1.3 Michigan License Types and Broker Supervision
Key Takeaways
- Salespersons and associate brokers must work under an employing broker who is legally accountable for supervising every affiliated licensee.
- An associate broker holds a broker-level license but practices under another broker rather than operating independently.
- Entities (corporations, LLCs, partnerships) may hold a license only through a designated/employing broker who carries personal responsibility.
- Michigan salespersons may be paid only by their own employing broker — never directly by a client or a cooperating broker.
- A salesperson is dormant during any gap between brokers; the new broker must certify the affiliation before the salesperson can act.
License Types
Michigan recognizes individual and entity licenses, each with a defined scope of authority.
| License type | Can operate independently? | Supervises others? | Must be supervised? |
|---|---|---|---|
| Salesperson | No | No | Yes — by employing broker |
| Associate broker | No | No (while affiliated) | Yes — by employing broker |
| Individual (employing) broker | Yes | Yes | No |
| Entity (corp/LLC/partnership) | Yes, through a designated broker | Yes | The designated broker is responsible |
Salesperson
A salesperson may list, show, negotiate, and prepare offers, but only on behalf of an employing broker. A salesperson may not: operate a brokerage, accept compensation directly from the public, hold escrow/trust funds, or supervise other licensees.
Associate Broker
An associate broker has met every requirement for a broker license but elects to work under another broker. While affiliated, the associate broker is supervised exactly like a salesperson and cannot hold the firm's trust account. The advantage is mobility — an associate broker can later "upgrade" to employing broker without re-examination.
Designated / Employing Broker
When a corporation, LLC, or partnership holds the license, one qualified broker is named the designated broker (the entity's employing broker). That individual is personally responsible for supervision, trust funds, advertising, and recordkeeping — the entity shell does not absorb that liability.
Employing Broker Responsibilities
The employing broker is the legal nerve center of the brokerage. Core duties under Article 25 and LARA rules:
- Supervise every affiliated licensee — salespersons and associate brokers alike.
- Maintain a separate, non-interest-bearing trust/escrow account for client funds and reconcile it.
- Review advertising so all marketing identifies the brokerage and is not misleading.
- Retain transaction records for at least 3 years and make them available to LARA.
- Deposit trust funds promptly — Michigan practice requires deposit of earnest money/escrow without unreasonable delay (commonly within 2 banking days of an accepted offer).
- Respond to LARA inquiries and produce records on demand.
Broker Vicarious Liability
Key Point: The employing broker can be disciplined for an affiliated licensee's misconduct when that misconduct results from inadequate supervision. "I didn't know" is not a defense if reasonable oversight would have caught the problem.
Scenario: A salesperson at Lakeside Realty commingles a buyer's $5,000 earnest-money deposit into the firm operating account. LARA can discipline the salesperson for the act and the employing broker for failing to maintain a compliant trust account and supervision system — both can face fines or suspension.
Compensation Rules
Michigan strictly channels money through the employing broker.
| Payment flow | Permitted? |
|---|---|
| Employing broker → its own salesperson | Yes |
| Broker → cooperating broker (commission split) | Yes |
| Client → salesperson directly | No |
| Cooperating broker → another firm's salesperson directly | No |
| Unlicensed person → referral fee for real estate services | No |
A salesperson is paid only by their employing broker. Commission splits between broker and salesperson are privately negotiable, but the public and other firms must always pay the broker, who then pays the licensee.
License Transfers and Branch Offices
When a salesperson changes firms:
- The current employing broker releases the licensee.
- The new employing broker certifies the affiliation through LARA/MiPLUS.
- During the gap the salesperson is inactive and may not practice or be paid for new work.
- The license itself stays valid but dormant until the new sponsorship posts.
Branch offices: A broker operating from more than one location must notify LARA of each branch, maintain supervision at every site, and keep records accessible there. Each branch operates under the same employing broker's authority and license.
Common trap: Candidates assume a salesperson can keep working "between brokers." They cannot — practicing during the unaffiliated gap is unlicensed activity.
Trust Funds and Recordkeeping Under the Broker
Because only the broker may hold client money, trust-account discipline is a supervision duty, not a salesperson duty. Michigan rules require the employing broker to:
| Requirement | Standard |
|---|---|
| Account type | Separate trust/escrow account, not commingled with operating funds |
| Deposit timing | Earnest money deposited promptly after offer acceptance (commonly within ~2 banking days) |
| Record retention | Transaction and trust records kept at least 3 years |
| Reconciliation | Periodic reconciliation of the trust ledger to the bank statement |
| Disbursement | Funds released only per the contract or proper authorization |
Commingling (mixing client funds with the broker's own money) and conversion (using client funds for the broker's benefit) are among the most serious violations and routinely lead to suspension or revocation plus restitution.
Scenario: A salesperson receives a $7,500 earnest-money check at an open house. The correct action is to deliver it to the employing broker for deposit into the brokerage trust account — the salesperson never holds or deposits client escrow funds personally. Holding the check in a personal account, even briefly, exposes both the salesperson and the supervising broker to discipline.
A licensed Michigan associate broker is currently affiliated with and working under another broker's firm. What is true of the associate broker's status?
A cooperating brokerage wants to pay a $1,500 referral directly to the buyer's agent (a salesperson at another firm). Under Michigan law, this payment must instead go to: