In searching and buying a new home, you may encounter the terms “broker” and “agent”, and sometimes you might use them interchangeably. Let’s make one thing clear: these two terms refer to two different kinds of real estate professionals.
Let’s discuss each title and their roles briefly.
- Real estate agents are representatives of the seller under the authority of the broker to sell a property on the seller’s behalf. They earn through commission given by the sponsoring broker. Agents are able to recommend lenders to a buyer. A good agent will not confine their referrals to those of in-house lenders.
- Brokers are intermediates between the borrower (buyer) and the lender. They are authorized by the state to draw payments and manage transactions regarding a purchase. Although their license is of a higher level than agent, brokers may not necessarily have more experience than other agents. These professionals may work alone or in the employ of a senior broker.
To mix things up, there’s another professional called a “Realtor®”. This title is given to either real estate agent or broker who is a member of the National Association of REALTORS (NAR) and adheres to the organization’s code of ethics when conducting their business.
In any home purchase transaction, you should not rely on a person’s title or license as basis for credibility because there are other factors you will need to consider – experience, expertise, compatibility, and location.
Who's on your side?
You need to check if the real estate professional whom you go to for assistance is on the same page. A real estate agent can be on the side of either the buyer or the seller, and so it is crucial that you know what type of agent you are dealing with to make things work for you.
Try to understand how they conduct their business with you. Look into their commissions and agreements, as well as the laws governing their work. These may be universally accepted roles and responsibilities for these professionals, but some rules may not apply to certain states.
There’s the “Law of Agency”, which states that the agent or broker’s financial obligation is towards the client. The client is the one paying the commission, and could be either the buyer or the seller. Make sure that you know where the loyalties of your agent lie, because he could be working the deal to benefit the seller more than you.
No matter what kind of real estate professional you hire, agents earn their commissions/incentives from a successful deal between buyer and seller. They see to it that their clients are happy in order to create a good reputation for them and generate more potential leads. Once you have picked your preferred agent, be honest about your expectations to ensure a harmonious working relationship.
Basically all real estate agents are licensed under a real estate brokerage agency. There’s a unique kind of company called “dual agency”, which employs both the seller’s and the buyer’s agents. Both of these agents may not know each other and can work from separate offices, but are operating under the same brokerage. In some cases, the agent for the buyer and seller are on and the same. In short, a dual agency can represent both buyer and seller.
In such cases, vital information can be disclosed interchangeably. The broker may share the buyer’s information to the seller, and vice versa. Other important information such as property defects, financial details, potential costs, and comparables may be distributed to both the seller and the buyer. However, the dual agency is not allowed to disclose confidential details between the two parties without permission. It also cannot offer prices to either party just to satisfy the request of the other.
In many states, dual agencies need to issue a written disclosure. Meanwhile, some states forbid dual agencies. Working with real estate brokers from a dual agency may prove favorable to the buyer because they tend to lower their total commission. However, it’s still a good idea to check where the loyalties of the broker are leaning towards.
The buyer’s agent
In a standard home buying process, the buyer needs to hire an agent. It might be beneficial for you to get the services of a buyer’s agent, whose focus is directed to buyers without obligation to sellers. They have made it their professional objective to provide whatever their buyers are looking for. Although it’s possible that they work in a dual agency, buyer’s agents will make it their responsibility to have your back.
As the buyer, you have the freedom to sign an exclusive contract with an agent or not. However, you may still be liable to pay for the agent’s commission in the event that you purchase a property from other agencies or channels. It is very important for buyers to read the contract stipulations to make them aware of the agreements and responsibilities that they have to their agents.
Exclusive buyer's agents
You should be aware of the existence of exclusive buyer agents (EBAs) who pledge to put buyer’s interest their top priority. As the name suggests, EBAs represent buyers to take care of practically all details involved in a home purchase – looking for the right home, negotiating on your behalf, and going through the inspections until the final stage of the purchase.
Most buyers usually hire EBAs to save themselves from experiencing possible conflicts that may arise when buying a property. Through the help of an exclusive agent, you can be prioritized in considerations for the buyer of choice.
Saving on commissions
Online real estate listings have became popular, and many buyers have become more advanced in finding ways to find the right houses for them. Looking for homes online saves time for both the buyer and the agent. It helps the buyers save money as well, because instead of paying their agents to find them a great home, they can just simply do it by themselves and at their own pace.
Because of this, agent’s commission has significantly declined from a standard of 5-7 percent to lower than 5.5 percent in 2011. This shift seems to be caused by the goal of buyers and sellers to save big on one of the biggest decisions that they will ever make. To lure budget-constrained buyers and sellers, some real estate firms have been offering the same services but at lowered commissions. Unfortunately, due to the fact that most real estate firms can already charge a minimum monthly fee and provide fixed cash payments to agents, commissions have slowly dipped. Some agents try to circumvent this practice by not turning in much of their profits to their brokerage firm.
In a typical situation, the seller takes care of the brokerage fee. However, the cost to cover the commission might be written into the seller’s asking price. As a result, you might be paying for the commission indirectly.
Some agents may work for you in unique arrangements, including the following:
- Some professionals work as fee-for-service brokers, who offer a wide range of services that you can select from. You only pay for the services that you need, but some transactions may be difficult to isolate given the fact that many of them overlap in the course of the buying process.
- In house auctions, different properties are listed in auction sites, and the agent gets to bid and then squeeze out commission from the transaction.
The above services are definite plus points for customers, but these are not available in some areas. In fact, some states prohibit these kinds of transactions.
Definition of real estate professionals
Real estate broker
An individual or franchise who acts as an intermediary between the retail side (homeowner) and the wholesale side (bank/lender). This entity is authorized by the state to perform real estate transactions.
A licensed broker who works for another broker.
Real estate agent
A licensed individual who is either a representative of the buyer or the seller. This person works under the authority and supervision of a broker.
An individual or group who embodies both the buyer and the seller during a transaction. It is important that a dual agent should reveal in advance his status to both buyer and seller in order for the transaction to be valid. Some states do not allow a dual agency.
Buyer's agent or buyer's broker
This person acts in favor of the buyer’s interests. The agent is represented by a brokerage firm who has a written agreement to work exclusively for a buyer. A buyer’s agent takes it upon himself – and is bound by law – to give his utmost loyalty to the buyer he represents in negotiations, in such a way that the transaction benefits the buyer.
Exclusive buyer's agent
The main objective and function of this type of agent is to represent real estate buyers only. They don’t list properties for sale and therefore never represent sellers in any manner.
Seller's agent or listing agent
In contrast to a buyer’s agent, the individual who represents the person selling a house is called a seller’s agent or listing agent. Listing agents can get their clients through their own initiative (i.e. through ads they post on newspapers or websites, referrals from family and friends, or solicitation). They may also work their way through a respectable real estate firm where he is currently working who in turn assigns the client he will be assisting. Listing agents usually coordinate with the buyer’s agent and not directly with the buyer.
This professional is instituted by the agent to do business in his behalf either in full or partial representation.
This intermediary entity does not represent either the buyer or seller, but instead acts as an arbitrator between the two parties for reasons of settlement.
This agent represents either a buyer or a seller who enters into the same transaction, but cannot represent both.
This person has membership in the National Association of Realtors (NAR), the industry group that sets the code of ethics for realtors.
This is a term used for agents who are associated with member brokers from the board of realtors.
GRI, CRS, CRB
These are acronyms for some of the advanced designations an agent may earn after he has satisfactorily conformed with certain requirements for ongoing education and level of performance. GRI stands for Graduate REALTOR Institute, CRS is Council of Residential Specialists, and CRB is Council of Real Estate Brokerage. The aforementioned terms are just some of the designations that an agent can earn.