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A real estate broker or real estate agent is a person who acts as an intermediary between sellers and buyers of real estate/real property and attempts to find sellers who wish to sell and buyers who wish to buy. In the United States, the relationship was originally established by reference to the English common law of agency, with the broker having a fiduciary relationship with his clients.
An estate agent being used as a term in the United Kingdom means a person or organization whose business is to market real estate on behalf of clients, but there are significant differences between the actions and liabilities of brokers and estate agents in each country. Beyond the United States, other countries take markedly different approaches to the marketing and selling of real property.
In the United States, however, real estate brokers and their salespersons (commonly called "real estate agents" or, in some states, "brokers") assist sellers in marketing their property and selling it for the highest possible price under the best terms.
When acting as a buyer's agent with a signed agreement (or, in many cases, verbal agreement, although a broker may not be legally entitled to his commission unless the agreement is in writing), they assist buyers by helping them purchase property for the lowest possible price under the best terms. The real estate broker is obligated to provide fiduciary duties to whomever that broker services as a client, and this agency relationship can become very confusing.
If the broker is helping both the buyer and the seller, this is referred to as a "dual agency." Traditionally, the broker represents the seller, and his fiduciary duty is to the seller. If the broker suggests to the buyer that he will help the buyer negotiate the best price, the broker is practicing "undisclosed dual agency," which is unethical and illegal in all states. Under a dual agency transaction, it is vital that the broker disclose to both parties whom he represents as a client and whom he represents as a customer. A real estate broker owes his client fiduciary duties, which include care, confidentiality, loyalty, obedience, accounting, and disclosure. To protect his license to practice, a real estate broker owes his customer fair and honest dealing and must request that both parties (seller and buyer) sign a dual agency agreement.
In most jurisdictions in the United States, a person must have a license before they may receive remuneration for services rendered as a real estate broker. Unlicensed activity is illegal, but buyers and sellers acting as principals in the sale or purchase of real estate are usually not required to be licensed. In some states, lawyers are authorized to handle real estate sales for compensation without being licensed as brokers or agents.
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Before the Multiple Listing Service (MLS) was introduced in 1967, when brokers (and their licensees) only represented sellers, the term "real estate salesperson" may have been more appropriate than it is today, given the various ways that brokers and licensees now help buyers through the process rather than merely "selling" them a property. Legally, however, the term "salesperson" is still used in many states to describe a real estate licensee.
To become licensed, most states require that an applicant take a minimum number of classes before taking the state licensing exam. Such education is often provided by real estate brokerages, to maintain a supply of new agents.
In many states, the real estate licensee (acting as an agent of a broker) must disclose to prospective buyers and sellers who represents whom. See below for a broker/licensee relationship to sellers and their relationship to buyers.
While some people may refer to any licensed real estate agent as a real estate broker, a licensed real estate agent is a professional who has obtained a real estate broker's license. The licensee is one who has obtained a real estate license and is employed by a real estate broker. Often, licensees refer to themselves as an "agents", but the true agent is the broker, and the licensee is a representative of the broker, often referred to as the real estate "salesperson." A real estate broker who works for another broker is sometimes referred to as a junior broker.
In the United States, there are commonly two levels of real estate professionals licensed by the individual states but not by the federal government:
When a person first becomes licensed to become a real estate agent, they obtain a real estate salesperson's license (some states use the term "broker") from the state in which he will practice. To obtain a real estate license, the candidate must take specific coursework (of between 40 and 90 hours) and pass a state exam on real estate law and practice. To work, salespersons must be associated with (and act under the authority of) a real estate broker. In Delaware, for example, the licensing course requires the candidate to take 99 classroom hours in order to qualify to sit for the state and national examination. In each successive year thereafter, the license holder must participate in continuing education in order to remain abreast of state and national changes.
Many states also have reciprocal agreements with other states, allowing a licensed individual from a qualified state to take the second state's exam without completing the course requirements or, in some cases, take only a state law exam.
After gaining some years of experience in real estate sales, a salesperson may decide to become licensed as a real estate broker (or Principal/qualifying broker) in order to own, manage, or operate their own brokerage. In addition, some states allow college graduates to apply for a broker's license without years of experience. College graduates fall into this category once they have completed the state-required courses as well. California allows licensed attorneys to become brokers upon passing the broker exam without having to take the requisite courses required of an agent. Commonly more course work and a broker's state exam on real estate law must be passed. Upon obtaining a broker's license, a real estate agent may continue to work for another broker in a similar capacity as before (often referred to as a broker associate or associate broker) or take charge of his/her own brokerage and hire other salespersons (or broker) licensees. Becoming a branch office manager may or may not require a broker's license. Some states allow licensed attorneys to become real estate brokers without taking any exam. In some states, there are no "salespeople" as all licensees are brokers.
In the United States, Realtor (capitalized) is a registered trademark of the National Association of Realtors (NAR). There are 1.3 million Realtors, mostly in the United States, and an additional 1 million licensed real estate agents who are not members of NAR and cannot use the trademarked title of "realtor". However, the U.S. Bureau of Labor Statistics claims only about 600,000 working brokers/salespersons.
Agency relationships in residential real estate transactions involve the legal representation by a real estate broker (on behalf of a real estate company) of the principal, whether that person(s) is a buyer or a seller. The broker and his licensed real estate agents then become the agent of the principal.
Some state Real Estate Commissions - notably Florida's after 1992 (and extended in 2003) and Colorado's after 1994 (with changes in 2003) - created the option of having no agency or fiduciary relationship between brokers and sellers or buyers. Having no more than a facilitator relationship, transaction brokers assist buyers, sellers, or both during the transaction without representing the interests of either party who may then be regarded as customers.
As noted by the South Broward Board of Realtors, Inc. in a letter to State of Florida legislative committees:
The result was that in 2003, Florida created a system where the default brokerage relationship had "all licensees ... operating as transaction brokers, unless a single agent or no brokerage relationship is established, in writing, with the customer" and the statute required written disclosure of the transaction brokerage relationship to the buyer or seller customer only through July 1, 2008.
Dual agency occurs when the same brokerage represents both the seller and the buyer under written agreements. Individual state laws vary and interpret dual agency rather differently.
Many states no longer allow dual agency. Instead, "transaction brokerage" provides the buyer and seller with a limited form of representation but without any fiduciary obligations (see Florida law). Buyers and sellers are generally advised to consult a licensed real estate professional for a written definition of an individual state's laws of agency, and many states require written Disclosures to be signed by all parties outlining the duties and obligations.
Since each province's and state's laws may differ, it is generally advised that prospective sellers or buyers consult a licensed real estate professional.
These services are also changing as a variety of real estate trends transform the industry.
|This section possibly contains original research. (July 2014)|
|This section does not cite any references or sources. (July 2014)|
The sellers and buyers themselves are the principals in the sale, and real estate brokers and their agents are the principals' agents as defined in the law. However, although a real estate agent commonly fills out the real estate contract form, agents are typically not given power of attorney to sign the real estate contract or the deed; the principals must sign these documents. The respective real estate agents may include their brokerages on the contract as the agents for each principal.
The use of a real estate broker is not a requirement for the sale or conveyance of real estate or for obtaining a mortgage loan from a lender. However, once a broker is used, the settlement attorney (or party handling the closing) will ensure that all parties involved are paid, although lenders typically have other requirements for a loan.
In addition to the services to sellers and buyers described below, most real estate agents coordinate various aspects of the closing.
Real estate brokers and their agents typically do not provide title service such as title search or title insurance, do not conduct surveys or formal appraisals of the property such as those required by lenders, and do not act as lawyers for the parties, although they may "coordinate" these activities with the appropriate specialists. Some real estate brokers may be associated with loan officers who may help finance buyers to make their purchase.
Real Estate Agents can provide buyer representation, seller representation, and sometimes dual agency representation (in some states). Regardless of whether a real estate agent assists sellers or buyers of real estate, negotiating skills and knowledge of financing options are important.
Upon signing a listing contract with the seller wishing to sell the real estate, the brokerage attempts to earn a commission by finding a buyer for the sellers' property for the highest possible price on the best terms for the seller. In Canada, most provinces' laws require the real estate agent to forward all written offers to the seller for consideration or review.
To help accomplish the goal of finding buyers, a real estate agency commonly does the following:
Several types of listing contracts exist between broker and seller. These may be defined as:
The broker is given the exclusive right to market the property and represents the seller exclusively. This is referred to as seller agency. However, the brokerage also offers to cooperate with other brokers and agrees to allow them to show the property to prospective buyers and offers a share of the total real estate commission.
Exclusive agency allows only the broker the right to sell the property, and no offer of compensation is ever made to another broker. In this case, the property will never be entered into an MLS. Naturally, this limits the exposure of the property to only one agency.
The property is available for sale by any real estate professional who can advertise, show, or negotiate the sale. The broker/agent who first brings an acceptable offer would receive compensation. Real estate companies will typically require that a written agreement for an open listing be signed by the seller to ensure payment of a commission if a sale takes place.
Although there can be other ways of doing business, a real estate brokerage usually earns its commission after the real estate broker and a seller enter into a listing contract and fulfill agreed-upon terms specified within that contract. The seller's real estate is then listed for sale.
In most of North America, a listing agreement or contract between broker and seller must include the following:
Net listings: Property listings at an agreed-upon net price that the seller wishes to receive with any excess going to the broker as commission are illegal in most, if not all, states.
In consideration of the brokerage successfully finding a buyer for the property, a broker anticipates receiving a commission for the services the brokerage has provided. Usually the payment of a commission to the brokerage is contingent upon finding a buyer for the real estate, the successful negotiation of a purchase contract between the buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller. The median real estate commission charged to the seller by the listing (seller's) agent is 6% of the purchase price. Typically, this commission is split evenly between the seller's and buyer's agents, with the buyer's agent generally receiving a commission of 3% of the purchase price of the home sold.
In North America, commissions on real estate transactions are negotiable, there are new breed of marketplaces that facilitate the process of negotiation. Local real estate sales activity usually dictates the amount of agreed commission. Real estate commission is typically paid by the seller at the closing of the transaction as detailed in the listing agreement.
Real estate brokers who work with lenders may not receive any compensation from the lender for referring a residential client to a specific lender. To do so would be a violation of a United States federal law known as the Real Estate Settlement Procedures Act (RESPA). Commercial transactions are exempt from RESPA. All lender compensation to a broker must be disclosed to all parties. A commission may also be paid during negotiation of contract base on seller and agent.
With the seller's permission, a lockbox is placed on homes that are occupied, and after arranging an appointment with the homeowner, agents can show the home to prospective buyers. When a property is vacant, a lockbox will generally be placed on the front door. The listing broker helps arrange showings of the property by various real estate agents from all companies associated with the MLS. The lockbox contains the key to the door of the property, and the box can only be opened by licensed real estate agents.
If any buyer's broker or his agents brings the buyer for the property, the buyer's broker would typically be compensated with a co-op commission coming from the total offered to the listing broker, often about half of the full commission from the seller. If an agent or salesperson working for the buyer's broker brings the buyer for the property, then the buyer's broker would commonly compensate his agent with a fraction of the co-op commission, again as determined in a separate agreement. A discount brokerage may offer a reduced commission if no other brokerage firm is involved and no co-op commission paid out.
If there is no co-commission to pay to another brokerage, the listing brokerage receives the full amount of the commission minus any other types of expenses.
|This section possibly contains original research. (September 2012)|
|This section does not cite any references or sources. (September 2012)|
With the increase in the practice of buyer brokerages in the United States, agents (acting under their brokers) have been able to represent buyers in the transaction with a written "Buyer Agency Agreement" not unlike the "Listing Agreement" for sellers referred to above. In this case, buyers are clients of the brokerage.
Some brokerages represent buyers only and are known as exclusive buyer agents (EBAs). Consumer Reports states, "You can find a true buyer's agent only at a firm that does not accept listings." The advantages of using an Exclusive Buyer Agent is that they avoid conflicts of interest by working in the best interests of the buyer and not the seller, avoid homes and neighborhoods likely to fare poorly in the marketplace, ensure the buyer does not unknowingly overpay for a property, fully inform the buyer of adverse conditions, encourage the buyer to make offers based on true value instead of list price, and work to save the buyer money. A buyer agency firm commissioned a study that found EBA purchased homes were 17 times less likely to go into foreclosure.
A real estate brokerage attempts to do the following for the buyers of real estate only when they represent the buyers with some form of written buyer-brokerage agreement:
In most states until the 1990s, buyers who worked with an agent of a real estate broker in finding a house were customers of the brokerage since the broker represented only sellers.
Today, state laws differ. Buyers and/or sellers may be represented. Typically, a written "Buyer Brokerage" agreement is required for the buyer to have representation (regardless of which party is paying the commission), although by his/her actions, an agent can create representation.
A person may attend a pre-license course lasting 60 hours and then be tested by the state for a real estate agent's license. Upon passing, the new licensee must place their license with an established real estate firm, managed by a broker. Requirements vary by state but after some period of time working as an agent, one may return to the classroom and test to become a broker. For example, California and Florida require you to have a minimum experience of two years as a full-time licensed agent within the prior 5 years. Where as Indiana only requires one year experience as a real estate salesperson and Arizona requires three out of the prior five years. Brokers may manage or own firms. Each branch office of a larger real estate firm must be managed by a broker.
States issue licenses for a multi year period and require real estate agents and brokers to complete continuing education prior to renewing their licenses. For example, California licensees must complete 45 hours of continuing education every 4 years in topics such as agency, trust fund handling, consumer protection, fair housing, ethics, and risk management. Many states recognize licenses from other states and issue licenses to existing agents and firms upon request without additional education or testing however the license must be granted before real estate service is provided in the state.
California does not have license reciprocity with other states. An applicant for licensure is not, however, required to be a resident of California to obtain a license.
Several notable groups exist to promote the real estate industry and to assist members who are in it.
The National Association of Realtors (NAR) is the largest real estate organization and one of the largest trade groups anywhere. Their membership exceeds one million. NAR also has state chapters as well as thousands of local chapters. Upon joining a local chapter, a new member is automatically enrolled into the state and national organizations. When the principals of a firm join, all licensed agents in that firm must also belong. An advantage of membership is access to the local MLS (sometimes county-wide, sometimes broader in coverage) which exists for the benefit of members and which provides access following the payment of additional dues to the local system.
The Realtor Political Action Committee (RPAC) is a separate entity, and also the lobbying arm of NAR. In 2005, they were considered the largest PAC in the United States. According to realtor.org, RPAC is the largest contributor of direct contributions to federal candidates.
The National Association of Exclusive Buyer Agents is a group of agents and brokers who work in firms that represent buyers only. They assist in locating exclusive buyer agents for home buyers through the Web site www.naeba.org.
The National Association of Real Estate Brokers (NAREB) was founded in 1947 as an alternative for African Americans who were excluded from the dominant NAR. Both groups allow members to join without regard to race. However, NAREB has historically been an African American-centric group with a focus on developing housing resources for intercity populations.
|This section possibly contains original research. (July 2014)|
|This section does not cite any references or sources. (July 2014)|
Compensation is conventionally based on a percentage of the sales price, split between the buying and selling brokers, and then between the agent(s) and his/her real estate agency. While a split based on the percentage received by the broker is generally normal, in some brokerages agents may pay a monthly "desk fee" for office costs, monthly fee, etc., and then retain 100% of the commission received.