Rachel Burris6-Minute Read
UPDATED: December 14, 2022
When you’re selling a house, your ultimate goal is to get the most dollars possible out of it. On the other hand, when you’re planning to buy you’ll want a property that both suits your needs and is within your budget. Because you may have different goals when it comes to buying versus selling, it’s important to seek the expertise of a real estate professional. But do you enlist the help of a real estate broker, an agent or a REALTOR®? What’s the difference between them?
It’s common to confuse these three different titles as people tend to use them interchangeably. However, there are nuanced distinctions among each type of real estate professional that are important to understand before you buy or sell your home.
So what exactly is a broker in real estate? Let’s take a closer look at what a real estate broker does and how their job differs from that of a real estate agent and a REALTOR®.
A real estate broker is an agent who has passed their broker license exam. The most significant difference between a real estate agent and broker is that a broker has the ability to manage their own firm, unlike real estate agents, who need to first gain experience working under a broker. That means that real estate brokers can either work independently or hire other real estate agents to work for them.
For agents to become real estate brokers, they must take additional training courses and pass a broker licensing exam after having worked as an agent for a certain number of years.
Again, the exact requirements vary by state. In New York, you have to achieve 45 hours of courses and have 2 years of experience, whereas in Michigan you need to complete 90 hours of courses and have 3 years of experience. And in California, an agent needs to finish at least 360 hours of courses and have 2 years of experience.
Like real estate agents, brokers must also take continuing education courses every couple of years to renew their broker’s licenses.
Real estate brokers are paid a commission just like real estate agents. The only difference is how much of that commission they get to keep at the end of the transaction.
Brokers who work independently receive 3% of the typical 6% commission because they do not work for anyone with whom they’d have to share it. Brokers who work for a brokerage firm get a cut that’s dependent on the agreement they’ve made with their agency.
There are three main types of real estate brokers, each with their own unique set of job responsibilities.
A managing broker spends the bulk of their time overseeing the day-to-day operations of a brokerage firm. That can include everything from training new agents to handling licensing issues within the firm to carrying out traditional human resources tasks.
The principal broker, also sometimes referred to as a designated broker, is the main broker responsible for the transactional aspects of the firm. The principal broker’s job responsibilities include overseeing all transactions to ensure they are legally compliant with state laws.
Every brokerage firm has one designated principal broker. In some cases, the managing broker and principal broker may be the same person.
An associate broker is a licensed broker who works under the supervision of another broker (typically the principal broker). They perform typical broker tasks, but do not supervise other agents within the firm.
A real estate agent is a more general term that is used to describe any licensed professional who helps individuals in buying, selling or renting real estate.
Real estate agents are more formally referred to as real estate salespeople to properly distinguish them from real estate brokers.
In order to become licensed, a real estate agent must first take real estate courses. The number of hours of coursework that potential real estate agents must complete varies dramatically by state – from 75 hours in New York to 40 hours in Michigan to 135 hours in California.
After they’ve completed their training courses, real estate agents must pass a licensing exam that is administered by their state. The exam tests their understanding of real estate practices, federal real estate laws and local laws to ensure that all agents have the knowledge and skills necessary to complete industry transactions.
Once real estate agents receive their license, they must find a sponsoring broker or brokerage firm to work for. After doing so, all real estate agents must take continuing education courses every couple of years to maintain their licenses.
Like real estate brokers and REALTORS®, real estate agents are paid a commission for their service. A real estate commission is the price the buyer or seller pays to work with a real estate agent or a REALTOR®. The commission is a percentage of the home’s purchase price, which is agreed upon prior to closing and taken out of the money that the seller receives after closing.
A typical commission is 6% of the purchase price, but an individual real estate agent ordinarily walks away with about 1.5%. The reason for this lower percentage is that the commission is first split between the real estate professional representing the seller and the one representing the buyer. Then, the commission is split again between the real estate agent and the broker or brokerage firm the agent works for.
So, if you sell your home for $300,000, you may be paying out $18,000 in commissions, but the real estate agent you worked with will only be receiving $4,500.
A REALTOR® can be either a real estate agent or real estate broker. The only difference between REALTORS® and real estate agents and brokers is that REALTORS® are members of the National Association of REALTORS® (NAR). To become members, they must agree to conduct themselves and their business according to the NAR’s code of ethics.
By becoming a REALTOR®, agents and brokers receive discounts and educational resources that are intended to help them improve their practices and increase their earnings.
REALTORS® must take the same courses and pass the same exams as all other agents or brokers in their state. However, to be a member of the NAR, they must also pay the association $150 in annual dues.
Beyond managing and overseeing a real estate brokerage, brokers can fulfill a number of roles associated with any real estate transaction. Here are a few to familiarize yourself with.
When it comes to deciding which type of real estate professional to work with, you really can’t go wrong. While some real estate professionals are better than others, real estate brokers, agents and REALTORS® all have the knowledge and skills needed to help you through each step of the real estate process.
If you’re looking to buy a house with a real estate professional, Rocket Homes℠ can help you find one. All of our agents are highly rated and experienced, so you can rest assured you’ll receive the best service possible.
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