A real estate broker works as 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.
A real estate broker is different from a real estate agent, however. The requirements for brokers, such as licensing and education, are more robust than for real estate agents. A real estate agent must work under a broker, while a broker can work independently or manage a team of real estate agents.
Let’s take a closer look at the role real estate brokers play in real estate transactions.
What Does a Real Estate Broker Do?
So what is a real estate broker? 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.
Real estate brokers get paid a commission, or a percentage of the sale price. Broadly, brokers are meant to make the buying or selling of real estate easier.
Some of the roles a broker performs include:
- Analyze local real estate market trends and property values
- Consult with clients on buying, selling, or renting property
- Create and manage property listings
- Develop marketing strategies to promote properties
- Arrange and conduct property showings
- Negotiate the real estate deal between buyers and sellers
- Handle legal and contractual paperwork
- Stay informed about market regulations and changes
- Build a network of real estate professionals
- Assist clients with financing and closing costs
- Coordinate property inspections and appraisals
- Oversee the entire real estate transaction process
- Act as a client advocate
- Continuously update real estate industry knowledge
- Prioritize clients’ interests as a fiduciary
- Offer insights into investment opportunities and strategies
Types of Real Estate Brokers
Real estate brokers can fall into three distinct roles (associate brokers, managing brokers, and principal or designated brokers), each with its own set of responsibilities:
- Associate broker: These real estate professionals hold broker licenses but opt to work under the supervision of another broker, typically without directly overseeing other real estate agents. The primary role of an associate broker is to engage in real estate transactions.
- Managing broker: Responsible for the day-to-day operations of a real estate office, a managing broker takes on tasks such as licensed real estate agent recruitment, training, and overseeing administrative staff. A managing broker takes charge of various licensing matters, including mentoring new real estate agents, organizing ongoing educational opportunities, and onboarding for the real estate brokerage’s agents.
- Principal or designated broker: Known as either a principal broker or designated broker, these brokers take on a leadership role by supervising real estate agents to ensure compliance with state and national real estate laws. Real estate offices have one designated broker who holds the ultimate responsibility for maintaining legal and ethical standards within the real estate brokerage.
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 a real estate agent receives, which also allows them to manage said agents.
Further, a Realtor is a licensed real estate agent or broker who is also a member of the National Association of Realtors (NAR). Being a member of the NAR means real estate agents must adhere to specific codes of ethics.
A licensed real estate broker can do everything a real estate agent can in terms of buying and selling real estate. Brokers who manage real estate agents also generally collect part of the commission the real estate 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 real estate 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 real estate professionals who connect borrowers and lenders. A mortgage broker operates independently of a bank or financial institution.
Mortgage brokers don’t fund loans, but act as 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.
Pros of Working With a Broker
Working with a real estate broker offers several advantages, including:
- Market expertise: Brokers have in-depth knowledge of local real estate markets, helping you make informed decisions.
- Access to listings: Brokers have access to a wide range of property listings, including off-market opportunities.
- Negotiation skills: They can skillfully negotiate on your behalf to secure the best terms and price.
- Time savings: Brokers handle time-consuming tasks like property searches and paperwork, saving you time.
- Network: Brokers have a network of real estate industry contacts, such as inspectors, appraisers, and lenders.
- Legal guidance: Brokers ensure all contracts and real estate transactions comply with legal requirements.
- Fiduciary duty: Brokers have a legal obligation to prioritize your interests.
- Peace of mind: Their expertise reduces the risk of costly mistakes in real estate transactions.
- Property insights: Brokers provide insights into property values and investment potential.
- Customized service: They tailor their services to your specific needs and preferences.
Cons of Working With a Broker
While working with a real estate broker can be beneficial, there are also some potential drawbacks to consider:
- Fees and commissions: Brokers typically charge a commission, which can reduce your overall profit when selling a property or increase costs when buying.
- Limited control: You may have less control over certain aspects of the real estate transaction, as brokers make decisions on your behalf.
- Conflict of interest: Brokers may prioritize properties with higher commissions or not fully disclose potential conflicts of interest.
- Pressure to buy/sell: Brokers may push you to make decisions quickly, potentially leading to rushed choices.
- Costly mistakes: While brokers aim to reduce errors, they can make mistakes that affect your real estate transaction.
How Are Real Estate Brokers Paid?
How do real estate brokers earn money? 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. The selling broker will also pay their own real estate agent (the seller’s agent) if there were one.
Requirements to Become a Broker
Requirements for real estate agents and brokers vary by state. However, there are a few general requirements that are fairly universal. These include 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 a real estate 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. This license is known as a broker license or brokerage license. 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 a licensed real estate agent and broker have continuing education requirements. Many states also have some sort of broker license reciprocity agreement.
States that are considered cooperative allow licensed brokers from other states to physically do real estate 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
- Utah
How to Find a Real Estate Broker
Finding the right real estate broker is a crucial step in your property buying or selling journey. Here are steps to help you locate a reputable and suitable broker:
- Define your needs: Determine your specific real estate goals and requirements. Are you buying, selling, or renting? Do you need a specialized broker, such as a commercial or luxury property expert?
- Ask for recommendations: Seek recommendations from friends, family, or colleagues who have had positive experiences with brokers in your area. Their insights can be valuable.
- Online research: Utilize online resources and real estate websites to identify potential brokers in your target area. Read reviews, check their credentials, and browse their listings.
- Interview multiple brokers: Meet with multiple brokers to assess their expertise, communication skills, and understanding of your needs. Ask about their experience, recent transactions, and approach to client service.
- Check credentials: Verify the broker’s credentials, including their licensing and any professional affiliations. Ensure they are in good standing with relevant regulatory bodies.
- Request references: Ask for references from past clients, and contact them to inquire about their experiences working with the broker.
- Discuss fees: Inquire about the broker’s commission structure and any additional fees on real estate transactions. Be clear on how and when they will be compensated.
- Review contracts carefully: Before signing any agreements, carefully review the contract terms and ensure you understand the scope of services provided.
Related: Newbie Agent 101: How to Choose a Real Estate Brokerage
Finding the right broker takes time and research, but it’s a crucial step to ensure successful, smooth real estate transactions.
Conclusion
So what is a real estate broker? A real estate broker is a seasoned professional who serves as the bridge between buyers and sellers in the complex world of real estate. They bring market expertise, negotiation skills, and valuable insights to the table, making them indispensable for anyone looking to buy or sell property.
Whether you’re a first-time homebuyer or a seasoned investor, a real estate broker’s guidance can prove invaluable in achieving your real estate goals. Their knowledge, network, and fiduciary duty to prioritize your interests make them essential partners in navigating the ever-changing real estate landscape.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
