2.4 Commission and Compensation Rules

Commissions Are Negotiable - Always

In Indiana, every real estate commission is negotiable between the broker and the client. There is no:

• Standard or "customary" rate
• Statutory minimum or maximum
• Rate set by the Indiana Real Estate Commission (IREC)
• Rate set by any local board, association, or MLS

Antitrust Warning: Two competing firms discussing or agreeing on what to charge is illegal price-fixing under the federal Sherman Act and Indiana antitrust law. Each firm must set its rates independently. This is a recurring exam fact - if an option says IREC or an association sets a rate, it is wrong.

When a Commission Is Earned

The common-law default is that a broker earns a commission by producing a buyer who is ready, willing, and able to purchase on the seller's terms:

• Ready - prepared to contract now
• Willing - agrees to the seller's terms
• Able - has the financial capacity to close

The actual trigger, however, is whatever the written agreement states - often "upon closing." If a deal collapses after a ready-willing-able buyer was produced but the seller refuses to close, the agreement's wording controls whether a fee is still owed.

The Cardinal Payment Rule

An affiliated broker may receive compensation only from their own managing broker. This is one of the most tested Indiana license-law rules.

Flow of a Cooperative Commission

1. Closing occurs and the agreed fee is paid (commonly by the seller, increasingly negotiated with the buyer post-2024).
2. The listing firm receives its share.
3. The listing firm pays the cooperating firm its negotiated share.
4. Each firm pays its own affiliated brokers under their independent-contractor or employment agreements.

Exam Trap: An affiliated broker who accepts a check written directly to them by a client or another firm violates IC 25-34.1 and faces discipline up to license suspension or revocation, even if the amount is correct. The defect is the source, not the amount.

Sharing Commissions

Indiana brokers may share compensation only with people who hold a license.

Unlicensed Persons - Prohibited

Paying an unlicensed person a fee for referring buyers/sellers, providing leads, or introducing parties is prohibited and is itself unlicensed-activity facilitation.

• Prohibited: referral fees, lead-purchase splits, or kickbacks to unlicensed individuals
• Permitted: a nominal thank-you gift not contingent on a closing and not a per-transaction fee (e.g., a closing gift or small token), consistent with Commission guidance

Commission Disputes

Between Firms

Disputed Earnest Money

When the buyer and seller both claim the earnest money:

1. The broker holds the funds in trust and does not pick a winner.
2. The broker disburses only on written agreement of both parties, a court order, or per the contract's dispute clause.
3. If the parties cannot agree, the broker may file an interpleader action - depositing the funds with a court and letting the court decide ownership.

Exam Trap: Disbursing disputed earnest money to one side on the broker's own judgment is conversion/commingling risk and a license-law violation. "Hold and interplead" is the safe answer.

Net Listings and Other Hazards

A net listing (the seller names a net amount and the broker keeps everything above it) creates an inherent conflict because the broker profits by underpricing. Indiana does not flatly outlaw them, but they require full disclosure and are strongly discouraged.

Best Practice: Use a transparent percentage or flat fee, document it in the written agreement, route all pay through the managing broker, and disclose any cooperative or referral arrangement to the parties.

Procuring Cause and Cooperative Splits

When more than one cooperating broker touches a buyer, disputes over who earned the cooperative share turn on procuring cause - which broker set in motion the unbroken chain of events that led to the sale. The exam tests the principle, not a formula: showing a property once, then disappearing for months while another broker writes and closes the deal, usually does not make the first broker the procuring cause. These disputes are resolved by association arbitration, never by withholding the seller's proceeds or delaying the closing.

RESPA and Compensation Disclosure

For most residential transactions financed by a federally related mortgage loan, the federal Real Estate Settlement Procedures Act (RESPA) overlays Indiana law. RESPA Section 8 prohibits kickbacks and unearned fees for referrals of settlement services (title, mortgage, insurance). A broker may not accept a thing of value from a title company in exchange for steering clients there.

Exam Trap: A licensed broker may lawfully receive a referral fee from another licensed broker, but the same payment to a loan officer or title agent in exchange for referrals can violate RESPA even though both parties are licensed in their own fields. The line is whether a real service was performed for the fee.