One of the first things you’ll want to settle when it’s time to buy or sell a house is: Realtor vs. real estate agent. Is there a difference? What’s with the capital “R”? And what about real estate brokers?
Even if you want to go through the process while representing yourself, you should know the answers before reaching that decision. Also, you probably will be dealing with them working for other parties involved in the sale. Plus, did you know that even if you don’t hire a Realtor or real estate agent, you might have to pay one?
Let’s take a look at the Big R’s and the Little r’s of the real estate business.
Real estate agents, Realtors, and brokers all are licensed to help people buy, sell and lease real estate. In fact, Realtors and brokers also are real estate agents. They just have gotten additional training and certifications.
To become a real estate agent, you must be 18 or 19 years old, depending on the state, have legal U.S. residency, and live in the state where you will be doing business.
You also must:
A buyer agent helps people decide the sort of house and neighborhood they want. The agent gives them an idea of what the market is like. They help the clients visit interesting homes. Agents also negotiate on price and other things and find solutions for surprises and setbacks. They can suggest people and services that will be necessary, like appraisers, home inspectors, title companies, and movers.
For people selling homes, real estate agents help determine the asking price and guide negotiations. They add the home to the Multiple Listing Service (MLS). They also can help with staging and marketing the house.
In addition to residential real estate, agents can work in the commercial real estate market.
A Realtor has gone through the same process and does the same work as an agent but also has become a member of the National Association of Realtors, a trade association. “Realtor” is a federally registered trademark, hence the capital “R.”
To become an NAR member, a real estate agent must first join a local real estate association. The agent also must:
The biggest distinguishing factor for a Realtor is the NAR Code of Ethics. A Realtor pledges to follow the code, which describes how to behave toward clients and customers, the public, and other Realtors.
Real estate agents and Realtors can become brokers after gaining a certain amount of experience. (The amount differs from state to state.)
They must undergo more training and pass an exam to earn a broker's license. Brokers must take part in continuing education to maintain the license, as do real estate agents.
Brokers often manage realty agencies. And they can work independently on deals, while real estate agents must work through brokers and agencies.
Besides managing a business, real estate brokers do the same type of work as agents. They can represent home buyers or home sellers, specializing as many agents do, or represent either side.
The three main designations for brokers reflect their level of responsibility.
Associate brokers. They work under another broker, helping to run the firm. Their duties might include working with databases, collecting payments, creating MLS listings, preparing contracts, managing advertising and other marketing programs, and monitoring the firm’s real estate transactions for adherence to the law and other standards.
Managing brokers. In general, they run the office and manage the sales team for a real estate firm. Their experience comes in handy as they help agents negotiate deals and review their contracts. They often are the point person for hiring new agents and training. In a related area, they are responsible for monitoring changes in laws and regulations and making sure the staff learns of the changes and works accordingly.
Principal/designated brokers. Every real estate office must have a designated broker. This is the owner or someone hired to lead the firm. This person supervises everyone else, charts the firm's direction, and makes connections in the community to attract new business. Depending on the size of the office, this person does the work of a managing broker and associate broker or supervises them and many others.
Real estate professionals do not get paid until the sale of a home or property has been completed. Then they split a commission based on the sale price.
Brokers receive a share of the commissions made by their real estate agents. Also, they can earn commissions on their own deals without having to split the commission with "the office."
This means that the seller pays all the agents involved in a sale, even the buyer’s agent, from the sale proceeds.
Typically, the commission is 6 percent of the sales price. That is negotiable, but the seller must get that concession in the initial agreement reached with the agent.
For the sale of a $300,000 home, the $18,000 commission might be divided in this way:
This arrangement shows why it is important to trust your agent. The higher the sales price, the more they make. And if there is no transaction, they get nothing for their efforts.
If you do a "for sale by owner" deal and the buyer has signed an agreement with a real estate agent, that agent will expect to receive a commission from that owner. The commission most likely will be written into the seller’s closing costs unless some other arrangement was negotiated before the deal was made.
The issue of trust looms large, especially for a first-time homebuyer, when working with a Realtor, real estate agent, or broker.
Look at it from a homebuyer’s point of view. The seller’s agent works for the seller, and if the buyer has his own agent, that agent is getting paid based on the commission. What incentives do the agents have to work for a lower price?
Because no one gets paid if there is no sale, is it possible that the home inspector recommended by a real estate agent is inclined to miss problems with a house that could make the sale more difficult?
If a buyer with no agent is working with the agent for the homeowner, that sale would bring the agent the full 6 percent commission (minus a cut for the broker). Is it possible the agent could tout an offer from a buyer like that, called a direct buyer, over a better offer from a buyer represented by his own agent and would take 3 percent of the commission? On a $500,000 property, that’s the difference between $30,000 and $15,000 in commissions.
Is it possible a buyer’s agent might encourage a client to bid on more expensive homes than the buyer would prefer? Or lean toward only showing the buyer homes at the high end of his stated price range?
These issues show why some people prefer Realtors, who are part of a national association that has pledged to always represent the client's best interests. But that doesn’t guarantee that Realtors have more integrity than real estate agents.
The significant difference comes between them and brokers, who probably have more experience and training and have developed more connections.