ron is acting as executor of his uncle's estate, which includes selling his uncle's property.

Answers: 1. D, 2. A, 3. A, 4. C, 5. A, 6. D, 7. D, 8. B

 

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Which of these scenarios would violate indiana rules for real estate licensee compensation?

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