Illinois compensation disclosure guide
Illinois compensation disclosure: who must be told, and when
A client can know the commission amount and still be missing an important financial connection. For the Illinois exam, separate the brokerage's compensation policy, outside sources of compensation, interests in a recommended provider and payments from both sides. Each has its own trigger.
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The short answer
Section 10-10 requires client-facing disclosure of the sponsoring broker's compensation policy, transaction-related third-party compensation sources received by the licensee, qualifying interests in a referred service provider, and compensation paid to one sponsoring broker by both sides of a transaction. The provider-interest disclosure is due when the referral is made. Both-side compensation requires writing. Rule 1450.760 separately requires written disclosure of expected referral compensation under its own greater-than-1% interest test. Disclosure does not determine agency or make a prohibited payment lawful.
Reviewed for October 2026 against the identified Illinois provisions and current Regulation X. The PSI booklet dated June 24, 2026 lists Compensation sources at Illinois IV.C. Disclosures as a whole has 10 of 40 scored broker items, or 25%; this page has no separate published question quota. These original teaching questions are not official or recalled PSI items.
Check the disclosure before deciding whether the payment is allowed
- Name the client, licensee, sponsoring broker, payer and recommended provider. A sponsor's financial interest and a licensee's personal interest are different facts.
- Identify the Section 10-10 trigger. Policy, a received third-party compensation source, a covered provider interest and both-side compensation are four separate inquiries.
- For a provider referral, test more-than-1% ownership OR actual or possible dividends or profit sharing. Apply the publicly held or traded company exception to this statutory test, rather than treating it as an exemption from every disclosure rule.
- Then test Rule 1450.760 separately: expected referral compensation to the licensee or sponsor, plus an interest above 1% held by either in the referred provider. Its writing requirement is not a reason to erase the statute's separate distribution trigger.
- Use the required recipient, timing and form. Section 10-10(c) says client and referral time; subsection (d) says client and writing. Keep the sponsor's copy. An internal entry does not tell the client.
- Check payment routing, recipient eligibility and any applicable federal restriction separately. A clear disclosure is not a payment permit, an agency agreement or dual-agency consent.
| Provision and trigger | What must be disclosed | Recipient, timing or form |
|---|---|---|
| 10-10(a): compensation policy | Sponsor's terms and amounts offered to cooperating brokers representing other parties | Client;15-35(b) also requires discussion with the represented consumer |
| 10-10(b): third-party compensation received by licensee | All transaction-related compensation sources | Client; do not substitute disclosure only to the office |
| 10-10(c): covered provider referral | More-than-1% ownership OR actual/possible dividends or profit sharing; publicly held/traded exception | Client, at referral time |
| 1450.760: expected referral compensation and provider interest above 1% | Expected compensation to licensee or sponsor; interest held by either | Written, physical or electronic; related transaction services |
| 10-10(d): one sponsor paid by both sale or lease sides | Fact that buyer and seller, or lessee and lessor, both pay | Written disclosure to a client |
| 1450.755(c): disclosure format and copies | Physical disclosure or electronic format agreed to by both parties | Sponsor retains copies of all disclosures |
The distinctions that matter
| Distinction | How it works | What to notice |
|---|---|---|
| Policy and source | Policy covers compensation terms and cooperating-broker amounts. A source is the third party from whom the licensee receives transaction-related compensation. | Knowing the commission does not automatically reveal the outside source. |
| Above 1% and exactly 1% | More than 1% excludes exactly 1% under that ownership test. Dividends or profit sharing can independently trigger Section 10-10(c). | Test both alternatives before answering no disclosure. |
| Act 10-10(c) and Rule 1450.760 | The Act tests a licensee interest or distributions in a covered referral. The rule tests expected referral compensation and a provider interest above 1% held by the licensee or sponsor. | A sponsor interest can matter under the rule even when the individual owns none. A distribution-only statutory case is not automatically the same rule case. |
| Both-side payment and dual agency | One firm can receive money from both sides while different designated agents represent the parties. Payment alone does not establish agency under 15-40. | Identify representation separately; the money disclosure supplies no missing agency consent. |
| Disclosure and lawful compensation | The client may need to know a financial connection even when there is no per-referral fee. A payment can also remain prohibited despite full disclosure. | Apply the transparency and payment rules separately. |
Work through the facts
A small ownership interest still exceeds the threshold
A licensee owns 125 of a private inspection company's 10,000 equal shares and refers a client there for an inspection connected with the purchase.
- 125/10,000 times 100 =1.25%.
- That exceeds 1%, and the client referral is for transaction-related services.
- The ownership test applies without requiring a per-referral check.
Answer: Disclose the interest to the client when making the referral. Whether Rule 1450.760 also applies depends on its expected-compensation facts.
Exactly 1% with possible distributions
The same company has 10,000 equal shares. Another licensee owns 100 and may receive profit distributions. The licensee refers a client for transaction-related services.
- 100/10,000 times 100 =1%.
- The ownership test alone is not met.
- Possible profit distributions are a separate statutory trigger.
Answer: Section 10-10(c) still requires referral-time disclosure. Exactly 1% is not a complete answer when another trigger is supplied.
The sponsor owns the provider
A sponsored licensee owns none of a private provider. The sponsoring broker owns 2%, will receive compensation arising out of the referral, and the licensee refers a client there for transaction-related services.
- Do not stop at the individual's zero ownership.
- Rule 1450.760 includes the sponsoring broker's interest and expected compensation.
Answer: The licensee must make the written disclosure required by the rule. The individual-ownership test is not the only relevant inquiry.
An outside source without provider ownership
A licensee receives transaction-related compensation from a third party but has no ownership, dividend or profit-sharing connection to that party. The question asks only about source disclosure.
- Section 10-10(b) is independent of the provider-interest test.
- It reaches all such received third-party sources.
Answer: Disclose the source to the client. This identifies the disclosure duty; it does not approve the underlying payment.
Two payers, separate designated agents
Buyer and seller both compensate one sponsoring broker in the same sale. Different designated agents in the firm represent them.
- The one-sponsor, same-transaction, both-side compensation trigger is met.
- Section 15-40 prevents treating payment alone as the agency test.
Answer: Give the required written client disclosure that both sides are paying. Do not label a licensee a dual agent solely because of the firm's two money sources.
Writing does not cure an improper payment route
A different firm wants to pay a currently sponsored licensee directly for current licensed work. No statutory exception is supplied. The licensee offers to disclose the source.
- Source disclosure and the own-sponsor acceptance rule answer different questions.
- Section 10-5 permits sponsor-to-sponsor compensation and contains specific exceptions; it is not a general right to bypass the recipient's sponsor.
Answer: Use a lawful payment channel. Disclosure alone cannot supply the missing exception.
A disclosed settlement-service kickback
In a transaction involving a federally related mortgage loan, a mortgage broker offers a real estate agent a gift card solely for referring settlement-service business. No exception is supplied.
- A thing of value need not be cash.
- Written client disclosure does not cure the covered referral-fee prohibition.
Answer: Do not treat disclosure as permission. Regulation X must be satisfied independently.
The public-company exception has a boundary
A licensee refers a client to a publicly traded provider. The licensee also receives transaction-related compensation from that third party. The question asks which Illinois disclosure tests remain.
- Apply the public-company exception to the provider-interest provision in 10-10(c).
- Section 10-10(b) separately concerns received third-party compensation sources.
- An exception to one provision does not decide payment legality or erase the others.
Answer: Do not claim a blanket exemption. Disclose the source under subsection (b), and assess the remaining applicable requirements separately.
Mistakes to avoid
- Only a commission percentage needs disclosure. Policy, third-party sources, provider interests and both-side compensation are separate subjects.
- Exactly 1% automatically means no disclosure. It misses the ownership test, but actual or possible dividends or profit sharing may still trigger 10-10(c).
- Every provider referral has the same statutory and rule trigger. Keep 10-10(c) and 1450.760 separate, including expected compensation and sponsor-interest facts.
- A public-company exception means all compensation can stay private. The 10-10(c) exception does not erase 10-10(b),(d) or other applicable law.
- A closing-file note substitutes for telling the client. Client-facing disclosure and sponsor record retention perform different jobs.
- The payer automatically becomes the represented client. Payment or its promise is not determinative of agency.
Check your understanding
These are original teaching questions, not recalled or predicted PSI questions. Answer first, then explain why the other choices fail.
1. A licensee tells a client only the total brokerage fee. What further compensation-policy information do 10-10(a) and 15-35(b) identify?
- A uniform commission percentage imposed by the State
- The sponsor's terms and amounts offered to cooperating brokers representing other parties
- Nothing further if the client did not ask about cooperating brokers
- Only the date the licensee receives the internal commission split
Show answer and explanation
Answer: B. The sponsor's terms and amounts offered to cooperating brokers representing other parties
The policy includes its terms and any amounts offered to cooperating brokers representing other parties. The provisions do not impose a standard commission or make client questions a condition of disclosure.
2. A licensee receives transaction-related compensation from a third party with no ownership connection. Which statement best addresses 10-10(b)?
- Tell only the designated managing broker
- Disclosure is required only if both sale parties also pay the sponsor
- Disclose that source to the client; assess payment legality separately
- The absence of ownership eliminates source disclosure
Show answer and explanation
Answer: C. Disclose that source to the client; assess payment legality separately
Subsection (b) concerns all transaction-related third-party compensation sources received by the licensee. It does not depend on provider ownership or both-side payment. Identifying the source does not establish that the payment is permitted.
3. A client is referred to a private provider in which the licensee owns exactly 1%, with no dividends, possible distributions or other relevant interest supplied. Does the ownership fact alone meet the greater-than-1% limb?
- No; exactly 1% is not greater than 1%
- No, because only interests above 10% count
- Yes, because the provider is privately held
- Yes, because any interest is enough
Show answer and explanation
Answer: A. No; exactly 1% is not greater than 1%
Exactly 1% does not exceed 1%. This narrow answer does not declare the entire arrangement exempt from other disclosure or payment rules.
4. A licensee owns 0.8% of a nonpublic provider and may receive its profit distributions. The licensee refers a client for transaction-related services. What follows under 10-10(c)?
- No disclosure because ownership is below 1%
- Disclose at referral time because possible profit distributions are an independent trigger
- Wait to see whether a distribution is actually paid
- Only a per-referral check can trigger disclosure
Show answer and explanation
Answer: B. Disclose at referral time because possible profit distributions are an independent trigger
Subsection (c) uses alternative triggers. Actual or possible dividends or profit sharing can apply even though the ownership percentage does not exceed 1%.
5. The 10-10(c) provider-interest trigger is satisfied. When must the licensee disclose the fact to the referred client?
- When making the referral
- After closing if the provider earned a profit
- Only when the service invoice arrives
- At the next broker renewal
Show answer and explanation
Answer: A. When making the referral
The statute specifies the time of making the referral. Closing, payment and license renewal are not substitutes for that deadline.
6. A licensee refers a client to a publicly traded provider. What is the best statement about the 10-10(c) public-company exception?
- It permits any settlement-service referral fee
- It also cancels all third-party source duties under(b)
- It proves the licensee has no financial connection
- It applies to the provider-interest test in (c), without erasing other applicable duties
Show answer and explanation
Answer: D. It applies to the provider-interest test in (c), without erasing other applicable duties
Apply an exception to its provision. A public-company fact does not by itself resolve a different compensation-source disclosure, both-side payment or federal question.
7. A sponsor owns 2% of a referred provider and expects compensation arising from a referral for client transaction services. The individual licensee owns none. Which rule fact matters?
- Office-only disclosure always satisfies the rule
- The sponsor interest matters only if it exceeds 50%
- 1450.760 includes the sponsor's qualifying interest and expected compensation
- Only the individual can hold the relevant interest
Show answer and explanation
Answer: C. 1450.760 includes the sponsor's qualifying interest and expected compensation
Rule 1450.760 includes expected compensation to the licensee or sponsor and an interest above 1% held by either. Its required disclosure is written, not merely an internal office note.
8. One sponsoring broker receives compensation from both buyer and seller in the same transaction. What does 10-10(d) require?
- A disclosure only if the buyer paid more than the seller
- Written disclosure to a client that both sides are paying
- An automatic change to dual agency
- Only an oral explanation to the other brokerage
Show answer and explanation
Answer: B. Written disclosure to a client that both sides are paying
The trigger is compensation to one sponsor from both buyer and seller in one transaction. The required fact must be disclosed in writing to a client; payment alone does not determine agency.
9. Does the both-side compensation provision also identify a lease relationship?
- Only if the tenant is a licensed broker
- No, it is limited to fee-simple sales
- Only if the lease lasts more than one year
- Yes, when both lessee and lessor compensate one sponsor in the same transaction
Show answer and explanation
Answer: D. Yes, when both lessee and lessor compensate one sponsor in the same transaction
Section 10-10(d) expressly includes both lessee and lessor. Do not read only the buyer-and-seller half of the provision.
10. A seller funds an amount paid to the buyer agent's sponsor. The question asks whether that payment alone establishes the agent's representation of the seller. Which answer follows 15-40?
- No; payment or its promise is not determinative of agency
- Yes, the source of funds always establishes agency
- Yes, whenever the payment is made at closing
- No disclosure of the source can ever be required
Show answer and explanation
Answer: A. No; payment or its promise is not determinative of agency
The payment does not settle agency. Identify the actual relationship separately, and apply any compensation disclosure duties without confusing them with representation.
11. Both parties agree to electronic disclosure. What does 1450.755(c) say about the sponsor's records?
- Electronic disclosure removes the retention duty
- Only paper disclosures must be retained
- Copies of all disclosures must still be retained by the sponsor
- An electronic signature alone proves the client received every required fact
Show answer and explanation
Answer: C. Copies of all disclosures must still be retained by the sponsor
The rule permits physical form or electronic format agreed to by both parties, and may incorporate electronic signatures. Copies of all disclosures must be retained by the sponsoring broker.
12. A sponsored licensee is offered direct compensation by a different firm for current licensed work. No exception applies. Is source disclosure alone enough to authorize acceptance?
- Yes, if the payer calls it a bonus
- No; the own-sponsor acceptance restriction must still be satisfied
- Yes, because disclosure replaces 10-5
- Yes, because only the payer's license matters
Show answer and explanation
Answer: B. No; the own-sponsor acceptance restriction must still be satisfied
Section 10-5(b) limits acceptance to the licensee's sponsor except as provided in the section. Disclosure does not create an exception. Sponsor-to-sponsor payments and the qualified former-sponsor exception are separate provisions.
13. An unlicensed nonparty requests payment for referring real estate-service business. Which statement is best?
- Written source disclosure does not remove the unlicensed-nonparty referral restriction
- The client can repeal the restriction by signing a notice
- A party consideration and an outsider referral fee are always identical
- Disclosure makes every referral fee lawful
Show answer and explanation
Answer: A. Written source disclosure does not remove the unlicensed-nonparty referral restriction
The independent restriction still applies. Do not confuse an unlicensed outsider's referral fee with a different transaction-party consideration or permitted inducement.
14. A mortgage broker offers referral value for settlement-service business involving a federally related mortgage loan, with no applicable exception. The real estate licensee promises written disclosure. What is the key issue?
- Only whether the client signs the disclosure
- Whether the value is cash rather than a gift card
- Whether the value is called a dividend
- The separate federal referral-fee prohibition still applies
Show answer and explanation
Answer: D. The separate federal referral-fee prohibition still applies
Disclosure does not cure a covered Regulation X referral-fee violation. A label or noncash form does not decide legality.
15. A licensee owns 0.5% of a private provider and may receive ordinary profit distributions. The licensee refers a client for transaction services. Neither the licensee nor sponsor has an interest above 1%, and no expected referral compensation is supplied. Which distinction is sound?
- Section 10-10(c) applies; these facts do not establish the narrower 1450.760 trigger
- Rule 1450.760 always replaces Section 10-10(c)
- The client can be told only after a distribution is paid
- No Illinois disclosure can apply because all interests are below 1%
Show answer and explanation
Answer: A. Section 10-10(c) applies; these facts do not establish the narrower 1450.760 trigger
The possible distribution satisfies the alternative statutory trigger, so disclosure is due at referral time. The facts do not supply the rule's interest-above-1% and expected-referral-compensation combination. This does not resolve other writing or payment requirements.
Common questions
What are the main Illinois compensation disclosures?
Section 10-10(a)-(d) separates the compensation policy, third-party sources received by the licensee, covered provider interests and both-side compensation. Identify the particular provision rather than assuming one commission discussion answers all four.
Who receives compensation-source disclosure?
Section 10-10 identifies the client. An office file note or disclosure only to the sponsoring broker does not replace the client-facing requirement. Section 15-35(b) separately requires the representing licensee to discuss the compensation policy with the consumer.
Must cooperating-broker compensation be discussed?
Yes. The policy includes terms and any amounts offered to cooperating brokers representing other parties. This is disclosure of the actual policy, not a State-mandated standard commission or a rule that every transaction must offer the same amount.
Does exactly 1% trigger provider-interest disclosure?
Not through the greater-than-1% ownership test alone. Still check actual or possible dividends or profit-sharing distributions, the nonpublic-provider condition and any other applicable duty. Exactly 1% is a threshold answer, not a blanket exemption.
Can disclosure be required without a referral check?
Yes. Under 10-10(c), a qualifying ownership interest or actual or possible dividends or profit sharing can require disclosure at referral time even without a fee for that particular introduction.
When must a covered provider interest be disclosed?
At the time of making the referral under 10-10(c). Do not wait for the provider to finish work, distribute profit or send an invoice. Disclosure after closing misses that statutory timing point.
Is every 10-10(c) referral the same as a 1450.760 writing case?
No. Compare their actual triggers. The rule concerns expected referral compensation and an interest above 1% held by the licensee or sponsor. The statute separately includes the licensee's actual or possible distributions. Keep those tests separate rather than deleting a statutory trigger or attributing the rule's writing requirement to every possible case under subsection (c).
Does the rule reach an interest held by the sponsor?
Yes. Rule 1450.760 expressly includes the sponsoring broker's qualifying provider interest and expected compensation, as well as the licensee's. A licensee's zero personal ownership does not answer that rule question.
What if both buyer and seller pay the same firm?
Section 10-10(d) requires written disclosure to a client that both are paying one sponsoring broker in the same transaction. It also identifies lessee and lessor. The payment fact alone does not establish dual agency or supply its separate consent requirements.
Does seller-funded buyer-broker compensation change the agent's client?
Payment or a promise of payment is not determinative of agency under 15-40. Establish whom the licensee represents separately. The money source and compensation terms may still require their own disclosure and agreement analysis.
Can required disclosures be electronic?
Under 1450.755(c), a disclosure may be physical or, if both parties agree, electronic, and may incorporate electronic signatures. The sponsoring broker must retain copies of all disclosures. Do not assume electronic delivery removes either the disclosure content or retention duty.
Does disclosure authorize a settlement-service referral payment?
No. Regulation X separately restricts covered referral value and unearned splits. Its real estate brokerage exception is limited to parties acting in that capacity; it does not extend to arrangements with mortgage brokers. Actual-service exceptions have their own conditions.
What about a legitimate affiliated settlement provider?
Section 1024.15 has several conditions: the prescribed separate relationship-and-charges disclosure with its applicable deadline, the no-required-use rule subject to stated exceptions, and qualifying ownership or franchise returns beyond permitted 1024.14(g) payments. A dividend label or Illinois notice alone does not establish the exemption.
Where does this topic fit in the Illinois broker outline?
The PSI booklet dated June 24, 2026 places Compensation sources at IV.C. The whole Disclosures area accounts for 10 of 40 scored Illinois broker questions, or 25%. It does not publish a separate question allocation for this page. A small practice set cannot establish your future exam result.
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Official sources and scope
Section 10-10 and Rule 1450.760 have related but different conditions. Read the provision that answers the particular question. Regulation X is included to explain the separate federal payment limits; an Illinois disclosure does not establish compliance with those limits.
- PSI Illinois Candidate Information Booklet dated June 24, 2026
- 225 ILCS 454/10-10: four compensation disclosures
- 68 Ill. Adm. Code 1450.760: written referral-compensation disclosure
- 225 ILCS 454/15-35, agency and no-agency disclosure
- 225 ILCS 454/15-40, compensation does not determine agency
- 68 Ill. Adm. Code 1450.755(a)(3): transaction records, including brokerage agreements
- 225 ILCS 454/10-5: payment routes and former-sponsor exception
- 225 ILCS 454/10-15: unlicensed work and referral restrictions
- CFPB Regulation X 1024.14: referral-fee prohibition and exceptions
- CFPB Regulation X 1024.15: affiliated-business conditions
This is exam preparation, not advice for a specific transaction. State law and the applicable facts control. Our editorial and corrections process explains how to report an issue.