Can I pay a cooperating commission to a sole proprietor who is not a BIC?

QUESTION: I am the broker-in-charge of my firm. We recently listed a property for sale in the MLS. A local broker (I’ll call him “Bob”) arranged a showing for his buyer-client. Bob submitted an offer and the property is now under contract. As it turns out, Bob is not affiliated with a firm. He is a sole-proprietor. When I looked him up on the Real Estate Commission’s website, I learned that while Bob does have an active license, he has not designated himself as a broker-in-charge and is not even BIC-eligible. Under the circumstances, if the sale closes, is it legal for me to pay Bob the cooperating commission that was offered in our MLS listing?

ANSWER: Yes. It would be legal for you to pay Bob.

First of all, it is not necessary for Bob to have a firm license. Real Estate Commission Rule A.0502 states that every business entity other than a sole proprietorship shall apply for and obtain from the Commission a firm license prior to engaging in business as a real estate broker.

Second, under certain circumstances, it is perfectly legal for Bob to operate as a sole proprietor without designating himself as a BIC. Real Estate Commission Rule A.0110(b) states that every broker who is a sole proprietor must designate himself or herself as a BIC if the broker does one of three things: (1) engages in any transaction where the broker is required to deposit and maintain monies belonging to others in a trust account; (2) engages in advertising or promoting his or her services as a broker in any manner; or (3) has one or more other brokers affiliated with him or her in the real estate business. If Bob does not do any of the three, he does not have to designate himself as a BIC.

The bottom line is that if Bob is a sole proprietor with an active license, it is perfectly legal for you to compensate him for his services. Real Estate Commission Rule A.0504(a) states: “Subject to compliance with (Rule A.0110), the holder of a license on active status may engage in any activity requiring a real estate license and may be compensated for the provision of any lawful real estate brokerage service.”

Although you may not know whether a sole proprietor has complied with the requirements of Rule A.0110, it is not your responsibility to determine that agent’s compliance with the rule. Compliance is the function of the Real Estate Commission. Once you verify that a cooperating broker who is a sole proprietor has an active license, it is legal and appropriate for you to pay any earned compensation to that broker.