Key Takeaways
- Commissions in Indiana are fully negotiable between the parties - no fixed rates
- Salespersons can only receive compensation through their sponsoring broker
- Commission disputes do not delay closings; earnest money disputes may require court action
- Brokers can share commissions with properly licensed brokers in other states
- Referral fees to unlicensed persons are prohibited in Indiana
Commission and Compensation in Indiana
Understanding commission rules is essential for Indiana license law compliance.
Commission Basics
Negotiability
All real estate commissions are negotiable. There is no:
- Standard commission rate
- Minimum commission amount
- Maximum commission cap
- Rate set by IREC or associations
Antitrust Warning: Discussing or agreeing on commission rates with competing brokers is illegal price-fixing. Each brokerage sets rates independently.
When Commission is Earned
A broker typically earns commission when they produce a buyer who is:
- Ready - Prepared to enter into a contract
- Willing - Wants to purchase on the seller's terms
- Able - Has financial capacity to close
However, the specific terms are defined in the listing or buyer representation agreement.
Payment of Compensation
The Cardinal Rule
Salespersons can ONLY receive compensation from their sponsoring broker.
| Payment From | Payment To | Permitted? |
|---|---|---|
| Client | Sponsoring Broker | Yes |
| Broker | Their Salesperson | Yes |
| Client | Salesperson directly | NO |
| Other Broker | Salesperson directly | NO |
| Cooperating Broker | Salesperson directly | NO |
Flow of Commission
- Closing occurs
- Seller (typically) pays listing broker
- Listing broker pays cooperating broker (if applicable)
- Each broker pays their affiliated agents
Consequences of Direct Payment
An affiliated broker receiving direct payment:
- Violates Indiana license law
- Subject to disciplinary action
- May face license suspension
Commission Sharing
With Cooperating Brokers
Indiana brokers may share commissions with:
- Other Indiana licensed brokers
- Brokers licensed in other states (must be properly licensed there)
- Other affiliated brokers in the same brokerage (through the managing broker)
With Unlicensed Persons
Prohibited: Paying referral fees to unlicensed persons for:
- Referring buyers or sellers
- Providing leads
- Introducing parties
Exception: Nominal gifts (not contingent on closing) may be permitted, but consult Commission guidance.
Commission Disputes
Between Brokers
If two brokers dispute who earned a commission:
| Process | Detail |
|---|---|
| Transaction proceeds | Closing is not delayed |
| Dispute resolution | Handled separately |
| Arbitration | May be required by MLS rules |
| Litigation | As last resort |
Earnest Money Disputes
When buyer and seller dispute earnest money:
- Broker holds funds
- Does NOT disburse without agreement
- May require court action (interpleader)
- Court determines rightful owner
Referral Fees
Permitted Referrals
| Type | Requirement |
|---|---|
| Broker to broker | Both must be licensed |
| In-state | Indiana license required |
| Out-of-state | License in that state required |
| Disclosure | Must be disclosed to all parties |
Prohibited Referrals
| Type | Reason |
|---|---|
| To unlicensed persons | Violates Indiana law |
| Kickbacks | Illegal inducement |
| Undisclosed payments | Must disclose all compensation |
Net Listings
Indiana discourages net listings:
- Creates conflict of interest
- Must disclose to client
- Full transparency required
- Not specifically prohibited but risky
Best Practice: Avoid net listings due to inherent conflicts.
Which statement about real estate commissions in Indiana is TRUE?
Can an Indiana broker pay a referral fee to an unlicensed person?