Real estate agent

A real estate broker is a party who acts an intermediary between sellers and buyers of real estate 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.

Real estate brokers and their salespersons (commonly called "real estate agents") 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, they assist buyers by helping them purchase property for the best possible price under the best terms. Without an agreement, brokers may assist buyers in the acquisition of property but still represent the seller and the seller's interests.

In many jurisdictions, particularly those in the United States, a person is required to have a license in order to receive remuneration for services rendered as a real estate broker. In particular, any of the following descriptions could refer to a real estate broker in the USA:

A licenced person owning, managing, or being in charge of a real estate brokerage firm, even if the broker just works for him- or herself.

The real estate brokerage itself: the brokerage is the firm or business of the broker which can also be called a real estate agency.

A licensed real estate professional who has obtained a broker's license (which entitles them to operate a real estate brokerage). By default, a real estate broker of this kind has already met the requirements of "salesperson" or "agent" licensure. A real estate broker can still be designated as such without owning a real estate brokerage.

Some people may refer to any licensed real estate agent as a real estate broker. However, a licensed real estate agent is a professional who has obtained either a real estate salesperson's license or a real estate broker's license.

Agency versus Non-Agency; Dual Agency

Traditionally, the broker provides a conventional full-service, commission-based brokerage relationship under a signed listing agreement or "buyer representation" agreement, thus creating an agency relationship with fiduciary obligations.

However, a non-agency relationship may be established by virtue of transactional brokerage.

Transaction brokers

Some state Real Estate Commissions, notably Florida's ^[1] after 1992 (and extended in 2003) and the Colorado's ^[2] after 1994 (with changes in 2003), created the option of having no agency nor fiduciary relationship between brokers and sellers or buyers. The transaction broker assists buyers, sellers, or both during the transaction without representing the interests of either party.

As noted by the South Broward Board of Realtors, Inc. in a letter to State of Florida legislative committees ^[3]:

"The Transaction Broker crafts a transaction by bringing a willing buyer and a willing seller together and assists with the closing of details. The Transaction Broker is not a fiduciary of any party, but must abide by law as well as professional and ethical standards." (such as NAR Code of Ethics)

The result was that in 2003, Florida created a system where the default brokerage relationship was where "all licensees are operating as transaction brokers unless a single agent or no brokerage relationship is established, in writing, with the customer" ^[4] and the statute required written disclosure of the transaction brokerage relationship to the buyer or seller customer only through July 1, 2008.

In both Florida and Colorado's case, dual agency and sub-agency (where both listing and selling agents represented the seller) no longer exist.

Dual Agency

Dual agency occurs when the same brokerage represents both the seller and the buyer under written agreements. Individual state laws vary on this subject.

Many states no longer allow dual agency. Instead, Transaction Brokerage (see above) 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.

If state law allows for the same agent to represents both the buyer and the seller in a single transaction, the brokerage/agent is typically considered to be a Dual Agent. Special laws/rules often apply to dual agents, especially in negotiating price.
In some states (notably Maryland^[5]), Dual Agency can be practiced in situations where the same brokerage (but not agent) represent both the buyer and the seller. If one agent from the brokerage has a home listed and another agent from that brokerage has a buyer-brokerage agreement with a buyer who wishes to buy the listed property, Dual Agency occurs by allowing each agent to be designated as “intra-company” agent. Only the broker himself is the Dual Agent.

Types of services which a broker can provide

Since each state's laws may differ from others, it is generally advised that prospective sellers or buyers consult a licensed real estate professional.

Somes Examples:

Comparative Market Analysis - an estimate of the home's value compared with others. This differs from an appraisal in that property currently for sale may be taken into consideration (competition for the subject property).
Exposure - Marketing the real property to prospective buyers.
Facilitating a Purchase - guiding a buyer through the process.
Facilitating a Sale - guiding a seller through the selling process.
FSBO document preparation - preparing necessary paperwork for "Sale By Owner" sellers.
Full Residential Appraisal - but only, in most states, if the broker is also licensed as an appraiser.
Home Selling Kits - guides to how to market and sell a property.
Hourly Consulting for a fee, based on the client's needs.
Leasing for a fee or percentage of the gross lease value.
Property Management.
Exchanging property.
Auctioning property.
Preparing contracts and leases. (Not in all states.)

Salespersons vs brokers

In the United States, there are commonly two levels of real estate professionals licensed by the individual states, not by the federal government:

Real estate salesperson: When a person first becomes licensed to become a real estate agent, the person obtains a real estate salesperson's license from the state in which the person will practice. To become a real estate salesperson, the candidate must pass some specific coursework and then pass a state exam on real estate sales. Then in order to work legally, these salespersons must be associated with (and act under the authority of) a real estate broker as described above. Many states also have reciprocal agreements with specific other states, allowing a licensed individual from a qualified other state to take the second state's exam without completing the course requirements.
Real estate broker: After gaining some experience in real estate sales, a salesperson may decide to become licensed as a real estate broker. Commonly more course work and a broker's state exam on real estate 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), become a real estate office branch manager, or take charge of his/her own brokerage and hire other salespersons (or broker) licensees.

Typically, a real estate license is needed to perform a "real estate act" (such as showing properties for sale) for compensation, but principals (sellers or buyers) can perform these acts themselves without a license.

Estate agent is the term used in the United Kingdom to describe a person or organization whose business is to market real estate on behalf of clients.

A realtor is a real estate salesperson or broker who is a member of the National Association of Realtors (NAR). All realtors are brokers/salespersons, but not all brokers/salespersons are realtors.

Real Estate Education

California institutions of higher learning, recognizing the impact of real estate activities on the general economy of the state and the complexities of real estate transactions, have established model career development and training programs.

Community College System: Presently, most community colleges offer a real estate curriculum. The majority of these colleges offer the courses that are mandatory to obtain a real estate broker or salesperson license, as well as the courses leading to an Associate of Arts degree in Real Estate. In the larger metropolitan areas, a full spectrum of real estate courses, beyond the required courses, offer opportunities in fields directly and indirectly related to real estate. Prospective students should contact their local community colleges for complete information.

California University Systems: The University of California and most campuses of the California State University system offer numerous real estate courses as a portion of various degree programs.

Courses at Private Schools Some California private vocational schools also offer the required pre-license education courses. Only those schools which have made a formal request, filed an application, and obtained formal approval from the Real Estate Commissioner may offer the courses. Private school courses are normally not transferable for credit at public institutions of higher learning.

Courses offered by out-of-state private schools are not acceptable unless prior approval of the California Real Estate Commissioner has been obtained.

Correspondence Courses For those students who prefer independent study, the University of California (Extension), as well as several California private vocational schools, offer correspondence courses in the required subjects.

 "Education Course Availability (Statutory/Pre-License Courses)". Retrieved Aug. 29, 2006.

General

The sellers and buyers themselves are the principals (definition 2 in the Principal article) in the sale, and real estate brokers (and the broker's agents) are their 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 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 closing) will ensure that they be paid. Lenders typically have other requirements, though, for a loan: see Closing cost.

Services provided to both buyers and sellers

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 to finance buyers to make their purchase.

Regardless of whether a real estate agent assists sellers or buyers of real estate, negotiation and financing skills are important.

Real estate brokers and sellers

Services provided to seller

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 highest possible price on the best terms for the seller. In the United States, most states' laws require the real estate agent to forward all written offers to the seller for consideration or review.

To help accomplish this goal of finding buyers, a real estate agency commonly does the following:

Listing the property for sale to the public, often on a Multiple Listing Service, in addition to any other methods.
Based on the law in several states, providing the seller with a real property condition disclosure form, and other forms which may be needed.
Preparing necessary papers describing the property for advertising, pamphlets, open houses, etc.
Generally placing a "For Sale" sign on the property indicating how to contact the real estate office and agent.
Advertising the property. Advertising is often the biggest outside expense in listing a property.
In some cases, holding an Open house to show the property.
Being a contact person available to answer any questions about the property and to schedule showing appointments
Ensuring buyers are prescreened so that they are financially qualified to buy the property; the more highly financially qualified the buyer is, the more likely the closing will succeed.
Negotiating price on behalf of the sellers. The seller's agent acts as a fiduciary for the seller. This may involve preparing a standard real estate purchase contract by filling in the blanks in the contract form.
In some cases, holding an earnest payment cheque in escrow from the buyer(s) until the closing. In many states, the closing is the meeting between the buyer and seller where the property is transferred and the title is conveyed by a deed. In other states, especially those in the West, closings take place during a defined escrow period when buyers and sellers each sign the appropriate papers transferring title, but do not meet each other.

The "listing" contract

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 fullfill agreed-upon terms specified within that contract. The seller's real estate is then listed for sale, often on a Multiple Listing Service in addition to any other ways of advertising or promoting the sale of the property.

In most states where brokers are members of the NAR (and thus follow rules set by NAR), a listing agreement or contract between broker and seller must include the following: starting and ending dates of the agreement; the price at which the property will be offered for sale; the amount of compensation due to the broker and how much, if any, will be offered to a co-operating broker who may bring a buyer. Without an offer of compensation to a co-operating broker (co-op percentage or flat fee), the property may not be advertised in the MLS system.

Brokerage commissions

In consideration of the brokerage successfully finding a satisfactory 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 satisfactory buyer for the real estate for sale, the successful negotiation of a purchase contract between a satisfactory buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller.

In the United States a commission in the 5% to 7% range is considered "standard" for residential real estate and is typically paid by the seller. Commissions are negotiable between seller and broker. The commission could also be a flat fee or some combination of flat fee and percentage, particularly in the case of lower-priced properties, vacant lots, or other unusual real estate. The details are determined by the listing contract.

However, some brokers charge as much as 10% while others will offer services for 1%. Fee-for-service or flat-fee real estate brokerages are also increasing in popularity. This is not, however, the norm throughout the world. In Australia, for example, listing agents are paid 1% and very few buyers use an agent. If they do, they pay out of pocket.

Out of the commission received from the seller, the broker will typically pay any expenses incurred to do the work of trying to sell the listed properties, such as advertisements, etc.

Lockbox

With the sellers’ permission, a lockbox is placed on homes that are occupied and, after arranging an appointment with the home owner, agents can show the home. When a property is vacant or where a seller may be living elsewhere, 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 (often only with authorization from the listing brokerage), by using some sort of secret combination or code provided by the brokerage or the issuer of the lockbox.

Lockboxes come in two varieties - mechanical and electronic. Mechanical lockboxes utilize a combination dial or special mechanical key and are readily purhased at local home improvement centers or over the internet. Mechanical lockboxes offer the most basic protection of the homeowner's key and therefore expose the most risk of unmonitored or potentially unauthorized access to the home during the sales process. The risk stems primarily from an agent forgetting to change the combination after each sale. The frequency of use of mechanical lockboxes by agents has steadily declined due to the availability of more secure electronic lockboxes.

Electronic lockboxes increase the level of security because agents wishing to show a property must have a vaild electronic key to open the box. The electronic key must be renewed or refreshed at regular intervals by the agent otherwise the key deactivates itself preventing access to the lockbox contents. Electronic keys can range from credit card sized smart cards to a separate electronic box. In addition to greater security, electronic lockboxes typically record all key access activity internally. This access log can be downloaded and reviewed by the listing agent to determine the date, time and person accessing the lockbox. Electronic lockboxes also offer a host of other features such as controlling allowed showing times, homeowner privacy modes, special showing restrictions etc.

Shared commissions with co-op brokers

If any buyer's broker (or any of his/her 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 in the event no other brokerage firm is involved and no co-op commission is 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.

Controversies regarding commissions

Real estate commissions are becoming a point of controversy. Home values in many areas have quadrupled over the past 20 years and yet some of the actual work, local knowledge, and expertise required by real estate agents has decreased due mostly to technological improvements and the internet. This may be contributing to the increased number of licensed agents.

Another controversy exists for the commissions to real estate agents. If a listing agent sells a property for any amount above the listed price, he in turn will make additional income. In theory, this will motivate him/her to get top dollar price for his client, the seller. However, regarding to the agent representing the buyer, if he/she attempts to obtain a lower sales price for his client, then he/she would make a lower commission. Thus, it could be considered to be in the agent's best interest to advise his client to purchase the property at a higher price. However, agents who create satisfied clients and develop subsequent referrals are likely to do far better in the long run.

In practical terms, there is a rarely a huge enough difference between the listing (asking) price and the negotiated selling price to make a significant difference between the commissions generated on each side, and certainly hardly enough to justify an agent failing in his fiduciary duty to obtain the best terms for his/her client.

Real estate brokers and buyers

Services provided to buyers:

Buyers as clients

With the increase in the practice of buyer brokerage in the US, especially since the late 1990s in most 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 real estate brokerages choose only to represent buyers in an exclusive buyer's agency relationship and do not take "listings" from sellers.

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:

Find real estate in accordance with the buyers needs, specifications, and affordability.
Takes buyers to and shows them properties available for sale.
When deemed appropriate, prescreens buyers to ensure they are financially qualified to buy the properties shown (or uses a mortgage professional to do that task).
Negotiates price and terms on behalf of the buyers and prepares standard real estate purchase contract by filling in the blanks in the contract form. The buyer's agent acts as a fiduciary for the buyer.

Buyers as customers

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. A written "Buyer Brokerage" agreement is not required for the buyer to have representation (regardless of which party is paying the commission).

Find real estate in accordance with the buyers’ needs, specifications, and affordability.
Take buyers to and shows them properties available for sale.
When deemed appropriate, prescreen buyers to ensure they are financially qualified to buy the properties shown (or uses a mortgage professional to do that task).
Assist the buyer in making an offer for the property.

Footnotes

External links

[1] >2005->Ch0475->Section%20278#0475.278 Florida's Transaction Brokerage proposal

[2] Colorado: Types of brokerage outlined, including Transaction Brokerage

[Transaction_brokers-3] South Broward Board proposal

[Florida_legislation-4] Florida's Tranaction Brokerage law from Realty Times article

[5] Maryland's Agency Disclosure form with types of agency allowed

[1]

[2]

[3]

[4]

[5]