California Real Estate SalespersonLaws of Agency and Fiduciary DutiesMedium
A licensed broker completes a sale after an unlicensed acquaintance referred the buyer to him. The broker pays the acquaintance a $500 referral fee for the tip. Under California Business and Professions Code Section 10137, is this payment lawful?
- AYes, because referral fees under $1,000 are exempt from licensing requirements
- BYes, as long as the fee is disclosed to both parties in the transaction
- CNo, because compensation for real estate referral activity may only be paid to a licensed person, regardless of the amount
- DNo, but only because the fee was paid in cash instead of by check
Show answer & explanationAnswer & explanation
Correct answer: C. No, because compensation for real estate referral activity may only be paid to a licensed person, regardless of the amount
Business and Professions Code Section 10137 prohibits a broker from compensating any unlicensed person for acts requiring a real estate license, including referrals that lead to a transaction, regardless of the dollar amount or method of disclosure. Only licensed brokers or salespersons may lawfully receive such compensation.
Why the other options are wrong
- A. Incorrect—there is no dollar-amount exemption; any compensation for licensed activity to an unlicensed person is prohibited.
- B. Incorrect—disclosure does not cure an unlawful payment to an unlicensed person.
- D. Incorrect—the payment method is irrelevant; the illegality stems from the recipient's unlicensed status.
Unlicensed Referral Compensation Ban
Under B&P Code Section 10137, a broker may not pay compensation to any unlicensed person for performing acts that require a real estate license, such as referring clients.
- Applies regardless of the referral fee amount
- Violating this rule can result in disciplinary action against the broker's license
- Licensed salespersons may only be paid through their responsible broker, not directly by other brokers
Memory trick: No license, no cut—period.