A licensee joins Sponsor B. Sponsor A owes compensation under their earlier employment agreement for licensed work the licensee performed while sponsored by A. May A pay the licensee directly under the former-sponsor exception?

Yes, for the qualifying earlier work under the previously existing agreement.

No. Every payment must come from B, including all amounts earned under A.

Yes. A may now pay the licensee for any future work under B.

Only if the client pays the individual instead.

Illinois Real Estate Compensation Requirements

Who may pay an Illinois real estate licensee?

For ordinary current licensed work, pay through the sponsoring broker. Section 10-5 restricts both paying and accepting compensation. One sponsoring broker may compensate another sponsoring broker; the receiving sponsor then pays its own licensee under their agreement.

Illinois compensation payment routes and their limits
Situation	Payment route	Mistake to avoid
Paying for another firm's sponsored licensee's current brokerage work	Pay that licensee's sponsoring broker. Sponsoring brokers may pay one another under 10-5(d).	Do not send the individual's commission straight to the other firm's agent.
Paying your own sponsored licensee	The sponsoring broker pays the licensee under their work agreement.	A client or cooperating broker does not replace the licensee's own sponsor as the ordinary compensation source.
Paying for work under a former sponsorship	The former broker may pay under the previously existing employment agreement for work done while that broker sponsored the person.	Both the earlier agreement and the work during that sponsorship must fit. A later closing date or sponsor change alone establishes neither the exception nor the amount owed.
Paying a qualifying licensee-owned entity	The sponsoring broker may pay the properly formed entity under 10-20(e) and 1450.745.	The entity receives earned compensation. It does not become a second brokerage.

Section 10-5(a) also contains a principal-to-the-transaction provision for a sponsored licensee paying compensation. Do not turn a payer-side exception into automatic permission for a sponsored recipient to disregard subsection (b). Subsection (e) separately permits specified payments to a currently licensed auctioneer complying with Section 5-32. Neither provision is blanket permission for direct agent payments.

Section 10-20(a) requires a licensee to perform licensed activities only for that licensee's sponsor and to have only one sponsor at a time. Independent contractor status does not remove the licensing payment rules. The former-sponsor payment exception does not authorize new licensed work while a person lacks a valid sponsorship.

Which agreement sets the compensation?

The consumer's brokerage fee and the agent's internal split are different agreements. A buyer, tenant, seller or owner's written brokerage agreement sets the consumer-facing compensation terms. The sponsor-licensee employment or independent contractor agreement sets how the sponsor compensates that licensee.

Under 1450.770(c), (d) and (f), use the agreed basis or amount and time of payment for the relevant agreement type. Listing agreements include cooperating-broker amounts for other-party representatives; property management agreements also include the specified cooperating-broker payments. The cited provisions call for an agreed fee. An example percentage is not a state-mandated rate or an automatic equal split between cooperating firms.

Changing the fee needs the right writing

Under 1450.770(j), the brokerage agreement must provide that a change to the commission amount or payment time is not binding unless written and signed by the parties. Subsection (k) prohibits using real estate contract forms to change previously agreed commission-payment terms. Use a proper amendment to the brokerage agreement.

The internal work agreement must be dated and signed, cover the required relationship terms, and be provided to the sponsored licensee with any modifications under 1450.735. Its duration rules differ from a consumer brokerage agreement's expiration rules. For consumer agreement timing and the full term lists, see Illinois brokerage agreements.

What compensation must the client know about?

Use Section 10-10 together with 1450.760. Identify the trigger before deciding that one generic disclosure covers everything.

Illinois compensation disclosures by trigger
Trigger	Required disclosure	Boundary to keep
Compensation policy and cooperation: 10-10(a)	Disclose the sponsor's compensation policy, terms and any amounts offered to cooperating brokers representing other parties.	An offered cooperating fee is not a fixed state commission rate.
Third-party sources: 10-10(b)	Disclose to the client all transaction-related compensation sources the licensee receives from third parties.	This source-disclosure duty has no greater-than-1% ownership condition.
Financial interest at referral: 10-10(c)	At the referral, disclose the covered ownership interest greater than 1%, or dividends or other profit-sharing distributions the licensee receives or may receive from the provider. The statute excludes a publicly held or traded company from this interest provision.	The dividend/profit-sharing test is separate from the ownership percentage.
Covered referral compensation: 1450.760	Disclose in physical or electronic writing the expected compensation for the licensee or sponsor from a transaction-service referral to an entity in which either holds an interest greater than 1%.	Check the sponsor's interest too, not only the individual agent's.
Both sides pay: 10-10(d)	The sponsoring broker must disclose in writing to a client that both buyer and seller, or both lessee and lessor, are paying in that transaction.	Payment sources do not determine whom the licensee represents.

Exactly 1% is not the end of the inquiry

The ownership test in 10-10(c) says greater than 1%. It separately covers dividends or other profit-sharing distributions the licensee receives or may receive from the covered nonpublic provider. Exactly 1% ownership may fail the first test while potential dividends satisfy the second.

Section 15-40 says payment or a promise of payment does not determine agency. A seller funding an agreed buyer-broker payment does not, by that fact alone, make the buyer's agent the seller's agent.

Which referrals, rebates and gifts are allowed?

Ask what the payment rewards. Section 10-15 treats unlicensed brokerage work, consumer offers and referral compensation separately.

Unlicensed licensed activity: subsection (a) prohibits compensation for licensed activities performed in violation of the Act. Under (b), the person must have been duly licensed when performing the work to pursue the stated compensation claim. Getting a license later does not cure the earlier work.
Transaction-party consideration: subsection (c) allows specified prizes, merchandise, services, rebates, discounts or other consideration to an unlicensed party to a purchase, sale or lease contract, subject to the offer-disclosure requirement.
Consumer inducements: subsection (d) can allow an offer to encourage the consumer to use the licensee's services even without an eventual broker-client relationship. Other law and the offer-disclosure requirement still apply.
Unlicensed nonparty referrals: subsection (e) prohibits compensation to an unlicensed person who is not or will not become a transaction party in exchange for a referral of real estate services.

A consumer reward for choosing your services and an outsider's fee for sending you someone else's business are different facts. Calling a referral fee a gift, paying in merchandise or waiting until closing does not decide legality.

Put the conditions in the same offer. Under 20-20(a)(35), an offer described as free, a prize, an award or similar language must disclose the necessary conditions or obligations in that same advertisement or offer. For example, disclose a required listing commitment in the offer, not after the consumer signs it. This does not approve every contest or incentive under other law.

1450.780 also limits referral fees. Reasonable cause means an actual client introduction or an existing contractual referral-fee relationship; that alone does not establish an enforceable right to payment. A residential leasing agent's referral fee must arise from residential leasing or rental. Do not interfere with another licensee's exclusive relationship to obtain a fee.

For eligible interstate cooperation, Section 10-10(e) recognizes the stated domicile licensing and no-licensing-country conditions. It does not grant an out-of-state person unrestricted authority to perform Illinois brokerage activity.

An unlicensed assistant's compensation also cannot be transaction based under 1450.740(a). A permitted clerical task does not make a closing-based assistant bonus permissible.

Can commission be paid to the agent's LLC?

Yes, if the entity meets the specific requirements. Under Section 10-20(e) and 1450.745, the sponsoring broker may pay the entity formed to receive compensation earned by the sponsored licensee.

Check ownership. The entity must be owned solely by the licensee, or by the licensee and spouse if both licensed spouses share the same sponsor or the spouse is unlicensed.
Submit the documents. The sponsored licensee must submit to the Division the specified Articles of Incorporation or Organization, or Illinois authority issued by the Secretary of State.
Keep its role limited. Under the rule, it may not be licensed under the Act, perform licensed activities, sponsor, employ or associate with other licensees, or hold itself out or advertise publicly under its legal or assumed name.

The rule also permits the entity to receive the licensees' compensation from activities unrelated to licensed activity. That clause does not authorize it to provide brokerage services. An LLC filing or tax election alone does not establish compliance.

What does RESPA add to the Illinois rules?

A state-law disclosure does not legalize a federal kickback. Section 10-15(f) preserves RESPA. For a covered federally related mortgage loan, 1024.14(b)-(f) prohibits things of value paid under an agreement or understanding for settlement-service referrals and prohibits the specified unearned charge splits.

A thing of value can include a gift card, discounted service or another benefit. The referral understanding need not be a signed contract; a pattern of conduct can establish it. Ask whether real services were actually performed, not whether the invoice uses the word “marketing.”

Section 1024.14(g) contains specific exceptions, including bona fide payments for actual goods or services and cooperative brokerage or referral arrangements between real estate agents and brokers acting in that capacity. That brokerage exception does not extend to broker-to-mortgage-broker fee arrangements.

For an affiliated settlement provider, 1024.15(b) has three conditions to examine together:

The prescribed written disclosure describes the relationship and estimated charges or range of charges, normally no later than the referral, subject to the rule's stated timing exceptions.
The person making the referral must not require use of the provider, subject to the specified lender and attorney exceptions.
The only benefit beyond the payments permitted by 1024.14(g) is a qualifying ownership or franchise return. A distribution tied to relative referral volume does not become a bona fide return just because it is called a dividend.

Disclosure alone does not establish the exception. The ownership and payment facts must also fit.

Keep the agreement and payment record

1450.755 requires compensation-payment records for licensed activity to be retained for 5 years. Employment or independent contractor agreements must be retained for 5 years after the licensee is no longer associated with the sponsor. Transaction records have their own five-year requirement; keep the required disclosures too.

Paying or failing to disclose compensation contrary to Article 10 can be a disciplinary ground under 20-20(a)(38). Under (39), do not require a nonclient transaction party to let you retain escrow money for commission or expenses as a condition of releasing that party's money. A fee dispute is not permission to invent a release condition.

Six original Illinois compensation questions

Choose an answer, read why every choice fits or misses, then test the changed fact. These are original study exercises, not actual or recalled PSI questions.

Question 2 of 6 · What the payment buys

An unlicensed neighbor who will not be a party to a transaction supplies a buyer lead in exchange for a promised $250 gift card. Does calling it a thank-you gift make the payment permissible?

Yes, because gift cards are not cash.
No. It is compensation to an unlicensed nonparty in exchange for a real estate-service referral.
Yes, if the buyer knows about it.
Yes, if it is paid only after closing.

Show answer and explanations

Answer: B. No. It is compensation to an unlicensed nonparty in exchange for a real estate-service referral.

Why this misses: The payment rewards the referral. Its form does not remove the unlicensed nonparty restriction.
Correct. The stated facts fall within Section 10-15(e). A gift label does not change that exchange.
Why this misses: Disclosure does not cure the prohibition on this payment.
Why this misses: Waiting until closing does not turn the prohibited referral payment into a consumer incentive.

Change the facts: An offer to a consumer to use the licensee's own services must be assessed under the separate inducement provision in 10-15(d). It can apply without an eventual client relationship, but conditions, other law and RESPA still matter.

Source: 225 ILCS 454/10-15(a), (c)-(f)

Question 3 of 6 · Two financial-interest tests

A licensee refers a client to a private mortgage company in which the licensee owns exactly 1% and may receive dividends. Is there a financial-interest disclosure under Section 10-10(c)?

No, because exactly 1% can never trigger this subsection.
Only after the first dividend is actually paid.
Yes. Disclose the covered interest at the time of the referral.
Only if the mortgage company rejects the client's application.

Show answer and explanations

Answer: C. Yes. Disclose the covered interest at the time of the referral.

Why this misses: Exactly 1% is not greater than 1%, but the separate potential-dividend condition is stated.
Why this misses: The law also addresses dividends or profit sharing the licensee may receive.
Correct. The potential dividends from the nonpublic provider trigger this condition even though the ownership percentage alone does not.
Why this misses: The disclosure trigger is the referral and financial interest, not the loan decision.

Change the facts: Exactly 1% ownership with no actual or potential dividends or other profit sharing does not, by itself, satisfy either stated interest trigger in 10-10(c). Other compensation disclosures and federal requirements must still be checked.

Source: 225 ILCS 454/10-10(c)

Question 4 of 6 · Ownership and sponsorship

Two spouses jointly own an LLC intended to receive brokerage compensation. Both hold real estate licenses, but different sponsoring brokers sponsor them. Does this ownership arrangement meet the spouse condition for a direct-payment entity?

No. Joint ownership by licensed spouses requires the same sponsoring broker.
Yes, because marriage replaces the sponsorship condition.
Yes, because any registered LLC can receive any agent's commission.
Yes, if the LLC advertises as a brokerage.

Show answer and explanations

Answer: A. No. Joint ownership by licensed spouses requires the same sponsoring broker.

Correct. The statute and rule permit the stated spouse ownership only when both licensed spouses share a sponsor, or the spouse is unlicensed.
Why this misses: Marriage is part of the ownership exception, not a substitute for its conditions.
Why this misses: Secretary of State registration alone does not satisfy the direct-payment requirements.
Why this misses: The qualifying payment entity is prohibited from public advertising and licensed activity under this rule.

Change the facts: If both licensed spouses have the same sponsoring broker, the ownership condition can fit. The required documents and the entity's activity restrictions still apply.

Source: 225 ILCS 454/10-20(e); 1450.745(b)

Question 5 of 6 · The right document

A buyer brokerage agreement states a $6,000 fee. The broker proposes changing it to $5,000 by adding a clause to the buyer-seller purchase-contract form. Which method follows the cited Illinois rule?

Use the purchase-contract clause because it is the newest document.
Make the change orally because the fee is lower.
Let the buyer's signature alone amend every party's brokerage obligations.
Use a proper written amendment signed by the brokerage-agreement parties, rather than the purchase-contract form.

Show answer and explanations

Answer: D. Use a proper written amendment signed by the brokerage-agreement parties, rather than the purchase-contract form.

Why this misses: A newer transaction document does not override the express prohibition on using that form for this change.
Why this misses: Reducing the fee does not remove the writing and signature requirement.
Why this misses: The commission amendment must be written and signed by the parties to the brokerage agreement.
Correct. Subsection (j) supplies the signed-writing requirement. Subsection (k) bars using the real estate contract form to change the previously agreed commission-payment terms.

Change the facts: A proper signed amendment may change the agreed commission amount or payment time. The rule does not make the original fee permanently unchangeable.

Source: 1450.770(j)-(k)

Question 6 of 6 · Disclosure is not permission

Under an agreement to send borrowers, a mortgage company gives a real estate agent a $50 gift card for each referred borrower whose federally related mortgage loan closes. The agent performs no separate service. Does disclosing the gift make this referral payment acceptable under RESPA?

Yes. Every disclosed referral payment is permitted.
No. The gift card is a thing of value paid under an agreement for covered settlement-service referrals.
Yes. A real estate license permits fees from all settlement providers.
Yes. Only cash or payments above $100 count.

Show answer and explanations

Answer: B. No. The gift card is a thing of value paid under an agreement for covered settlement-service referrals.

Why this misses: Disclosure alone does not remove the Section 8 referral-payment prohibition.
Correct. The facts describe referral compensation, not a payment for separate actual services or a stated exception.
Why this misses: The real estate cooperative-brokerage exception does not extend to broker-to-mortgage-provider referral arrangements.
Why this misses: The thing-of-value definition is broader than cash. The cited rule supplies no such $100 safe harbor.

Change the facts: A cooperative brokerage fee between real estate agents and brokers acting in that capacity is addressed by 1024.14(g)(1)(v). That is different from a mortgage company's referral gift, and Illinois payment-channel rules still apply.

Source: 12 CFR 1024.14(b), (d)-(g)

Illinois compensation FAQ

How is the Illinois brokerage commission amount set?

The cited Illinois rules require an agreed basis or amount and payment time in the written brokerage agreement. Do not read an example percentage as a state-mandated rate or an automatic equal split between firms. The consumer's fee and the sponsored agent's internal compensation are separate agreements.

Can a client pay an Illinois sponsored agent directly?

For ordinary current licensed activity, the sponsored licensee accepts compensation from the sponsoring broker. Do not bypass that route because the client offers cash or calls the payment a bonus. Check an actual statutory exception rather than assuming the payment's label supplies one.

Can a former sponsoring broker pay me after I move firms?

Yes, the Section 10-5(a) exception can apply to payments under the previously existing employment agreement for work performed while that former broker sponsored you. A sponsor change does not establish what was earned or owed. Read the earlier agreement and the dates of the work.

Does the seller always have to pay the buyer's broker?

Do not assume that from the party labels. Review the agreed compensation obligations and permitted broker-to-broker payment arrangements. The buyer brokerage agreement must state the agreed basis or amount and payment time; a proposed payment from another source is a separate fact to verify.

Can an Illinois broker offer a rebate to a buyer or tenant?

Section 10-15(c) permits specified consideration to an unlicensed party to a purchase, sale or lease contract, subject to the required offer disclosures. Other applicable laws and loan or settlement requirements still matter. That permission does not authorize unlicensed brokerage work or every referral payment.

Can a promotion be offered before someone becomes a client?

Yes. Section 10-15(d) can permit an inducement to use the licensee's services even when no broker-client relationship ultimately results. It is subject to other law and the same-offer conditions requirement. An outsider paid to send someone else's business presents a different referral question.

Can a residential leasing agent receive a sale referral fee?

Rule 1450.780(b)(2) limits a residential leasing agent's referral fees to a lease or rental of residential real estate. Holding some type of real estate license does not authorize every referral fee. The sponsor payment route remains a separate requirement.

Does payment from both sides mean the broker is a dual agent?

Payment alone does not determine agency under Section 15-40. Compensation from both sides of the same transaction requires the written disclosure in 10-10(d). Representation of both parties raises separate dual-agency consent requirements; a compensation disclosure does not replace them.

How many compensation questions are on the Illinois exam?

PSI lists compensation requirements and contractual obligation in state II.E. The whole Illinois License Act area has 16 of 40 scored state questions, or 40%. PSI does not publish a separate compensation-only count. These six questions are original practice, not actual or recalled PSI items.

Choose the next review from the mistake

For assistant pay and task boundaries, read licensed and unlicensed assistants. For another way to test the document distinctions, use Illinois brokerage agreement practice.

You can also download Pass Illinois for phone study. Keep this page handy when you want to check the rule behind a payment.

Official sources and October 2026 review

Reviewed October 24, 2026. PSI lists compensation requirements and contractual obligation in Illinois state II.E. The whole License Act area has 16 of 40 scored state questions, or 40%. That allocation is not a compensation-only question count.

The Article 10 disclosure and work-agreement amendments cited here took effect January 1, 2025. Rule 1450.770 has a July 13, 2026 amendment date. The July 2025 entity and recordkeeping rules and February 2021 referral-rule dates remain separate from this October review.

This guide explains exam decisions. It does not resolve a particular commission dispute, tax treatment, employment classification, contest, escrow release or affiliated-business arrangement. Check the agreement and all applicable requirements for a live transaction.

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