What is a Real Estate Broker?

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Definition:

A real estate broker is a licensed professional who represents buyers and sellers of property in exchange for a commission and can manage real estate agents.

🤔 Understanding real estate brokers

Real estate brokers are professionals who represent people buying or selling property. They are involved in both commercial and residential transactions. People often hire brokers to help them find appropriate properties or buyers, advise on pricing, negotiate terms, and more. Once a property sells, the broker receives a commission, often a percentage of the selling price (for residential homes, the seller usually pays both agents). Compared to real estate agents, brokers have to complete more education and pass a broker licensing exam overseen by the state government. Agents must work for a broker, while brokers can work independently or manage a team of agents.

Example

Jerry wants to sell his house, but he’s not sure what his home is worth or how to attract a buyer. He decides to hire a real estate broker. The broker advises Jerry on how to prepare the home for sale and the listing price to choose, then helps market the home and host open houses. After an appointment with an eager buyer, the broker successfully negotiates a $200,000 price and finalizes the paperwork. Jerry sells his home for $200,000 and pays a 6% commission ($12,000), which is split between his broker and the buyer’s agent.

Takeaway

Real estate brokers are like matchmakers for people buying or selling homes…

Brokers house-hunt for prospective homeowners and find potential buyers for people selling their homes. Once they find a match, they represent you in the exchange and negotiate a favorable price. If they successfully complete the transaction, brokers charge a commission for their services.

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Tell me more…

What is a real estate broker?

A real estate broker is a professional who is licensed to represent buyers and sellers of real estate. This includes responsibilities such as:

  • Guiding clients through the buying or selling process
  • Marketing homes
  • Hunting for houses
  • Negotiating prices
  • Filing paperwork to finalize the sale

Unlike real estate agents, brokers have to pass a broker’s licensing exam. This allows them to work alone or hire agents, while agents must work for brokers. Generally speaking, brokers have more education and experience than agents. After completing a real estate transaction, brokers receive a commission (a fee that is a percentage of the sale price) for their work.

What is the difference between a real estate agent vs. broker vs. realtor?

There are lots of titles in the real estate industry. The most common are agent, broker, and realtor. These terms overlap a little, but here are the main differences:

  • Real estate agents (sometimes called real estate salespeople or sales agents) have a license to buy and sell real estate but must work under a broker.
  • Brokers are agents who have completed additional education and passed another licensing exam, which allows them to work on their own or manage a team of agents.
  • Realtors are members of the National Association of Realtors (NAR). They agree to follow the organization’s code of ethics when conducting real estate business. For example, they promise not to knowingly mislead a prospective client about the value of his or her home and can only represent both parties in a transaction with their consent.

In short, everyone licensed to help people buy and sell real estate is an agent. Some of those agents get another license and become brokers. And some of those agents and brokers choose to become members of the NAR, which gives them the title of realtor. However, some states use the terms “agent” and “broker” a bit differently, so you may want to look up the specifics in your area.

What are a broker’s responsibilities?

The responsibilities of agents and brokers differ depending on who they represent in the exchange. You can classify brokers and agents into three categories based on the role they play in a sale:

  • A seller’s agent represents the seller. They are sometimes called “listing agents,” because they list the house for sale on a public database.
  • A buyer’s agent represents the buyer.
  • A dual agent is a professional who represents both the buyer and the seller in a single transaction. Dual agency is illegal in some states.

Responsibilities of the seller's agent

A seller’s agent has duties that may include:

  • Staging the home (making the property appealing by arranging furniture and attractive decor)
  • Listing the home
  • Marketing the house by posting pictures online or creating digital tours
  • Coordinating open houses to attract buyers
  • Negotiating a price that is agreeable to the buyer and seller
  • Filling out and submitting documents required for offers and counteroffers, as well as state agencies
  • Notifying the client about important dates, such as the closing date (when ownership transfers to the buyer)
  • Working with the seller to decide what upgrades, if any, should be done before putting the house on the market.

Responsibilities of the buyer's agent

A buyer’s agent takes care of tasks such as:

  • Meeting with clients to understand their needs
  • Researching listings for properties that may interest the client
  • Informing buyers of open houses and coordinating appointments for them to visit homes
  • Explaining the positives and negatives of properties that the client is considering
  • Negotiating a price
  • Helping with paperwork

Additional responsibilities of brokers

Brokers can perform the same tasks as agents but have the option to work independently or run a real estate brokerage. If a broker chooses to manage agents, he or she may have duties like:

  • Recruiting and training agents
  • Getting errors and omissions insurance, which covers the broker and agents in case a client sues
  • Generating leads for their team
  • Assigning work
  • Making sure agents are using the best standards and practices
  • Verifying licenses

Brokers receive part of the commissions their agents make.

How are brokers paid?

Agents and brokers usually make money from commissions on a completed real estate transaction, typically a percentage of the selling price. Clients discuss the details of these commissions before signing a contract to hire an agent or broker.

Usually, the seller pays the commission for all the agents and brokers involved, but sometimes the buyer agrees to share in that responsibility. Here’s how the money usually moves:

  1. Once a house sells, the seller will give a part of the proceeds to the listing broker (the broker who sold the home). A common commission is 6% of the house’s selling price.
  2. It is then the listing broker’s responsibility to pay the buyer’s broker.

It’s common for sellers to factor in the commission when pricing their homes. In this sense, the buyer is automatically helping pay an agent’s commission when he or she buys the house.

What is the licensing requirement for brokers?

Each state has its own standards for dispensing licenses to real estate brokers and agents. You’ll have to research your state’s requirements to know the specifics.

Licensing for agents

Requirements to become a real estate agent vary by state. For example, in California, you must:

  • Be 18 years or older
  • Be a legal US resident
  • Complete an educational course
  • Pass a real estate license exam

Once you have your license, you can buy and sell real estate but must work for a broker. This is where most real estate professionals start their careers.

Licensing for brokers

To become a broker, you must acquire a higher license. The pre-licensing requirements vary from state to state. Sometimes you have to complete extra education and have experience selling and buying real estate for some time. For example, in Georgia, you must be at least 21 years old, have an active real estate agent license for at least three years, and complete a course before taking the broker exam. Once you qualify, you can take the licensing exam, pass it, and become a broker.

How to become a realtor

To become a realtor, you must become a member of the National Association of Realtors (NAR). You do this by meeting the qualifications and joining a local realtor association. To qualify, you must:

  • Hold a real estate license
  • Have no record of civil judgments in the last seven years
  • Be engaged in the real estate business
  • Explain mitigating circumstances if you’ve been convicted of certain crimes in the past seven years
  • Have no record of bankruptcy in the past three years
  • Complete an orientation course
  • Agree to abide by the NAR’s bylaws and code of ethics

Why do you need a broker?

You can sell or buy a home on your own, but there are good reasons to use an agent:

  • Buying a property will likely be one of the most expensive purchases you make in your life. The advice of an expert can help ensure you’re making the best sale or purchase possible.
  • Real estate transactions can be complicated and time-consuming. Brokers have the experience and know-how to send you properties that fit your needs and complete the sale quickly and smoothly.

A broker may not be necessary in some cases, such as buying a house from a trusted relative. You’ll need to use your judgment when deciding whether a real estate broker is right for your situation.

If you choose to hire a professional, you can choose an agent or a broker. Agents work for brokers, and brokers usually don’t deal immediately with clients.

The advantage of using brokers is that they’re more experienced than agents. They may be able to handle more complicated transactions, like short sales. The downside is that brokers may charge more and may be too busy to give you as much personal attention as agents would.

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