Commission and Compensation in Michigan

Understanding how real estate commissions work in Michigan is essential for license law compliance.

Commission Basics

Negotiability

All real estate commissions are negotiable. There is no:

• Standard commission rate
• Minimum commission
• Maximum commission
• Rate set by LARA or any association

Antitrust Warning: Discussing or agreeing on commission rates with competing brokers is illegal price-fixing. Each brokerage sets its own rates independently.

When Commission is Earned

A broker typically earns a commission when they produce a buyer who is:

• Ready - Prepared to enter into a contract
• Willing - Wants to purchase on the seller's terms
• Able - Has financial capacity to complete the purchase

However, commission terms are defined by the listing agreement or buyer representation agreement.

Payment of Compensation

Flow of Commission

Commissions must flow through proper channels:

The Cardinal Rule

Salespersons can ONLY receive compensation from their employing broker.

A salesperson cannot:

• Accept payment directly from a client
• Accept payment from another broker
• Accept payment from another brokerage's salesperson
• Receive commission on a transaction after leaving the broker (without broker consent)

Commission Sharing

Sharing with Other Brokers

Brokers may share commissions with:

• Other Michigan licensed brokers
• Out-of-state brokers licensed in their state
• Other licensees within the same brokerage

Referral Fees

Permitted referrals:

• Broker to broker (licensed parties)
• For referring clients who complete transactions
• Must be disclosed to all parties

Prohibited referrals:

• Paying unlicensed persons for referrals
• Kickbacks or undisclosed compensation
• Paying for leads from unlicensed sources (generally)

Important: Only licensed real estate professionals can receive referral fees for real estate activities.

Commission Disputes

Between Brokers

If two brokers dispute who earned a commission:

• The dispute does NOT delay closing
• Brokers resolve the dispute separately
• May require arbitration or litigation

Between Broker and Salesperson

Commission disputes between brokers and their salespersons:

• Should be addressed in the independent contractor or employment agreement
• May require legal resolution
• Do not involve LARA (civil matter)

Important Commission Rules

Compensation Disclosure

To Clients

Clients should be informed of:

• How the agent will be compensated
• Who pays the commission
• Whether commission is shared with cooperating brokers
• Any potential conflicts of interest

In Dual Agency

When acting as a dual agent:

• Both parties should understand compensation
• Potential for receiving commission from both sides should be disclosed
• Written consent required