If you are planning to purchase a house, you might feel overwhelmed by the number of new words and phrases you encounter. It is common for people to use the terms "broker," "agent," and "realtor" interchangeably without understanding the difference between various real estate professionals and the services they offer.

This article aims to clarify the industry jargon and distinguish between a real estate agent and a real estate broker. Although the difference between a broker and an agent may not be relevant to most buyers and sellers in regular real estate transactions, it is still essential to know in case any questions or complications arise during your transaction.

 

What Is A Real Estate Broker?

 

When buying or selling a house, you typically work with a real estate agent or broker. However, it is essential to note that all real estate brokers start their careers as licensed agents. This means that brokers and agents are legally qualified to assist you with the process. Real estate brokers have a higher level of expertise that can be helpful in real estate transactions. Like agents, they are qualified to help you buy or sell property.

Real estate transactions require strict adherence to legal requirements and ethical standards. Brokers, who have earned their licenses, oversee these transactions conducted by agents. They ensure that the transactions are lawful, all paperwork is correct and complete, and all monetary transactions, such as funds in escrow accounts, are recorded and reported correctly. 

In other words, brokers are an umbrella covering individual real estate agents. The agents handle clients, listings, and sales, while the broker ensures all transactions are legally compliant. It is important to note that all real estate agents must work for a broker responsible for their supervision and guidance.

When your agent presents a listing agreement, you must understand that you're not directly signing a contract with the agent but with their broker instead. This also applies to agency agreements if you're on the buyer's side. It's not usually a cause for concern. Still, suppose your agent leaves the brokerage before your agreement expires. In that case, you may be legally bound to work with another agent from the same brokerage firm until the agreement ends.

 

What Does A Real Estate Broker Do?

 

Real estate can be visualized as a ladder, where each rung represents a different level of licensing. At the bottom rungs, you have home buyers and sellers; in the middle, you have agents; and at the top, you have brokers. While agents can market a home, write a contract, and represent a buyer or seller, brokers have added responsibilities such as managing agents and, therefore, require a broker's license.

There are some differences between a real estate agent and a broker, mainly in what they are authorized to do.

• A broker can transfer funds into or out of an escrow account.
• A broker plays a crucial role in resolving a legal dispute by acting as a mediator.
• Brokers can employ agents to work for them.

 

How Does One Become A Real Estate Agent Or Broker?

 

Becoming a broker in the real estate industry does not necessarily require working for a firm. A person can also choose to own their own brokerage, in which case they would be referred to as the broker-owner. Regardless, a broker must be licensed in the state where they work and hold a real estate agent or salesperson license.

The licensing requirements for brokers vary by state. Typically, a person must hold a licensed agent position for a certain amount of time, be at least 21 years of age, and be a resident of the state where they are applying for a brokerage license.

In addition to these requirements, there is also an educational component. A broker must complete at least hours of broker education, pass a state licensing exam, and have a clean criminal record. These requirements, however, may vary by state.

 

Various Types Of Real Estate Brokers

 

There are three types of brokers when referring to an actual person rather than a brokerage firm: 
associate, managing, and principal/designated.

 

Principal/Designated Broker

 

A real estate brokerage typically has a principal broker who oversees all the operations and transactions of the firm. The principal broker ensures that all agents comply with the state's real estate laws, that all transactions are financially and legally sound, and that no fraudulent activities occur. The principal broker plays a crucial role in maintaining the integrity and reputation of the brokerage firm.

Every real estate brokerage must always have a principal broker in their office due to the legal implications involved in transactions.

 

Managing Broker

 

A managing broker is responsible for the day-to-day operations of a real estate brokerage. Unlike a principal broker who focuses on transactions, the managing broker handles more of the HR functions.

This includes taking licensing issues of agents within the brokerage, onboarding, training, and mentoring new agents, and facilitating continuing education opportunities for all agents. Think of them as the backbone of the brokerage, who ensure that everything runs smoothly and efficiently.

Sometimes, the principal or designated brokers may also serve as managing brokers. However, this is only sometimes the case.

 

Associate Broker

 

The principal broker may hire salespersons and associate brokers to assist with the workload in more prominent real estate brokerages. These individuals can act as the broker's agent when conducting real estate transactions. An associate broker is typically referred to as a broker associate, broker-salesperson, or affiliate broker.

While working as independent contractors, associate brokers are limited to working with only one broker/brokerage. They cannot be employed by anyone else.

 

Differences Between Real Estate Agent Vs. Broker Vs. Realtor

 

All three terms refer to licensed real estate brokers who assist home buyers and sellers.

In every state, a real estate agent must work under a licensed broker's supervision. The broker takes legal responsibility for the agent in case of any disputes and helps ensure that real estate transactions comply with state and federal laws and all relevant ethical standards.

 

Broker Vs. Real Estate Agent

 

A broker is responsible for ensuring that all real estate transactions are legal, whether they work for a brokerage or independently. They must ensure that all paperwork is accurate and complete and that all monies, such as those in escrow accounts, are appropriately recorded and reported. In contrast, an agent has a different level of responsibility than a broker but works under their supervision.

Real estate agents are typically freelancers rather than employees. However, they are still subject to the supervision of a licensed broker by the laws of their state. Their compensation is primarily derived from real estate commissions paid to them by brokers.

The commission split between a real estate agent and their broker is not fixed and varies from brokerage to brokerage. It can be 50/50 or any other combination, such as 70/30, 80/20, etc. 

The commission split depends on the brokerage and the agent. High-volume agents may have a lower commission split. In contrast, newer and inexperienced agents may have a higher commission split in the first few years.

 

Broker Vs. Realtor

 

It's important to note that having the Realtor distinction doesn't necessarily mean someone is a broker. Realtor is a professional designation that doesn't carry any legal implications. Therefore, both brokers and agents can be Realtors. Any agent licensed by the state can become a Realtor by paying their annual dues and agreeing to follow the National Association of Realtor's code of conduct.

Joining the National Association of Realtors (NAR) allows agents and brokers to pursue advanced designations and certifications. For instance, if an agent wants to inform potential home buyers that they are skilled in ensuring their services are inclusive of diverse families, they can obtain NAR's At Home With Diversity certification.