Do you know what a real estate broker is and how they work?
When you begin buying or selling a home, you may not realize there is any difference between a real estate agent and a broker. Sometimes, when someone refers to a real estate broker, they talk about a real estate brokerage instead of an individual.
“Real estate broker” is often used interchangeably with Realtor®, real estate agent, buyer’s broker, and seller’s broker. However, it shouldn’t be. Brokers are distinctly different.
While the differences in these distinctions might not cause significant problems ordinarily, it is something that you should know in case you have issues in your real estate transaction.
We will pull apart this industry terminology to better understand the difference between real estate brokers and agents and what they do. By the time you’re done reading, you’ll understand the definition of a broker and brokerage.
What is a Real Estate Broker?
Many people ask what a real estate broker is and how their role in real estate works.
They are a professional who must have strong skills in negotiation, contracts, and knowledge of industry regulations.
Mastering all aspect of the business is crucial being the principle in charge.
A broker in real estate has the same qualifications as an agent but can do more. They are a licensed agent and have a broker’s license. A broker is qualified to deal with transactions but can help buyers and sellers like a real estate agent.
They can be involved in the purchase and sale of properties by submitting offers or being silent in the background.
The main difference between a licensed broker and an agent is that the broker has to ensure the transaction is legal and correctly recorded. This means the broker checks all the paperwork, ensures money is correctly transferred in and out of escrow accounts, and these transactions are reported and documented.
A licensed broker can also work for themselves, something that an agent cannot. Like agents, a broker can work for a brokerage, but they can also run or own one.
According to the Bureau of Labor Statistics, the outlook for the industry is robust. The employment growth rate for brokers and agents is expected to rise by 3% until 2032.
Agents Need to Work for Brokers
Agents must work for a broker or brokerage and cannot deal with transactions themselves. They deal with clients, helping them through the transaction and ensuring this is done correctly.
Real estate agents have to be overseen by a broker. The broker the agent has chosen will have legal responsibility for dealing with any disputes the agent could get involved in.
They ensure the agent’s transactions fall within federal and state real estate laws. A significant responsibility is providing all the agents under the brokerage license to follow fair housing guidelines.
When you sign an agency or listing agreement from your agent, you will sign with the agent’s broker. So, if your agent were to leave their brokerage, you might have to work with another agent from the company since you have signed the agreement with the broker and not the agent.
What is a Real Estate Brokerage?
The definition of a brokerage is relatively straightforward.
A real estate broker is a company involved in listing and selling all kinds of property. A brokerage can be residential or commercial in nature or both. A broker owns the brokerage and employs agents to work under them.
A brokerage for real estate is typically independently owned and operated. They can be franchised or remain independent.
What Do Brokers Do?
They are similar to agents but with the added ability to operate their businesses. This means they can set up and work independently and have salespeople work for them.
Brokers will often be found working for real estate businesses, with all the agents reporting to them. While brokers can do the same job as agents, they require more licenses and training.
They also have more responsibility than agents because they must ensure transactions are lawful and the money goes where it should. They are responsible for the day-to-day operations to ensure everything runs smoothly. Their duties are enormous as they deal with multiple parties.
Favorable reviews from customers are the lifeblood of getting repeat business. Whether it is a homeowner or buyer, they strive to build a great reputation in the community.
Brokers Have Different Responsibilities
Agents have nothing to do with the transactions themselves; it is the broker’s job to move earnest deposit money into and out of escrow accounts.
They can also hire real estate agents to work for or under them in the brokerage. If there is a legal dispute, the broker might be able to offer some mediation.
When brokers decide to set up their brokerage, they are sometimes known as a broker-owner. Whether running their own business or working for somebody else, they must be licensed in the state. The broker license is on top of a real estate license for the state they work in.
The rules regarding licenses vary in different states, though they usually need to be already licensed as agents in the state they are based.
Usually, they must be at least 21 years old, not have criminal convictions, and live in the state where they are applying for their license.
Before getting their license, they will need to pass an exam. Before they take the licensing exam, they need a certain amount of education coursework. Licensure will not be granted without meeting all these requirements.
Summary of Brokerage Tasks
- Recruit real estate agents and Realtors
- Mentoring new agents
- Managing all the agents and other employees
- Provide benefits for agent retention
- Set yearly achievement goals for the brokerage
- Making the best decisions for their team
- Establish marketing plans for the company and its agents
- Provide multiple listing service (MLS) access
- Adverting of property and open houses
- Maintaining a company website
- Marking company listings in the best real estate websites
- Maintaining essential documents
- Provide training and ongoing education to agents
- Sales and rental property leasing
- Property management
- Work in the best interests of their clients and customers
Types of Brokers
There are a few different types when you are talking about a broker, and you mean a person and not a brokerage.
Principal Brokers
Sometimes also referred to as a designated or sponsoring broker, the principal is responsible for every transaction through the brokerage.
It is the job of the principal to make sure that all of the agents are following the state laws. They have to ensure there isn’t any fraud being committed, with all the transactions complying with relevant legal and financial rules.
The principal broker’s job is to ensure that people working for the company stay on the right side of the law. For this reason, every brokerage has to have a principal working for them.
They are not only responsible for agents but staff as well.
Managing Brokers
The managing broker manages the everyday activities of the firm. This type of broker will have less to do with dealing with transactions and more with managing agents.
It might be their responsibility to ensure all of the agents are licensed and deal with any issues related to that. They are likely to manage training and continued education opportunities. They might also mentor new agents when they join the brokerage.
It is more common in smaller agencies for principal brokers to also have the responsibility of a managing broker.
Associate Brokers
In larger, busier brokerages, the principal broker might hire an associate broker to help deal with the level of transactions the company is dealing with.
Associated brokers typically operate as independent contractors, but this doesn’t mean they can work with multiple agencies simultaneously, which could cause a conflict of interest.
This type can also be known as an affiliate, associate, or broker salesperson.
Comparing Brokers to Other Professionals
Brokers and Realtors
A Realtor® could be either a real estate agent or a broker. Realtors are licensed real estate salespersons who are members of the National Association of Realtors.
The NAR is the largest trade association in the United States. When becoming a Realtor®, you agree to follow the code of ethics and pay their membership fees.
The code of ethics is a higher level of business standards of practice placed on real estate salespersons. Whether you are representing home buyers or sellers, a Realtor® must be aware of following the code.
The real estate brokerage pays commissions to Realtors.
Brokers vs. Real Estate Agents
Typically, agents are independent contractors and not employed by the brokerage. The transactions they are involved in must always be overseen by a broker.
What is a Transaction Broker?
A transaction broker should not be confused with a brokerage owner. They are agents who do not represent a specific party in property transactions.
To save money on a deal, you might consider hiring a transaction broker instead of a traditional agent. Transaction brokers can be valuable when a specific buyer’s or seller’s agent is unnecessary.
The most significant difference between a transaction broker and a traditional agent is they usually charge a flat fee instead of a commission. The lower cost could save potential clients a considerable amount of money.
On the other hand, selling and listing agents do a significant amount of work on their side of the transaction. Most people find what they pay to be more than worth it.
How Agents and Brokers are Paid
Both brokers and agents earn money from commissions paid when a home is sold. While you might expect that the 5 or 6% commission of the sale price paid at closing goes to the agent, it isn’t that simple. Compensation is more complex.
Typically, half of the commission will go to the agency working for the buyer, with the other half going to the brokerage working for the seller. The broker will then split that commission with the real estate agent involved.
The commission percentage could be a 50/50 split, but it could be 60/40 or even 80/20, depending on the agreement between the broker and the real estate agent. Generally, newer agents won’t get such good splits, however. More experienced and successful agents will likely get better splits with their company.
Broker Commissions Are Usually Split
For example, if you sell your home for $300,000 and have arranged a 5% commission from your agent, you would pay $15,000. Half of this fee will go to the listing broker and the other half to the buyer’s brokerage.
This leaves the agent who worked with you a share of the $7,500 given to their broker. If the agent has a 60/40 split, they will receive $4,500.
However, this isn’t all profit for the agent. They have many expenses for running their business, including office space, stationery, advertising, travel, licensing fees, insurance, and more. The real estate agent will also only be paid when they sell a home. So, if real estate associates are thin on the ground, they could go between paychecks for an uncomfortably long time.
Brokers have the potential to earn more than real estate agents, as they can have multiple agents working under them. They can also deal with clients as an agent does. This means that they could earn a 2.5% commission for their side of the transaction.
Owners of companies can also earn money outside of commission payments. They can charge agents they have hired monthly fees for administration and other services.
What is a Flat Fee Brokerage?
A flat-fee real estate brokerage is different from a traditional broker. Most flat-fee real estate brokerages will not charge a standard commission. Instead, you will pay a flat fee.
Most of these companies will list your home in the multiple listing service and will do little else.
There are significant downsides to this form of sales. Home sellers do not get the typical marketing and agent services that are necessary to have a quick and efficient sale.
See all the things a Realtor does for home buyers and sellers.
What is a Discount Brokerage?
A discount brokerage in real estate reduces their commission fees. They will typically charge less than what the going rate is for the local area.
For example, if most brokerages charge a 5% commission to sell a home, a discount company will agree to do it for less. It is essential to understand what you are getting for your money.
While these companies are offering a lower commission, will they be offering the same services? Make sure you find out. The fees may be less at discount agencies, but that doesn’t necessarily translate into putting more money in your pocket.
Broker Salary
A broker in real estate will be paid a commission, but they can also take a salary. The salary can vary tremendously.
Much of a real estate broker’s compensation will be dependent on the market share of the company, the price range of the houses, the average commission rate being charged, and the commission splits with the agents they employ.
The current housing market can also influence compensation. For example, when mortgage rates rise there are typically fewer deals.
A real estate broker can determine their yearly salary based on these criteria. People ask all the time how much real estate agents make. What a real estate broker makes will vary from an agent when they are a franchise owner.
How to Become a Broker
If a real estate career sounds appealing, you can become a real estate broker or work for a firm as an agent. A prospective agent would first need to get licensed by taking courses and passing the educational requirements to become a licensed agent.
With several years under your belt working for a real estate agency, you can then try to become a broker. Depending on the state in which you would like to get your brokerage license, you’ll need one to three years working for a real estate firm as an agent.
You don’t necessarily need to own a business to become a broker. You may want to have your real estate broker’s license and use it in the future.
What Should You Know About Hiring a Broker
When dealing with brokerages, you usually won’t have anything to do with the broker directly. You will be dealing with a real estate agent and not their broker. It isn’t even that likely that you will ever meet the broker overseeing the transaction unless there is a problem.
The real estate agent will deal with most of the things you need from the company, so you don’t need to worry about hiring or dealing with them. However, when relationships go wrong with your real estate agent, and you want to fire them, it’s best to speak to the broker in charge.
Real Estate Brokerage Near Me
When it comes time to hire a broker for real estate, you can ask family and friends for references. If they cannot offer any help, you can try a Google search to find a broker in real estate. A real real estate broker near me should provide some helpful choices to research. Real Estate brokerages near me should also work.
Keep in mind you will need to do some research from there. There will be different skill levels of the salespeople working within a firm. It will be in your best interest to conduct thorough interviews with multiple agents.
Whether you need a listing agent or a buyer’s agent, it is worthwhile to do your due diligence. Those with years of experience in the industry are often your best bet.
Examples of Realty Brokerages
Here are some examples of the most recognizable brokerages for real estate in the United States. These are the most prominent franchises.
- RE/MAX
- Century-21
- Coldwell Banker
- Keller Williams
- Redfin
- eXp Realty
- Exit Realty
- Realty Executives
- ERA Realty
- Berkshire Hathaway Home Services
- Weichert Realtors
Statistics You Should Know in The Housing Market
Final Thoughts
It would help if you now had a firm understanding of what a real estate broker is and what they do. Owning your real estate brokerage comes with great responsibility. A real estate broker oversees numerous other agents’ day-to-day involvement with real estate sales.
It is a lucrative job in real estate with numerous responsibilities, including compliance from all their employees.
About the Author: The above Real Estate information on what is a real estate broker was provided by Bill Gassett, a Nationally recognized leader in his field. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 37+ years.
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