Tips Before Paying an Agent’s Commission to Their Entity
We all know that a Brokerage cannot pay a commission to or divide fees with an unlicensed person or entity. There is however a little known exception which allows a Brokerage to pay an agent’s commission to their entity. This is an area that the Division audits, so when making the decision to pay commissions in this manner, it is important to be sure the rules are strictly followed.
- Obtain the organizational paperwork for your agent’s entity. This includes a copy of the entity’s operating agreement (which will show who has an ownership interest in the entity) and the Ohio Secretary of State Certificate (showing the entity has been legally registered in Ohio).
- Confirm at least one of the owners of the entity (partner, shareholder, member, etc.) is an actively licensed real estate agent and that agent is the agent that earned the fee, commission or other compensation.
- Record in a ledger the name of the agent that earned the commission, the amount of the commission, the date of the commission payment and the name of the entity to which the commission was paid. Keep the documentation above and ledger for 3 years after the date of the transaction.
- Don’t allow the agent to advertise in the name of the entity or otherwise allow the entity to engage in activities requiring licensure (i.e. allow the entity to act like a brokerage).
An agent’s ability to receive their commission through their entity, rather than personally, can be an attractive financial option for agents. Provided the Brokerage follows the steps outlined above, a Brokerage may legally pay the agent’s commission to their unlicensed entity thereby affording an additional benefit to its agents.