2.4 Commission and Compensation Rules

Commissions Are Fully Negotiable

Every real estate commission in Michigan is negotiable. There is no standard, minimum, or maximum rate, and neither LARA nor any board or association may set one. Agreeing on rates with a competing brokerage is illegal price-fixing under federal and state antitrust law.

Antitrust warning: Two competing brokers who agree to charge "6% or nothing" commit a per-se Sherman Act violation. Each firm must set rates independently. After the 2024 NAR settlement, buyer-broker compensation must also be set in a written buyer-agency agreement — it can no longer be assumed from an MLS offer of cooperation.

When a commission is earned

Unless the written agreement says otherwise, a broker earns the commission by producing a buyer who is ready, willing, and able:

The listing agreement or buyer-agency agreement ultimately controls when and how much is owed.

The Cardinal Payment Rule

A salesperson or associate broker may be compensated ONLY by their employing (supervising) broker. This is the single most-tested compensation rule. All money flows through the broker.

A salesperson may not accept a check directly from a client, from a cooperating broker, or from another firm's agent, and generally may not collect on a deal after leaving the broker without the broker's consent.

Referral Fees and the Unlicensed-Person Bar

Permitted: broker-to-broker referral fees between licensed parties, disclosed to the client.

Prohibited: paying a referral, finder's, or "bird-dog" fee to an unlicensed person for real estate activity — a violation of the Occupational Code that can support discipline against the broker. (A limited exception lets an owner give a modest thank-you, such as a gift card, to an existing tenant for a referral within statutory limits — but cash-for-leads to the public is barred.)

Exam trap: "Yes, if it is disclosed" is the wrong answer for paying an unlicensed referrer. Disclosure does not cure unlicensed-practice compensation.

Commission Disputes

A commission dispute between two brokers is a civil matter; it does not hold up the closing, and LARA does not adjudicate who earned the fee.

Compensation Disclosure

Clients should be told how the agent is paid, who pays, whether the fee is split with a cooperating broker, and — in any dual-agency situation — that the agent may receive compensation tied to both sides, which requires written consent.

Procuring Cause and Earning the Fee

Procuring cause is the uninterrupted chain of events that leads a ready, willing, and able buyer to purchase. When two brokers each claim they produced the buyer, procuring cause decides who is owed the commission. This is settled by arbitration (typically through a local REALTOR board) or by a civil court — not by LARA, which regulates licensing conduct rather than private fee splits.

Net listings — prohibited

A net listing (where the broker keeps everything above a price the seller sets) is strongly disfavored and treated as a conflict-of-interest trap in Michigan practice because it invites the broker to undervalue the home. Expect a question framing net listings as the wrong choice.

Commission caps and changes

Handling Earnest Money and Trust Funds

Compensation rules connect to trust-account duties. Earnest-money deposits and other client funds must go into the broker's trust (escrow) account, kept separate from the broker's operating funds. Commingling (mixing client money with business money) and conversion (using it for the broker's own purposes) are serious violations that can cost a broker their license.

Worked example

A buyer's offer includes a $5,000 earnest-money check. The salesperson must deliver it to the broker for deposit into the trust account — the salesperson may never hold it personally or deposit it into their own account. At closing, the broker disburses the commission per the listing agreement and refunds any balance per the purchase agreement.

Exam tip: Three commission "only" rules to lock in — pay flows only through the employing broker; referral fees go only to licensees; and rates are set only by each firm independently (never jointly). Pair these with the trust-account no-commingling rule and you have the most-tested compensation content.