What’s the difference between a real estate broker vs an agent? With a broker’s license, a broker can open their own real estate brokerage as well as manage and collect fees from real estate agents. Real estate agents have to work for a broker while a broker can run their own business.
Being a broker comes with some perks, but also a lot of responsibility. In this article, we’ll break down the differences between real estate agents and real estate brokers, and what they actually do day-to-day. You’ll get everything from annual income to a full job description.
If you’re looking to level up your game from agent to broker or need some quick answers about the differences between agents and brokers, read on.
Real Estate Broker vs Agent Salary
Most people reading this article want to learn one thing: How much money they can make as a real estate agent or real estate broker. Don’t worry―we get it. Money isn’t everything, but it sure is important if you want to do things like pay your rent and save for your kids’ college fund.
Neither a real estate agent nor a real estate broker has salaries. Instead, they get paid on a commission-only basis. Here’s a breakdown of how brokers and agents are paid, how much real estate agents and real estate brokers make, and how we got to those numbers.
Real Estate Agent Salary: Where the Money Comes From
According to the United States Bureau of Labor and Statistics (BLS) in 2018, the average agent income was $61,720. A real estate agent’s pay comes from the commissions they earn while representing clients. Although there’s no mandated commission, the standard for residential real estate is between 5 and 6 percent of the final sale price.
Of course, if there’s an agent representing the other buyer or seller party, that 5 or 6 percent commission is split between the two real estate agents, making the typical commission for each sale between 2.5 and 3 percent of the closing sale price.
However, that money doesn’t just slide into an agent’s bank account as there are expenses to be paid. First, there is the broker’s fee. Most broker’s charge a percentage of your commission up to a certain amount every year. Again, there is no universal mandated percentage, but most brokerages will require a split of somewhere between 25% and 45%.
Of the remaining commission, you’ll need to pay Uncle Sam, so set aside 30% of what was left after your broker split for taxes. Finally, there’s the cost of running your business. Every business plan is a little different, but to continue your success, plan on investing at least 25% back into your operation.
Keeping all this in mind, a 6% commission on a home with a $250,000 sale price looks like this:
Real Estate Agent Commission Breakdown
|$250,000 Sale Price x 6% Commission||$15,000 Total Commission|
|$15,000 Divided Between Two Agents||$7,500 Gross Individual Agent Commission|
|$7,500 - 30% Broker Split||$5,250 Commission After Split|
|$5,250 - 30% Taxes||$3,675 Gross Income|
|$3,675 - 25% Reinvestment||$2,756.25 Net Income|
If you closed 15 sales a year―an average performer in most markets―you’d have a before taxes income of $78,750 per year, with a take-home pay of $33,075 per year. Of course, your numbers will differ based on your market, split, and other factors.
Real Estate Broker Salary
A real estate broker, on the other hand, relies on the commissions their agents make to get paid. As you might imagine, that means brokers have a vested interest in only hiring agents who will close deals regularly. They also pay for training and more because the more their agents make, the more the broker makes.
For a real estate agent to do business, they have to work for a broker. When a broker hires an agent, they negotiate two numbers: a percentage―or, in some cases, a flat fee―that comes out of every closing, known as a split, and a maximum amount an agent will pay to a broker for a calendar year, known as a cap.
Let’s say a broker hires an agent with a $20,000 cap and a 70/30 split. This means that for every sale that agent closes, the broker gets 30% of the commission, up to $20,000 total for the year. Once that agent has paid the broker a total of $20,000 from their commissions that year, they have “capped,” and the broker no longer makes money on the rest of the sales the agent closes that year.
If you take this information and multiply it by the number of agents working for a brokerage, you can see the potential income is high.
However, that isn’t the only way that brokers earn money. There are some brokers who charge agents a “desk fee,” or monthly fee for being a member of the team, regardless of whether they are closing transactions. Most brokers earmark this income as a source for paying regular expenses.
Your Own Transactions
Also, as a broker, you are still a licensed real estate agent and are free to pursue clients the same way the rest of the agents do at your firm. The difference is, when you close a sale, you don’t have any brokerage fees to pay since you’re the broker.
Finally, brokers often develop ownership stakes or at least complementary interests with other real estate related service providers, and these relationships can lead to extra income. For instance, it’s not uncommon for brokers to either start or buy into ownership of title companies. The title company is a required part of closing a real estate transaction in most states, so generating income through title company ownership makes sense.
Income In vs Expenses Out
Although it seems like a real estate broker’s income is really high, remember that the costs of operation are very high as well. Unlike a real estate agent, who only has to invest back in their own business, you need to invest in everyone’s business to be successful as a broker.
You need to maintain an office with rent and utilities, hire administrative and support staff, pay for training and technology services, advertise your brand, and pay for errors and omissions insurance, so the list of expenses is quite long.
Let’s look at a month for broker who works in a market where the average sale price is $250,000, the average commission is 3%, has 15 agents working for them, and also represents clients.
Broker Monthly Income
|Broker Represented Closed Sale||$250,000 x 3% = $7,500|
|1 Closed Sale From Each Agent||$250,000 x 3% = $7,500 x 30% = $2,250 x 15 = $33,750|
|Desk Fee From Each Agent||$50 x 15 = $750|
|Title Company Income||$2,000|
|Total Monthly Income||$44,000|
Broker Monthly Expenses
|E & O Insurance||$900|
|Recruitment of New Agents||$1,300|
|Total Monthly Expenses||$13,500|
Remember that you also have to account for savings for major expenses and a cushion of cash on hand, so let’s set aside 25% of monthly income for savings.
Income ($33,000) – Expenses ($13,500) = Profit ($19,500)
At this rate, you’d make $260,400 per year. Of course, you need to remember to pay Uncle Sam his portion, which for profitable businesses can be significantly higher, so let’s take out 40% for taxes, leaving you with $140,400 in take-home pay.
Please keep in mind that, this is an extremely simplified view of the income and expenses of a real estate brokerage. Each business is different and involves factoring in things like busy season vs slow seasons, staffing turnover, and fluctuation in costs based on the size of your operation, just to name a few.
Becoming a Real Estate Broker vs Agent
Becoming a real estate agent or broker requires classes, testing, and certification by the state that you’re doing business in. Every state’s requirements for each are a little different, but a great online real estate education company like Real Estate Express can give you all the details for your state, as well as set you up with online convenient classes you can use to knock out those pretest requirements from your living room.
Becoming a Real Estate Agent
There is no requirement for a college degree, no requirement for a business background. In fact, in most states, the only requirements are that you:
- Are 18 years of age or older
- Are legally allowed to work in the U.S.
- Have no pending criminal indictments against you
- Have no criminal convictions for violent crime or home invasion-related offenses
If you pass muster on this list, you can become a real estate agent. However, there’s more than just a form and a fee required to get a real estate license.
First, you need to take your real estate prelicensure class. The length of your class varies depending on your state, so make sure to check with your state’s licensing and regulatory affairs commission to verify how many class hours you need.
Below is a table outlining the prelicensure class hours required in five different states across the country.
Real Estate Prelicense Class Requirements
|State||Prelicense Class Length|
|New York||75 hours|
All real estate professionals in Illinois are considered brokers, so this hourly total is for the broker’s prelicense requirements.
After you take your class, you need to pass your state’s licensing exam. This test covers topics like real estate law, basic contracts, fair housing statutes, and other topics that you’ll need to be proficient in if you want to be a successful real estate agent.
The test is tough, but definitely passable, especially if you do some test prep. In addition to offering online prelicense classes, Real Estate Express also offers exam prep courses that are very helpful. If you’re a nervous test taker, check one of these courses out.
Finally, once you’ve passed your test, the only things left to do before you are a full-fledged real estate agent are to join a brokerage and register with the state you’re practicing in. All agents are required to work for a brokerage. Legally, a broker’s job is to supervise, monitor, and ultimately be responsible for the activities of the agents within their offices to make sure they’re adhering to local, state, and national real estate law.
Your brokerage will help you register with the state as a fully licensed real estate agent. There will be some licensing fees that will vary by state and, in some states, a background check. For a deeper dive into becoming a real estate agent, check out our comprehensive guide, “How to Get a Real Estate License: 6 Steps to a New Career”.
Becoming a Real Estate Broker
To become a real estate broker, you must first be a real estate agent. Every state requires differing amounts of experience as a real estate agent before you can apply for a broker’s license.
Here’s a table outlining the experience requirements in five different states across the country.
|California||2 full years within the last 5 years|
|Texas||4 full years in the last 5 years|
|Florida||2 full years within the last 5 years|
|New York||2 years + a minimum of 14 transactions*|
*New York requires a certain level of transactional experience to apply for a broker’s license. Read more about it on the New York broker’s license application.
Once you’ve got the minimum number of years of experience to become a broker, up next is your broker prelicense education. Just like working toward your salesperson’s license, a broker’s license requires a set of classes where topics relevant to running a brokerage are covered.
The broker’s prelicense class goes into topics you’ll need to be competent in to run a real estate business, things like brokerage operations, investments, construction and development, property management and business law, just to name a few.
Brokerage prelicense class lengths vary by state. Here’s a list of those same five states again with their various class lengths.
|State||Broker Prelicense Class Length|
|New York||45 hours|
After finishing your broker prelicense class, you’ll schedule your state exam. Brokers we know have reported that the broker’s license exam is considerably more difficult than the salesperson’s license exam, but that makes sense. After all, as a broker, you’re expected to be a resource for the agents who work for you, so the expectation is that you’ll be prepared to answer their questions.
After passing your exam and submitting your application for approval, all that’s left is to wait for the state to issue you your license. While you’re waiting for your state to issue you your license, take some time to finalize your plans for starting your own brokerage.
Traits of a Successful Real Estate Broker vs Agent
OK, so say you’re a real estate agent looking to join a brokerage. What are the traits you should be looking for in a great broker? Likewise, say you are a broker looking to hire agents for your firm. What are the qualities you should be seeking out in those agents?
Here’s a little breakdown of the three most important traits in both.
The Ideal Real Estate Agent
If you’re looking for a real estate agent to join your brokerage, there are a few traits that you want to make sure they have.
First, you want that person to be productive or, at least, on their way to being productive. Every agent you have on your team who doesn’t hit their cap every year is an agent that is not fulfilling their potential. It’s easy enough to figure out what it costs to have an agent as a part of your brokerage, translated as what you spend on marketing for them, technology, desk space, insurance, and so on.
If your agents aren’t meeting that amount and also making a return on your investment in them, they aren’t the best choice.
Good Brokerage Representative
Secondly, the agent needs to represent the attitudes, ideals, and goals of the brokerage at large. It doesn’t matter how much you spend on marketing to establish your brand as one thing; if your agents tell a different story, the public will always go with what they hear and see from the street level.
If it’s your goal to build a brokerage around high-end luxury clients, but you’ve got agents who will take any listing on any street for any price, you’re going to have a hard time achieving your goal.
Good Internal Fit
Finally, you want that agent to be a lift to the morale, character, and confidence of the brokerage internally. A real estate brokerage is an interesting work environment in that an agent’s closest colleagues also happen to be their closest competitors as well.
Bringing an agent into your office environment that has a toxic effect on moral and interoffice life isn’t just unpleasant―it is unprofitable. Your other agents won’t perform as well and will start to consider leaving your brokerage to go somewhere that doesn’t feel so tainted.
The Ideal Real Estate Broker
Just like there are important traits for a real estate agent, there are things you want to make sure your real estate broker has as well. Here are the three most important things your next real estate broker needs to be.
Your broker is an important voice of knowledge and advice for questions that arise in your real estate career. Having a broker who is not only willing to share this advice when you ask but also willing to invest in your career as a mentor and guide will shallow out your learning curve dramatically and get you to a place of profitability and growth much faster.
Brokers who look at themselves as competitors to their agents and keep all the best practices to themselves tend to foster adversarial brokerages that won’t break through to the next level.
A Keen Businessperson
Operating a real estate brokerage can be a complex and sophisticated task. As a real estate agent, you depend on the stability of the brokerage to build your own business, so a broker who has a firm grasp of the numbers and what sustainable growth looks like is very important.
A broker with a keen business sense also recognizes the need to invest back into the business, and demonstrates this by plugging some profit from the business back into the bloodstream of the company at large with things like investments in new technology, lead generation or marketing, things that will benefit every agent and not just the broker themselves.
An Ambitious Goal Setter
Companies that set goals are companies that grow. Brokers who work with their agents to help them set goals are brokers who see agents having successful years over and over.
Brokers who model goal setting from the top down help to create an environment where success isn’t just achieved, it is expected. A great broker is vocal and public about the goals for the company, the goals for themselves, and is relentless in their aid of the pursuit of your goals.
Bringing It All Together
Both real estate brokers and real estate agents play critical roles in the real estate industry. Are you a broker? Tell us what is critical to the success of your brokerage. Are you an agent? We’d love to hear what things your broker does for you to empower you to meet your goals. Leave us a comment below, let’s get a conversation going.