Can You Pay Referral Fees to an agent with an Inactive License? Maybe!

May a referral fee be paid to an agent with an inactive license?

Release Date: 9/1/2015
QUESTION: Our firm entered into a referral agreement with another firm that referred a prospective
seller to us.  We got the listing and the property has just closed.  The individual agent who made the referral had an active real estate license at the time of the referral; however, sometime after she made the referral but before closing, her license went on inactive status. Can we pay the referral fee to the other firm if the referring agent’s license was inactive at the time of closing?

ANSWER: Yes, based on the facts of your situation.  According to the Real Estate Commission’s Broker-in-Charge Guide, the general rule is that in order to receive compensation for brokerage services, the recipient must have a license that is current (meaning his or her renewal fee has been paid) and that is on active status.  The term “brokerage services” includes the referral of real estate business in consideration for the payment of compensation.  Real Estate Commission Rule 58A.0504(a) provides that a broker whose license is on inactive status “…shall not engage in any activity requiring a real estate license, including the referral for compensation of a prospective seller, buyer, landlord or tenant to another real estate broker or any other party.”
However, the BIC Guide goes on explain that the “key question” is whether the broker was entitled to engage in brokerage activities throughout the period when the services for which he or she is seeking compensation were rendered.  In the situation you describe, the brokerage service rendered was simply the referral of the seller prospect.  Since, at the time of the referral, the referring broker’s license was on active status, in our view it would be appropriate to pay the agreed-upon referral fee.  It should be paid to the other firm, which may then pay the referring agent according to its agreement with the agent.

NCAR provides articles on legal topics as a member service.  They are general statements of applicable legal and ethical principles for member education only.  They do not constitute legal advice.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.
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