A licensed salesperson knowingly pays an unlicensed person a referral fee for sending a buyer to her. Under typical state law, who can be disciplined?

Paying a referral fee to an UNLICENSED PERSON is generally PROHIBITED in nearly all states. Real estate license law restricts the payment of any compensation for performing real estate brokerage activity (including referral) to LICENSED brokers or salespersons (paid through their supervising broker). EXCEPTIONS may include: (1) Referral fees paid to licensees in OTHER STATES if the recipient is licensed in their state (with cooperation agreements); (2) Some states allow nominal 'thank you' gifts of small value (typically under $25-50) for past clients who refer others; (3) Some states allow referral fees from licensed referral-only companies (with specific licensing); (4) Sometimes paid to employees of the brokerage for administrative or non-licensed-activity tasks.

Who can be disciplined: (1) THE LICENSED SALESPERSON: Direct violation of license law; can face fines, suspension, or revocation. (2) THE SUPERVISING BROKER: Often disciplined for FAILURE TO SUPERVISE — even without direct knowledge of the payment, the broker is responsible for ensuring agents follow license law. (3) THE UNLICENSED PERSON: Many states have provisions making it illegal to RECEIVE compensation for unlicensed activity. (4) The state commission can issue cease and desist orders to all parties. (5) Civil liability may also apply — third parties damaged by the unlicensed activity may sue. (6) Some states criminalize unlicensed real estate activity, especially repeat offenses.

Proof: Common ways violations come to light include: bank records showing unusual payments, anonymous complaints from competitors, tax form 1099 records showing payments to non-licensees in real estate activity, MLS records, social media or marketing that ties an unlicensed person to brokerage activity.

Protection: Brokerages typically use a 'COMMISSION SCHEDULE' or formal compensation policy that defines who can be paid and how. Payment to anyone other than a licensed broker or licensed salesperson (paid through their broker) is documented and reviewed by the supervising broker.

Permitted payments: A licensee can typically pay: (1) Their own brokerage; (2) Other licensed brokers (referring agents) at other firms; (3) Their salesperson employees through commission splits via the brokerage; (4) Marketing/advertising vendors for services rendered (not for referrals).