Real Estate Brokers

In the residential real estate market, most sellers and some buyers rely on the expertise of a real estate broker to assist them in their transactions. A real estate broker is a person who is licensed to act as an agent for either a buyer or a seller of real property.

Usually a broker works for the seller, soliciting buyers who are interested in the property. Sometimes a broker will also negotiate a purchase on behalf of a buyer, and they are also licensed to handle leases.  Brokers collect a commission for their negotiation services.

Agent-Principal Relationship

The relationship between a real estate broker and a seller is characterized as an agent-principal relationship. In this case the principal is the seller, while the broker acts as their agent. This means that, as an agent, the broker has a legal responsibility to act in the interests of the seller. The broker owes the seller such duties as the duty of loyalty and a duty of care.

Real Estate Broker vs. Real Estate Agent

The terms "real estate broker" and "real estate agent" are often used interchangeably in today's market. They both perform similar functions in negotiating sales and purchases of property.

The main difference between the two is that real estate brokers are in charge of supervising the actions of real estate agents. Real estate agents must associate with, and be sponsored by real estate brokers.  Usually the commission on a sale or purchase is paid to the broker.  

The real estate agent needs a broker because it is usually illegal for the agent to conduct negotiations without being listed with a brokerage agency. Likewise, the brokers need agents because it is difficult to run a real estate business without the help of associate agents.

Depending on state and local regulations, agents and brokers might have different licensing requirements which grant different types of authority to perform different tasks.

Brokers and Listing Agreements

Real estate brokers operate using listing agreements.  A listing agreement is basically a contract between the broker and the seller which authorizes the broker to present the property to buyers.

There are many different types of listing agreements. Listing agreements fall into two basic types of categories:  "Open Listings" and "Exclusive Listings":

An Open Listing is a contract wherein the broker collects commission only if they themselves actually sell the property. If another person besides the broker sells the property, the broker cannot collect commission on the sale.

An Exclusive Listing means that the broker can collect their commission even if a different person finds a buyer for the property. This is the most common type of listing.  

Listing Agreement Information

A listing agreement should also contain basic information regarding the sale of the house or property, such as:

A listing agreement is a contract between the seller and the broker. Be sure to consult a lawyer before signing any important documents such as a listing agreement.

Multiple Listing Services (MLS)

Real estate brokers have the option of becoming members of a Multiple Listing Service, or MLS. An MLS is a type of business arrangement wherein different real estate brokers in a specific location pool together their exclusive listings. The brokers provide their exclusive listings to a local MLS office, which then redistributes the listings to other members of the service.

When a sale is made, commissions are distributed accordingly. For example, if a property is sold by a different broker who made the original listing, the commission is split between the broker who made the sale and the broker who provided the listing.

Multiple Listing Services are probably the most time-efficient listing agreement setup for selling property.

Brokers and Sales Commissions

In return for finding a buyer and assisting in sales negotiations, brokers are entitled to collect a portion of the sale, also known as a commission.  The amount of commission that the broker is entitled to is determined and finalized in the listing agreement.

Usually the sale of a home will call for a sales commission of about 6% of the total sale price. This rate may vary by region and can be anywhere from 2-10%. The real estate broker will usually not collect the entire percentage, as the commission will typically to be split amongst real estate agents and other realty professionals whom the broker works with.

Commissions in the Event of a Non-Sale

Unless otherwise provided for in the listing agreement, the broker is entitled to collect the commission when they can present a buyer who is both willing and able to make the purchase.

If the owner of the property refuses to sell, the broker can still collect commission so long as the potential buyer has made an offer.  Note that the offer must match the price terms stated in the listing agreement. For example, if a buyer renders an offer for an amount that is lower than what the seller is seeking, the broker is not yet entitled to commission.

Deciding Whether or not to Hire a Real Estate Broker

Basically there are no laws requiring a seller or purchaser of property to hire a broker. In other words, a person can sell or purchase a house entirely on their own. Many people do chose to do so in order to save costs on the transaction process.

It is generally recommended that one employ the services of a real estate broker. This is because brokers are licensed by regulatory authorities, meaning that they have expertise in the field of real estate.  They may also be able to secure a better deal because they have access to a wider client base.

Keep in mind that buyers tend to be wary of deals made without a broker, because many people do not trust the average homeowner's real estate knowledge. So, unless you have extensive knowledge of real estate transactions, you will likely be consulting with a real estate broker for the sales or purchases of property.

Questions to Ask a Real Estate Broker

When consulting a real estate broker, be sure to make the following inquiries:

Recap

Before you make a decision to consult with a real estate broker, be sure that you understand the following: