What’s the difference between a real estate broker versus an agent? Think of a broker as a leveled-up agent. They can open their own brokerage, manage agents, collect fees, and serve their own clients. An agent can perform real estate tasks for their clients, but only while under the supervision of a broker.
Being a broker comes with perks but also a lot of responsibility. This article will break down the differences between real estate agents and real estate brokers and what they do day to day.
Let’s do a brief vocab check before we dig in:
- Real estate agent: A licensed expert who helps others buy and sell property.
- Real estate broker: A licensed real estate expert with a higher level of experience and education who can not only practice real estate, but also supervise agents.
- Associate broker: A broker who can work independently or as part of a brokerage but who usually doesn’t supervise other agents (although they may have the legal standing to do so).
- Realtor: Any professional who is an active, dues-paying member of the National Association of Realtors (NAR).
- Managing broker, supervising broker, or broker-in-charge: In some states, all licensed real estate professionals (including agents) are known as brokers. In that case, these terms mean the same thing as “real estate broker.”
What Is a Real Estate Agent?
A real estate agent is a licensed professional who has completed all of their state’s mandatory training and education, passed an exam, and received their license. A real estate agent assists in the buying and selling of property and is usually compensated with a percentage of the sale price, aka a commission.
What Does a Real Estate Agent Do?
Buying or selling property is a complex and highly regulated process. That’s why most homebuyers and sellers opt to work with a licensed professional—a real estate agent. Real estate agents work under a broker and guide their clients, from listing a property or looking for homes all the way through to the closing table.
While many agents get some support from their brokers in the form of marketing and lead generation, most agents operate as small business owners. They are independent contractors responsible for virtually every aspect of building their business.
Most states officially call the first level of licensure a “salesperson.” Because real estate licensing is done at the state level, there can be some quirks. For example, there are a handful of states that refer to agents as brokers, and then they refer to their brokers as associate brokers or managing brokers. These states include North Carolina, Colorado, Illinois, Washington, and Indiana.
Only real estate agents who are members of the National Association of Realtors can be called Realtors. The term “Realtor” is, in fact, a registered trademark. Interestingly, NAR is the country’s largest trade association and was founded in 1908.
How Do You Become a Real Estate Agent?
Each state has a different set of requirements, so it’s best to refer to one of our state specific guides on how to get your license, but here is what’s needed pretty much everywhere:
- Be a legal resident who’s at least 18 years old
- Be able to pass a background check
- Complete all of the prelicensing education through an accredited real estate school
- Take and pass your state’s real estate exam
- Work under a broker
- Complete any post-licensing and continuing education requirements
Note that some states make exemptions for those with a degree in real estate or law degree.
How to Get a Real Estate License in 5 Simple Steps
After you complete your real estate classes, you’ll need to pass your state’s licensing exam. It usually covers topics like real estate law, basic contracts, fair housing statutes, and other proficiencies you’ll need to gain if you want to be a successful real estate agent. Most good real estate schools will offer extra exam prep courses and products.
How to Study for the Real Estate Exam: Tips & Strategies
All agents are required to work for a brokerage. Legally, a broker’s job is to supervise, monitor, and ultimately take responsibility for the activities of the agents within their offices to make sure they’re adhering to local, state, and national real estate law.
How Do Real Estate Agents Make Money?
The majority of a real estate agent’s income comes from commissions earned while representing buyers and sellers in real estate transactions. Of the total sales commission, you get half and the agent representing the other party in a sales transaction—whether the buyer or seller—receives the other half. As such, typical gross earnings or commission for each agent runs between 2.5% and 3% of the closing sale price.
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Agents usually pay a split of their commission to their broker, which could be anywhere from 50% to 80%. Agents who are considering joining a particular brokerage need to ask what the splits are, if there is room for negotiation, and if there is a cap (the maximum an agent has to pay for the year). You’ll read more about these splits below.
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Real Estate Agent Commission Breakdown Example
Money doesn’t just slide into an agent’s bank account. Agents have expenses to pay. Here’s a breakdown of what a typical commission looks like for the sale of a $250,000 home.
|$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 - 25% Reinvestment Back Into Business =||$3,938 (Gross Income)|
|$3,675 - 30% Taxes||$2,756 (Net Income)|
Assuming the agent in the scenario above closed 15 sales a year—a fairly average sales performance for agents in most markets—they’d have a gross income (before tax deductions and reinvestments) of $78,750 in that year. Your resulting take-home pay or net income would be $41,340. Of course, your numbers will differ based on your market, split, and other factors.
What Is a Real Estate Broker?
As noted above, a real estate broker is an agent with more experience, more education, a higher-level license, and the ability to supervise agents. That last part means they have more responsibilities and liabilities than the agents who work under them.
What Does a Real Estate Broker Do?
In addition to conducting regular day-to-day real estate for buyers and sellers (if they are still practicing real estate), brokers manage the brokerage and the agents who work there.
There are several different types of brokers:
- Some have completed the education and licensure requirements to become a broker, but do not manage or supervise other agents. This is a common choice for established agents who want to operate solo, without answering to a larger brokerage.
- Other brokers are real estate professionals who are licensed as a broker and manage the mid-level, day-to-day operations of the office, including hiring, training, and overseeing other agents and support staff.
- Finally, the most senior broker ensures that all transactions are in compliance with all state and federal laws regulating real estate. This position holds the most responsibility and liability. Every real estate office has its own broker who is the big boss.
How Do You Become a Real Estate Broker?
Start with our handy guide on how to get your broker’s license. Every state requires a different amount of experience as a real estate agent, so that needs to be the first step. Michigan, for example, requires three years of experience, while Texas insists on four years of experience within the last five years. Some states will require that you have a certain number of transactions under your belt.
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Once you’ve got the minimum level of experience to become a broker, it’s time to start pursuing your broker prelicensing education. Just like working toward your salesperson’s license, a broker’s license requires a specific set of classes.
The broker’s prelicensing class usually covers topics you’ll need to understand in order to run a real estate business. These include brokerage operations, investments, construction and development, property management, and business law, just to name a few.
The amount of time you need to spend on brokerage education varies by state. California and New York both require 45 class hours, and because they always do it big in Texas, you need 270 hours of broker prelicensing courses in the Lone Star State.
After finishing your broker prelicensing class, you’ll schedule your state exam. The broker’s licensing exam is considerably more difficult than the salesperson’s licensing exam. After passing and submitting your application for approval, all that’s left is to wait for the state to issue your license.
How Do Brokers Make Money?
1. Your Own Transactions
As a broker, you’re a licensed real estate agent and are free to pursue clients the same way as the other agents at your firm. The difference is that you don’t have any brokerage fees to pay at the close of any sale since you’re the broker. Some brokers decide not to engage in transactions, perhaps to focus on administration or to avoid the perception of siphoning off leads from their agents.
2. Agent Commissions
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 split and a cap. The split is a percentage―or, in some cases, a flat fee―that the broker takes from the proceeds of every sale. The cap is the maximum amount an agent will pay to a broker within a calendar year.
Let’s say a broker hires an agent with a $20,000 cap and a 70-30 split. For every sale that an agent closes, their broker earns 30% of the agent’s commission until they earn a total of $20,000 for the year.
Once that agent has paid the broker a total of $20,000 from their commissions within a calendar year, they have “capped,” and the broker no longer makes money on the rest of the sales the agent successfully closes for the balance of the calendar 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.
3. Desk Fees
However, the split isn’t the only way that brokers earn money. Some charge agents a “desk fee” or monthly amount to cover costs related to being a member of the team, whether they are closing transactions or not. Most brokers earmark this income as a source for paying office expenses or providing agents with services such as technology, errors & omission (E&O) insurance, or support staff.
4. Secondary Income
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 purchase an ownership stake in a title company. 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. However, it’s extremely important that brokers follow the rules in regard to providing these ancillary services.
The Average Real Estate Broker Salary for Every State
Real Estate Broker Income Breakdown
Let’s look at an example of how a broker can bring home a healthy monthly income:
|Broker Represented Closed Sale||$250,000 x 3% = $7,500|
|30% Split of 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 Revenue||$2,000|
|Total Monthly Revenue||$44,000|
Real Estate Broker vs Agent Expenses: Who Pays for What?
Although it seems like a real estate broker’s income is relatively high compared to a real estate agent, remember that their operating costs are also very high. Unlike a real estate agent, who only has to invest back in their own business, real estate brokers need to invest in everyone’s business to succeed.
Expenses include rent, utilities, insurance, training, marketing, support staff salaries, technology, and recruitment. This adds up to potentially tens of thousands of dollars per month.
An agent, meanwhile, has far fewer monthly expenses. It usually is just desk fees (if there are any) and lead generation, marketing, and other miscellaneous operating expenses.
Considering starting your own brokerage? Start with our own Sean Moudry’s thoughtful article on things he wishes he’d known before starting his brokerage.
We also have plenty of broker resources to help you:
- How to start a brokerage without going broke
- Create a business plan
- Write your mission and vision statements
- Recruit agents
Bringing It All Together
Both real estate brokers and real estate agents play critical roles in the industry. Are you a broker? Tell us what is crucial 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 keep the conversation going.