Illinois Real Estate Regulation: Commissions, Fees & Taxes

Instructor: Kyle Aken

Kyle is a journalist and marketer that has taught writing to a number of different children and adults after graduating from college with a degree in Journalism. He has a passion for not just the written word, but for finding the universal truths of the world.

This lesson discusses the different Illinois laws and rules for regulating real estate practice with regards to commissions, fees and taxes. This includes transfer tax stamps to the affordable housing program, even real estate tax exemptions.

Regulations & Proclamations

Real estate ventures, whether from the buyer or seller side, come with a lot of different rules and nuances. New sellers need to be especially informed about legislation as well as payment issues and circumstances.

When it comes to Illinois real estate regulations, new agents must be made aware of any commission, fees, or taxes . One of the most critical areas of real estate is the handling of funds of others, from using special accounts to using security deposits.

Furthermore, in Illinois, one of the largest taxes that everyone must pay is real estate tax. However, the state has developed transfer tax stamps, affordable housing credits, and real estate tax exemptions to help homeowners, renters, and those on a lease.

Commission and Compensation

Jack is a new real estate agent operating in Illinois. Like many in his position, he has questions about what constitutes compensation in real estate. Most of these questions can be answered using the provisions in Article 10 of the Illinois Real Estate License Act from 2000. Compensation can be anything that has value: commissions, cash, prizes, bonuses, coupons, merchandise, gift cards, or rebates. There are some fees to consider when it comes to finding renters and earning a commission:

1. Finder's fee or referral fee, which is an amount that a licensed realtor receives from another licensed realtor or brokerage for a real estate referral.

2. Rental finding services, like craigslist, can be used for advertising only with the written consent of the owner or the agent of each unit under the Illinois law for real estate licensees for a fee.

Handling of Monies

Handling of monies (promissory notes or any other kind of legal tender or financial consideration that is given to any person) is considered escrow funds if it benefits the parties of the transaction. Once an agreement is reached and accepted, a transaction exists, and a real estate contract or lease can be signed by the parties. There are a few exceptions regarding escrow money:

1. Special accounts or custodial accounts that hold money for transmittal to a licensee's client will not be considered escrow, even if the money is collected pursuant to the terms of a written agreement.

2. Security deposits are usually included in escrow money, except when the security deposit is held by the sole owner of the property being leased and it is for that property that the money is being held.

3. Rent and other monies are not considered escrow if there is a written agreement, like a property management agreement, that exists between the client and licensee.

Jack needs to learn how to properly handle the monies and exchanges of buyers in order to avoid fines, penalties, and even criminal persecution.

Transfer Tax Stamps

In Illinois, there are many types of transactions in which the Real Estate Transfer Tax applies and to which transactions are exempt from the it. As a real estate agent working on commission, Jack can use tax exemption knowledge greatly to his advantage.

According to Section 31-25 of the Illinois Act, the rate is 50 cents for each $500 of value. However, if the transfer document states the transfer is subject to a mortgage, the outstanding balance on the mortgage at the time of transfer is not included in the tax calculation. When a transfer is made by one or more transaction or involves one or more people (or entities), the tax is due. By selling revenue stamps, the recorder of the county where the property is situated can collect the tax.

Affordable Housing Tax Credit

To encourage private investment in affordable housing in Illinois, the Affordable Housing Tax Credit provides donors with a one-time tax credit on their income tax that is equal to fifty percent of the value of the donation. In fact, the donor can even choose to transfer the credits to the project, which means extra project financing using the system of tax credits.

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