The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

REAL ESTATE BROKERS AND SALESPERSONS:


Realtors' payment of referral fees to unlicensed persons

The Occupational Code prohibits a real estate development company which sells realty from paying a referral fee to any unlicensed person who refers a purchaser or potential purchaser to the development company.


Opinion No. 6979

April 10, 1998


Honorable George A. McManus, Jr.
State Senator
The Capitol
Lansing, MI


You have asked whether the Occupational Code, 1980 PA 299, prohibits a real estate development company which sells realty from paying a referral fee to any unlicensed person who refers a purchaser or potential purchaser to the development company.

Information supplied with your request indicates that a corporation, in conjunction with its resort operations, engages in real estate development and sales activities concerning its own properties. The corporation, a licensed real estate broker, proposes to pay a "modest compensation" to existing resort property owners, not licensed under the Code, who refer potential purchasers to it, provided the referred prospect actually purchases resort realty.

The Occupational Code (Code), 1980 PA 299, MCL 339.101 et seq; MSA 18.425(101) et seq, requires that real estate brokers and salespersons be licensed by the Department of Consumer and Industry Services and imposes penalties for violations.1 A person shall not engage in regulated real estate operations without first being licensed by the department. Section 601(1). Violations of the Code may result in several penalties, including license suspension or revocation (section 602), restitution (section 603), and injunctive relief (section 605).

Section 2512 of the Code prohibits specified acts by licensed realtors, including the following:

A licensee who commits 1 or more of the following is subject to the penalties set forth in article 6:


***

(h) Except as provided in section 2512b, shares or pays a fee, commission, or other valuable consideration to a person not licensed under this article including payment to any person providing the names of, or any other information regarding, a potential seller or purchaser of real estate but excluding payment for the purchase of commercially prepared lists of names. However, a licensed real estate broker may pay a commission to a licensed real estate broker of another state if the nonresident real estate broker does not conduct in this state a negotiation for which a commission is paid.

(emphasis added).

The above provision expressly prohibits licensed realtors from paying unlicensed persons for the referral of potential sellers or purchasers. This conclusion is supported by the legislative analysis done on House Bill 4269, which became 1994 PA 333 revising section 2512(h). Specifically, the analysis provides as follows:

In 1988, the director of the Bureau of Commercial Services in the Department of Licensing and Regulation issued an opinion (later reconfirmed in early 1989) that took the position that licensed real estate agents could pay unlicensed people for the simple referral of potential sellers or buyers. Before this, the real estate community had interpreted the Occupational Code (specifically, Section 2512[f]) as prohibiting such payments. The bill would clarify the issue, reinstating the real estate community's interpretation of the law.

House Legislative Analysis, HB 4269, April 5, 1994.

It is clear from the foregoing that the Legislature prohibited all payments by licensed realtors to unlicensed persons for the referral of potential sellers and purchasers. A statute must be construed sensibly and in harmony with its legislative purpose. Rusinek v Schultz, Snyder & Steele Lumber Co, 411 Mich 502, 508; 309 NW2d 163 (1981). The fact that the referral fee paid by the licensee to the unlicensed person is only a "modest" sum does not avoid the clear statutory prohibition.

It is my opinion, therefore, that the Occupational Code, 1980 PA 299, prohibits a real estate development company which sells realty from paying a referral fee to any unlicensed person who refers a purchaser or potential purchaser to the development company.


FRANK J. KELLEY
Attorney General

1 Although not implicated by your question, it is noted that certain classes of persons are exempted from the Code's regulatory and licensing requirements, including persons making isolated sales of their own property, persons selling new dwellings built by themselves while licensed as residential builders, and attorneys engaged in the practice of law. Section 2503.