Texas: who can legally be paid a real estate commission

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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A commission in Texas is not only a matter between a broker and a client. The state decides who may receive a share of it, through whose hands it must pass, and what a broker has to hold in writing before a court will order anyone to pay. A cheque written to the wrong person, a cash thank-you to a neighbour who sent a buyer, a rebate promised without the client's agreement: each of these touches a rule in the Texas Occupations Code or in the rules of the Texas Real Estate Commission, the state regulator usually known as TREC.

This guide follows the money from the closing table outwards. It starts with the statutory rule on sharing a commission, then covers how a sales agent is paid, what happens when the payee is a company, the rebates a broker may give to a buyer, a seller or a tenant, the small gifts allowed for a referral, payments to brokers outside Texas, and the conditions a broker must meet to sue for a commission. It describes the general rules as the statute and TREC state them. How they apply to one transaction depends on its facts, and TREC itself sends enforcement questions about private agreements to a private attorney.

Texas Occupations Code sections 1101.651 and 1101.806, as read on a republished copy verified on 26 May 2025; TREC guidance on Rule 535.20(a).

The starting rule: a broker pays licence holders only

The first subsection of section 1101.651 of the Texas Occupations Code is the foundation of everything else in this guide. The wording of sections 1101.651 and 1101.806 used in this guide was read on a republished copy of the code that its publisher marks as verified on 26 May 2025, not on the Texas Legislature's own site, which could not be opened for this guide. Under subsection (a), a licensed broker may not pay a commission or other compensation, directly or indirectly, to a person for performing an act of a broker unless that person falls into one of two groups. The first is a licence holder. The second is a real estate broker licensed in another state who does not conduct in Texas any of the negotiations for which the commission is paid.

Two words in that sentence do a great deal of work. "Indirectly" means the rule is not avoided by routing money through someone else. And the rule is tied to the act being paid for: it concerns pay for doing what a broker does. The section was added to the code with effect from 1 June 2003 and last amended by Senate Bill 699 of the 2015 session, with effect from 1 January 2016, according to the legislative notes printed under the section in that copy.

TREC's published guidance restates the rule from the broker's side. As the regulator describes its Rule 535.147(d), a licence holder generally may not pay part of a commission or fee to an unlicensed person. The exceptions TREC lists are narrow, and they are all about the parties to the deal rather than helpers on the edge of it: a rebate to the party the broker represents, and, with that party's consent, a payment to the other party. Both are covered below.

What counts as a commission

It would be easy to read "commission" as a percentage of the price and nothing more. TREC reads it far more widely. Its guidance, citing Rule 535.1(5) and Rule 535.20(a), describes a commission as any form of compensation for an act that requires a licence: in practice, anything of value. The rules use the phrase "valuable consideration" for the same idea.

That wide reading is why the questions TREC answers range from cash to cruise tickets. A discount on rent, a prepaid bank card and a holiday are all things of value, so each is tested against the same rule as a share of the fee. The one stated carve-out is a small one. Under Rule 535.20(a), as TREC quotes it, gifts of merchandise with a retail value of US$50 or less are not considered valuable consideration. Everything in the section on referrals below turns on that sentence.

Sales agents are paid through the sponsoring broker

A Texas sales agent works under a sponsoring broker, and the statute makes the broker the only door through which the agent's pay can pass. Section 1101.651(b) says a sales agent may not accept compensation for a real estate transaction from a person other than the broker who sponsors the agent, or the broker who sponsored the agent when the compensation was earned. Subsection (c) covers the other direction: a sales agent may not pay a commission to anyone except through the broker sponsoring the agent at that time.

TREC's rules add the paperwork. Rule 535.3 says a sales agent may not receive a commission or other valuable consideration except with the written consent of the sponsoring broker, or of the broker who sponsored the agent when the agent became entitled to it, and may not pay one to another person without the sponsoring broker's written consent. Rule 535.2 puts a matching duty on the broker, who must maintain policies ensuring that all compensation paid to a sponsored sales agent for regulated services is paid by, through, or with the written consent of the sponsoring broker.

In practice this produces a few plain consequences, each of which TREC confirms in its answers:

• A seller or buyer does not pay a sales agent directly. The fee goes to the broker, who pays the agent.
• A sales agent who wants to share a fee with another licence holder, or give part of it back to a client, does so through the sponsoring broker, not from a personal account.
• When an agent has moved to a new broker before a sale closes, the statute still allows the fee to come from the broker who sponsored the agent when it was earned.

The last point connects to a question TREC is asked about lapsed licences. A person whose licence is inactive or expired on the day of payment may still be paid a commission or referral fee, the regulator says, provided the licence was active when the brokerage activity took place, for example when the deal was negotiated or the referral was made. A sales agent in that position is paid through the current or the former sponsoring broker, under Rule 535.3. What matters is the status on the day the work was done, not on the day the money arrives.

When the payee is a company

Sales agents sometimes set up a corporation or a limited liability company and ask for the commission cheque to be made out to it. TREC's answer is no, for two separate reasons. First, section 1101.651(b) still applies: all commissions must pass through the sponsoring broker, so the fee cannot be paid straight to the agent's company. Second, the regulator points to section 1101.355(c) of the code: a business entity that receives compensation on behalf of a licence holder must itself be licensed as a broker. A company is not a way around the licensing rule; it is another person that needs a licence to be paid.

Ownership is treated differently from pay for brokerage work. Asked whether an unlicensed person can own a real estate company and receive all or part of a commission paid to a licensed broker, TREC says yes within limits, citing Rule 535.147(b). The owner may share in the income of the business only if the owner performs no acts that require a licence. The line runs between investing in a brokerage and doing its work: an owner who starts showing property or negotiating is no longer just an owner.

The conditions an entity must meet to obtain its own broker licence are set out in section 1101.355, which was not examined in detail for this guide.

Rebates to buyers, sellers and tenants

A rebate is the main lawful way for part of a commission to reach someone without a licence. TREC states that a licence holder who rebates a portion of a commission to a seller or a buyer does not violate the Real Estate License Act or the rules. The governing provision is Rule 535.147(d), and it draws one distinction: who the licence holder represents.

If the rebate goes to the licence holder's own client, the rule allows it. TREC quotes the rule as permitting a licence holder to rebate all or a portion of the fee or commission to the party being represented. If the rebate goes to a party the licence holder does not represent, the client must agree first. The regulator is specific about timing: the consent must be obtained before the payment is made.

Three further conditions come from TREC's guidance on advertising and from outside the licensing rules altogether.

A sales agent cannot decide alone. TREC says a sales agent needs the sponsoring broker's authorisation to offer a rebate, which follows from the rule that the agent pays nothing except through the broker.

The advertisement must match the rule. Where a licence holder who represents sellers advertises a rebate to buyers, TREC, citing Rules 535.155 and 535.147(d), says the advertisement must state that the rebate is subject to the seller's consent. If the rebate depends on a restriction, such as using a particular service provider, the advertisement has to disclose that too.

The lender may have its own view. For a licence holder who represents buyers, TREC notes that the buyer's lender may restrict rebates and that a rebate may affect the lender's assessment of the buyer's creditworthiness. The regulator suggests checking with the broker or an attorney about notifying the lender and obtaining its consent. That is a matter of the loan, not of the licensing rules, and it depends on the lender and the loan programme.

A worked example shows the mechanics. The figures are illustrative assumptions, not market data. Assume a home sells for US$400,000 and the buyer's broker is owed a fee of 2.5 per cent under a written buyer representation agreement: US$400,000 multiplied by 2.5 per cent is US$10,000. Assume the broker has agreed to rebate one fifth of that fee to the buyer. One fifth of US$10,000 is US$2,000, which leaves the brokerage US$8,000 to divide between the broker and the sales agent under their own arrangement. Because the buyer is the broker's client, Rule 535.147(d) requires no consent from the seller. If the same US$2,000 were instead offered to the buyer by the seller's broker, the seller would have to consent before it was paid, and any advertisement of the offer would have to say so.

Apartment locators follow the same pattern. TREC says a locator may rebate part of the locator's fee to a tenant with the prior consent of the person the locator represents. If the locator represents the apartment complex, the complex must consent. If the locator represents the tenant, by written agreement or other evidence, the complex's consent is not required. The regulator adds that advertising a rebate for a complex the locator knows to have a "no rebate" policy is misleading.

Attorneys who are parties are treated like any other party. A broker may rebate part of the fee to a principal who happens to be an attorney, with the client's consent first if the attorney is not the broker's client.

Referral rewards for unlicensed people: the US$50 line

One question TREC answers in this area is what can be given to a friend, a past client or a current tenant who sends business? The answer starts from the wide meaning of commission. A reward for a referral is pay for helping to bring about a transaction, and the person receiving it has no licence.

Cash is ruled out in any amount. TREC says a licence holder who offers or pays cash to an unlicensed person for referring a potential buyer or tenant is subject to disciplinary action under section 1101.652(b)(11) and (26) of the code. The person who takes the cash has a problem as well: the regulator says that person could be engaged in unlicensed brokerage, citing section 1101.351(a).

What remains is the small-gift rule. Because Rule 535.20(a) treats merchandise with a retail value of US$50 or less as something other than valuable consideration, a modest gift of goods is allowed. TREC then applies that sentence to the forms a gift usually takes.

The two kinds of card are treated differently. A card from a restaurant or a department store can only be exchanged for goods, so TREC treats it as merchandise. A card carrying a bank payment brand can be turned into cash, so it is not. The rent credit matters to apartment communities in particular: the regulator states that any amount of cash, or a credit or bonus toward rent owed, is not allowed as a reward for a referral.

Donations, prize draws and giveaways

Three promotional ideas sit close to the referral rule, and TREC has addressed each.

A donation is not a rebate. A licence holder may give part of a commission to a church or a non-profit organisation of the licence holder's choice; the regulator calls this a donation and not a rebate. Where the donation follows a referral from a member of that church, it remains acceptable as long as the member who made the referral receives nothing that may be defined as valuable consideration, from the church or from the licence holder. The gift must stay with the organisation.

A prize draw limited to people who make referrals fails twice. TREC's example is a draw for a cruise: since the cruise would be worth more than US$50, it is valuable consideration, so it cannot be offered as a reward for referring. The regulator adds that a referral drawing may be an illegal lottery under sections 47.01(7) and 47.03(5) of the Texas Penal Code, which is a matter outside the licensing law.

A general giveaway is a different thing. Where entry is not limited to those who refer business, TREC says the License Act and the rules do not prohibit it. The licence holder is still expected to confirm that the promotion is not an illegal lottery under the same Penal Code sections.

Service providers raise the reverse question: money flowing to the licence holder. TREC says an advertisement for a service provider must disclose any compensation the licence holder expects from the provider. Inspectors, under Rule 535.220(e)(3), may not pay for referrals or for a place on a preferred-provider list, and the regulator notes that the federal Real Estate Settlement Procedures Act may also restrict referral fees and kickbacks.

Brokers in other states, foreign brokers and attorneys

The second exception in section 1101.651(a) lets a Texas broker pay a real estate broker licensed in another state, on one condition: that broker must not conduct in Texas any of the negotiations for which the fee is paid. The condition fits with Rule 535.4(a), under which the License Act applies to any person acting as a broker or sales agent while physically within Texas. An out-of-state broker who refers a client and stays out of the Texas negotiations can be paid; one who comes to Texas to negotiate is doing licensed work there.

For people outside the country, TREC points to Rule 535.131(b). Its answer on cash referrals describes a narrow exception for an unlicensed person from a foreign country that does not require a licence, where that person practises as a broker there. The regulator's separate article on promotions words the same rule slightly more broadly, as covering a person from a foreign country or state that does not require a licence, provided the person follows the law of that jurisdiction. The two descriptions agree on the core: the payee must be acting lawfully as a broker at home, in a place where no licence exists to hold.

TREC's wording on discipline shows a similar small difference. One answer says section 1101.652(b)(11) allows suspension, revocation or other discipline for paying any portion of a commission or fee to anyone other than a licensed Texas broker or a broker licensed in another state. The promotions article mentions only a licensed Texas broker. The statute's own exceptions are the two set out in section 1101.651(a).

Attorneys who are not parties are treated differently. TREC says a listing broker may not share a commission with an attorney who represents the buyer or presents the buyer's offer, unless the attorney holds an active Texas real estate licence. The broker must still present the offer to the seller. The regulator describes two lawful routes instead: the listing broker may agree to reduce the commission if the seller asks, and the seller and the buyer may negotiate the attorney's compensation between themselves. Neither is a split of the broker's fee.

When a broker can sue for a commission

Being entitled to share in a commission is one question. Being able to make someone pay it is another, and section 1101.806 of the Occupations Code, headed "Liability for Payment of Compensation or Commission", sets the conditions, in the wording of the republished copy described above. Under subsection (a), the section does not apply to an agreement to share compensation among licence holders, nor to a broker's claim against another broker for interference with business relationships.

The first condition, in subsection (b), is about status. A person may not maintain an action to collect compensation for an act of a broker or sales agent performed in Texas without alleging and proving that the person was a licence holder when the act was commenced, or an attorney licensed in any state. The date that counts is the start of the work, which mirrors TREC's answer on lapsed licences.

The second, in subsection (c), is about evidence. A person may not maintain an action in Texas to recover a commission for the sale or purchase of real estate unless the promise or agreement on which the action is based, or a memorandum of it, is in writing and signed by the party against whom the action is brought, or by a person that party authorised to sign. An oral promise of a fee, however clear, does not meet it. TREC makes the same point for buyers: a buyer representation agreement must be in writing and signed by the buyer to be binding.

The third, in subsection (d), reaches further than the first two. A licence holder who fails to advise a buyer as required by section 1101.555 may not receive payment of, or recover, any commission agreed to be paid on the sale. Section 1101.555 is headed "Notice to Buyer Regarding Abstract or Title Policy". Its text was not examined for this guide, so the exact wording and timing of the notice are an open point here; what section 1101.806(d) makes plain is that the consequence of omitting it falls on the commission itself.

What the regulator does, and what it leaves to the courts

TREC enforces the licensing rules; it does not referee fee disputes. The regulator says it does not determine "procuring cause" or who is entitled to a commission, and that listing and representation agreements are private contracts whose enforcement is a matter for a private attorney.

Its power over money already paid is limited as well. Asked whether it can obtain reimbursement of commissions paid by buyers and sellers, TREC answers that generally it cannot. Citing section 1101.659, it says a refund is possible only where ordered through an informal settlement agreement or an administrative order, that the amount cannot exceed what the consumer paid for the regulated services, and that the agency cannot enforce collection.

What TREC can do is act on the licence. Paying part of a fee to someone who may not receive it is a ground for suspension or revocation under section 1101.652(b)(11). A locator who invoices an apartment complex while falsely claiming to have procured a tenant can lose the licence under section 1101.652(b)(24). And one practical point from the regulator's answers concerns failed contracts: part of the earnest money may not be held back to pay a licence holder's commission when a contract falls through, unless the parties have agreed otherwise in writing.

In Texas, a commission follows the licence: the statute names who may be paid, and the writing decides whether a court will enforce it.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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