Referral Fees

Notes from the Attorneys of the Massachusetts Association of REALTORS Legal Hotline

Q . I received a referral from an inactive salesperson, can I pay them a referral fee, if I can, do I pay them directly, or must they affiliate with a broker first?

A. You can pay the inactive salesperson a referral fee. Massachusetts General Law Chapter 112, Section 87XX ½ created a new “inactive” license status for those who did not complete the required continuing education credits. This section of the law permits inactive salesperson’s to receive referral fees for assisting or directing in the procurement of prospects (referrals).

You can pay the referral fee to the inactive salesperson directly. Inactive licensees are precluded from affiliating with a broker due to their inactive status, this is the only instance where a salesperson can receive a referral fee directly. Massachusetts General Law Chapter 112, Section 87RR requires that an active salesperson’s referral fee must be paid to the broker in which they are affiliated.

Q . I received a referral from a lawyer here in town and he is requesting a referral fee, can I give him one? After all, he is a lawyer he is not required to take the license exam.

A . You should not pay the lawyer a referral fee unless he is a licensed real estate broker or is a salesperson affiliated with a broker. Massachusetts General Law Chapter 112, section 87AAA prohibits real estate licensees from paying commissions or fees to an unlicensed person.

Lawyers who wish to obtain a real estate brokers license can do so, however they are required to apply for it. While it is true that lawyers are not required to take the real estate license exam, they are required to provide the Board of Registration with a letter of good standing regarding their bar membership prior to receiving their broker’s license. Lawyers who have not applied for and received a real estate broker’s license are not permitted to receive referral fees.

Q. I am confused about whether I can pay a referral fee to a salesperson with an “active” license who is no longer affiliated with a firm. My Broker says we can’t because salespeople with an active license can only receive compensation if they hang their license with a firm. Is this true? If it is, is there some way that the salesperson can make their license “inactive” so we can pay them?

A. Your broker is correct. A salesperson has an “active” license if they have taken the required CE courses and attested to this fact on their current license renewal. You cannot pay a referral fee to this salesperson because salespersons with an active license can only receive compensation from the broker with whom they are affiliated. If their license was “inactive”, meaning that they stated on their most recent license renewal that they did not complete CE credits and they are not affiliated with a firm then you could have paid them a referral fee. There is no mechanism by which a licensee can change their license from active to inactive except at their next renewal.