Working with a real estate broker can make an investor’s life easier. Find out what is a broker in real estate and how you can benefit from one.
Table of contents:
- What Is a Broker?
- The 3 Types of Brokers in Real Estate
- Benefits of Working With Real Estate Brokers
- Bottom Line
When the pandemic started in early 2020, several people who had lost their jobs came to real estate and decided to join the growing network of real estate agents. Two years into the pandemic, many businesses have reopened, and other industries that were shut down are now back in business. However, real estate remains a hot industry, and many people still find a comfortable yet flourishing career either as agents or brokers.
The reason behind this is that despite the pandemic, the demand for housing never stopped. In fact, many real estate professionals agree that 2021 was their best year—with record-breaking high demand from buyers and a growing appreciation rate. Because of this demand, a lot of people also ventured into real estate investing. If you are a new real estate investor, you might be wondering what is a broker and whether it’s necessary to work with one.
What Is a Broker?
A broker, in general, is an individual or firm that serves as an intermediary between an investor and an exchange. In real estate, a broker is a licensed individual who facilitates real estate transactions between buyers and sellers. If you’re investing in real estate, a broker can help you find the best deals because of their wide network. For example, brokers can give you access to their listings if you’re looking for apartments for sale.
It’s important to note that there are different types of brokers in real estate, and each type has its own specific duties and responsibilities.
What Is the Difference Between a Real Estate Agent and a Broker?
A real estate agent usually works under a real estate firm or brokerage to help people buy and sell real estate. Some real estate agents also work with landlords to find renters for their income property. The significant difference between a real estate agent and a broker is that agents are usually not licensed.
On the other hand, brokers receive a specific education focused on real estate to get a state real estate broker license. Other brokers attain another higher-level license to put up a real estate brokerage firm and hire real estate agents. Real estate agents who work under a broker typically earn a commission per successful transaction.
Related: 10 Benefits of Hiring a Real Estate Agent
What Is the Difference Between a Realtor and a Broker?
A realtor refers to a real estate professional who is a member of the National Association of Realtors (NAR). Realtors include a variety of professions in real estate, such as brokers, agents, salespeople, appraisers, and property managers. Real estate professionals who want to become a realtor and earn a realtor salary should take a pre-licensing course and a licensing exam.
As members of NAR, realtors abide by certain standards of ethics and a strict moral code, earning them a reputation of being more trustworthy in the real estate industry. What sets realtor agents apart from non-realtor agents is that realtors have access to property listings that other agents do not have access to. Since realtors have MLS access, working with a realtor allows you to find a wide range of available listings.
3 Types of Brokers in Real Estate
People new to real estate investing might think that a real estate transaction is quite simple and straightforward. However, the process of real estate investing is not as simple as searching for a property, contacting the seller, applying for a loan, and closing the sale. To make every process in a real estate transaction smooth, investors sometimes work with professionals who have substantial experience in real estate.
There are three common types of brokers in real estate:
1. General Real Estate Brokers
Most of the time, real estate brokers are used interchangeably with real estate agents. However, while it’s true that most of the things included with the duties and responsibilities of a real estate agent are also done by a real estate broker, they are not the same. Both real estate brokers and agents typically help buyers look for properties that meet their criteria. They also help sellers in finding buyers for their listings. So what is a real estate broker, and how can they help investors?
Real estate brokers are typically real estate agents who studied a higher level of real estate education to obtain a broker license. The qualifications for becoming a real estate broker can vary from state to state. If you plan to work with a real estate broker to help you find an investment property, the broker will negotiate with the seller on your behalf. The broker will also prepare offers and assist you with other transactions and issues until the sale closes.
If you’re into buy-and-sell or fix-and-flip and work with a broker to help you sell your property, the broker will help determine its market value and have it listed. The broker will also communicate with you for offers and assist with the selling process. Some brokers also assist with writing contracts and overseeing the sales activities until the property is sold.
Investors can benefit from working with a real estate broker because licensed brokers have extensive knowledge about the market. They know the numbers well, and they can help you find the best deal. They also have a vast network within the real estate industry, making it easier for you to find a buyer for the property you’re selling.
Tiers of Real Estate Brokers
Real estate brokers have three major tiers with different degrees of responsibility. They are the principal or designated brokers, managing brokers, and associate brokers.
Principal or Designated Brokers
Principal or designated brokers supervise real estate agents under their brokerage firm. They make sure that all agents comply with the rules of the firm and the national and state real estate law. Usually, at least one principal or designated broker is assigned to each real estate office.
As the name implies, managing brokers are the ones who manage the daily operations and brokerage transactions in the real estate office. Managing brokers are also tasked with hiring real estate agents, training new employees, managing administrative staff, and overseeing any office-related activity as directed by the firm.
Are you wondering what is a broker associate and how they differ from real estate brokers? Associate brokers are also licensed real estate brokers who work under another broker or brokerage firm. They typically work as a salesperson or agent for another broker. Unlike regular real estate brokers, they do not supervise real estate agents.
What Is a Real Estate Broker Salary?
Real estate brokers normally take a portion of the commission earned by real estate agents working under them. If the brokers do the transactions directly with the buyer or seller, they earn a commission from their own successful deals. Managing brokers are paid a salary for overseeing the day-to-day operation of the firm and may also earn a commission from their own deals.
2. Mortgage Brokers
If the real estate broker oversees real estate transactions and activities involved in buying and selling a property, what is a mortgage broker? Generally, a mortgage broker acts as an intermediary between a lender and a borrower. In real estate, mortgage brokers help investors connect with lenders to find the best financing options for their investment.
There are different types of loans for real estate investing, and a mortgage broker can help you find the best terms suitable for your financial situation. In addition, mortgage brokers can also help negotiate the terms and interest rates with the lenders. It’s important to note that mortgage brokers do not use their own funds for the mortgage—the funds to finance a purchase will come from the lender.
New investors who don’t have enough real estate experience and portfolios will usually find a hard time getting a loan approved. If you’re a new investor, you can benefit from hiring a mortgage broker.
The mortgage broker will help you with the paperwork needed for the loan, such as your financial information, credit report, and employment documentation. The broker will then submit the requirements to a mortgage lender for underwriting and approval. Moreover, the mortgage broker will communicate with you and the lender during the entire loan process until closing. The mortgage broker makes money by earning a commission from the borrower, the lender, or both parties at closing.
Related: How to Choose the Best Mortgage Lenders
3. Transaction Brokers
In many states, transaction brokers have become one of the main alternatives to real estate agents working with buyers and sellers. But what is a transaction broker, and when can you use one?
The basic transaction broker definition is a licensed third-party broker who acts as an impartial intermediary in a real estate deal. Transaction brokers assist in the real estate buying process. However, they do not represent either the buyer or the seller. Since they do not represent either party, transaction brokers are generally objective when it comes to setting a property’s market value and aim for a win-win deal.
The primary role of transaction brokers is to help buyers and sellers complete real estate transactions. Usually, the tasks of transaction brokers involve setting a fair asking price for a property and managing correspondence between a buyer and a seller. They also help prepare sales proposals, draft agreements, and assist buyers and sellers during the closing process.
In most states, transaction brokers are legal. However, they are not yet regulated in some states. It’s important to note that transaction brokers do not participate in negotiations between buyers and sellers. Since transaction brokers are impartial third parties, they will not work to negotiate the selling price other than helping to establish the property’s fair market value.
Experienced investors who are good at negotiating may benefit from transaction brokers. If you only need someone to do the paperwork for you, but you don’t need help with negotiations, then working with a transaction may be your best bet. Instead of earning a commission, transaction brokers usually charge a flat fee per transaction that ranges from $250 to $500. Some charge more than this amount, depending on the amount of work involved.
Benefits of Working With Real Estate Brokers
If you’re a new real estate investor, working with a real estate broker can be advantageous for you as they can help you make favorable deals. Although you will spend money to pay for the broker’s commission, this small expense will be worth it in the long run.
Here are a few reasons why you should consider working with a real estate broker:
- Brokers have access to the best opportunities: Most brokers share listings with one another, so working with one can also give you access to a wide range of inventory. Moreover, some brokers have access to the MLS database, while others have the first access to new investment opportunities.
- Brokers have expert negotiation skills: If you need help with your deals, working with a broker is your best option. Brokers do their own real estate market analysis so they know the crucial numbers that can help them negotiate favorably on your behalf.
- You can save time: Since brokers are experienced and knowledgeable about the real estate process, working with one can help you save time. Brokers know where to find the best deals, what documentation you need to prepare, what approvals to secure, etc. This allows you to save time during the entire transaction process.
- Brokers have a network of buyers: If you have an investment property for sale, brokers can help connect you to an extensive network of buyers so you can sell your property quickly.
Related: 10 Best Real Estate Negotiation Tips for Buyers
Now that you know what is a broker and the benefits of working with one, you may consider hiring a broker to help you with your next real estate transaction. With a record-low inventory and high demand, the competition in real estate is getting tougher. Many buyers and investors are hiring agents and brokers to help them find the best deals—the reason why many people are shifting careers as brokers. As a new investor, you may want to take advantage of the many benefits of working with a broker.
However, if you prefer not to hire a broker, you also have the option to work with a real estate analytics platform to help you find an investment property.
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