What Is a Broker?
A broker is a middleman, or matchmaker, who connects a buyer and a seller. In real estate, a broker’s job is to match homebuyers and home sellers, while being paid a commission for their service. Real estate brokers are different than real estate agents, however. The requirements for brokers, such as licensing and education, are more robust than for agents. Agents must work under a broker, while a broker can work independently or manage a team of agents.
What Does a Broker Do?
Real estate brokers can represent either the buyer or seller of a property, and sometimes both. These properties are usually residential properties, but can also be commercial—such as office buildings and retail space. They get paid a commission—a percentage of the sale price. Broadly, brokers are meant to make the buying or selling of real estate easier. Some of the things brokers do include:
Marketing the property
Finding homes or properties for the buyer
Real Estate Broker vs. Real Estate Agent
Real estate agents are licensed to buy and sell real estate, yet they have to work under a broker. A real estate broker requires additional licensing beyond what agents receive, which also allows them to manage said agents. Further, a Realtor is an agent or broker that is also a member of the National Association of Realtors (NAR). Being a member of the NAR means agents must adhere to specific codes of ethics.
Brokers can do everything that agents can in terms of buying and selling real estate. Brokers who manage real estate agents also generally collect part of the commission the agents make. In some states, such as Colorado, anyone with a license to buy or sell real estate is considered a broker; however, to manage other “brokers” or agents still requires a higher license. Managing other agents means a broker has similar job characteristics as a business owner, such as recruiting and hiring, verifying credentials, maintaining insurance, and helping generate leads.
Real Estate Broker vs. Mortgage Broker
Real estate brokers connect buyers and sellers of properties, while mortgage brokers are licensed professionals who connect borrowers and lenders. A mortgage broker operates independently of a bank or financial institution.
Mortgage brokers don’t fund loans, but are matchmakers for borrowers and banks, helping borrowers find loans they qualify for. Mortgage brokers are paid a commission, which is a percentage of the loan amount—usually 1% to 2%. The fee is paid by either the lender or the borrower. So while a real estate broker helps a buyer find a property, a mortgage broker helps a buyer find a loan.
Requirements for real estate agents and brokers vary by state. However, there are a few general requirements that are fairly universal, including being at least 18 years old and a resident of the U.S., as well as meeting any pre-license requirements for the state you’re looking to become an agent in, and then passing the real estate license test for that state.
To become a broker, an individual must first be a licensed agent. They will usually then be required to attend a course (e.g. 60 hours) and sit for an exam. Specific work experience varies by state. Both an agent and broker have continuing education requirements. As well, many states have some sort of license reciprocity agreement.
States that are considered cooperative allow licensed brokers from other states to physically do business in their state. There are 24 such states, including Colorado and Washington. Meanwhile, some states allow other brokers to conduct online business, but bar them from physically doing business in the state. Such states are considered physical location states, and there are 21 of them, including Florida.
Then there are no turf states that will not allow brokers from other states to do any sort of business in their state. There are six such states—Kentucky, Missouri, Nebraska, New Jersey, Pennsylvania, and Utah.
To learn more about each state’s requirements, click here.
Real Estate Broker Responsibilities
A broker isn’t required to buy or sell a home, but they can help when it comes to handling all the details. Brokers, who can represent the buyer or the seller (or both), must act in the best interest of their client.
A seller’s agent is a real estate broker or agent representing the seller. They are also known as the listing agent. The duties of a seller’s agent can include staging the home, listing it, actively marketing it, and conducting walkthroughs and open houses. The agent will also handle negotiations with buyers.
A buyer’s agent represents the buyer of a property, and they will handle many aspects of the buying process, which can include researching listings, setting up house showings, and negotiating prices.
There are a couple of other types of agents, notably dual and transaction agents. Dual agents represent both the buyer and seller of a transaction. However, dual agency is illegal in eight states—Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont.
Meanwhile, a transaction broker doesn’t represent the buyer or the seller, merely acting as a third party. Transaction brokers will handle certain functions, such as filing documents or offering information to both parties.
How Are Real Estate Brokers Paid
Real estate brokers are paid a commission, which is usually a percentage of the sale price. Generally, the seller pays the agent’s commission. The exact percentage can be negotiated. The agreed upon fee is then put down in a contract and signed, marking the official hiring of a broker or agent.
The fees paid to brokers are generally factored into the sale price of the home. Thus, although relatively unspoken, the buyer is indirectly helping pay for the broker fees because the home price has been elevated to account for them.
The broker’s fee is paid once the home is sold, where the seller will take part of the proceeds, generally 6%, and pay the broker. The selling broker will then pay the buyer’s broker or agent. As well, the selling broker will pay their own agent (the seller’s agent) if there was one.
Advantages of a Real Estate Broker
While buying or selling a house without a broker is possible, there are advantages to using one. On the buying side, a mortgage is the largest debt that most individuals will ever have, and their house will be their largest asset, which will also likely be a key part of their retirement plan. Brokers help ensure buyers get what they want and for a reasonable price, and ideally quicker and more efficiently than what could be achieved on one’s own.
On the sale side, brokers may help get properties greater exposure, meaning a faster sale and generally for a higher price. Brokers can also help handle the nuisances that make real estate transactions time consuming, such as searching for or marketing properties, setting up viewings, and negotiating a purchase price.
The major disadvantage to hiring a broker is having to pay the commission, while also being on their schedule when it comes to getting certain things done. Still, it’s a tradeoff of whether your time and hassle is worth it. Lastly, there are a few instances when a broker truly might not be needed, such as when purchasing from a trusted friend or relative.