The Differences Between a Real Estate Agent and a Broker

Why choose a real estate broker over an agent? The differences between a real estate agent and a real estate broker are subtle to the typical home buyer or seller, and generally invisible to the average consumer. However, it is important to understand the distinction between the two types of licensees.

The legal definition of an 'agent' is someone who acts on behalf of and with the authority of another person to fulfill a transaction or obligation. In order to protect consumers, a distinction has been drawn in real estate between two different levels of the agency arrangement.

Every state requires that anyone promoting real estate on behalf of another person or company obtain a license from the state in order to do so. These licenses are granted by state agencies when the agent passes a standardized test on various concepts of real estate law, contracts and conveyances, and agency law. Most states require that the person wishing to acquire a real estate license Take one or two courses on the individual state's laws governing agency and the basics of transactions.

Someone licensed as a real estate agent is limited in what they can and cannot do. While the licensing laws vary from state to state, they generally require that someone with an agent license only work under the supervision of a person holding real estate broker license. A real estate agent may not sign contracts on anyone's behalf except their own, including the broker for whom they work, which includes the listing agreement for a home sale. A real estate agent when they accept an escrow check may only place the money in the escrow account of the broker for whom they work. Only a broker can maintain an escrow account and accept money on behalf of third parties.

A licensed real estate broker has usually taken advanced courses in real estate practice and principles, such as appraisal, financing, and/or real estate law. They are required to pass a much more extensive and stringent standardized exam. A broker will usually have one to two years of experience as agent. Most states require a certain level of experience as an agent before granting a broker license, which varies from one to two years, depending on the state. It usually takes three years after obtaining an agent license to become a broker due to the combination of course work and experience a person has to have first.

A real estate broker has a fiduciary responsibility to their clients and to the general public. A broker is responsible for the actions of any agents working for them, how real estate is advertised, and the general business practices of the company. A real estate broker holds the licenses for any agents working under his or her supervision and is required to respond for any misdeeds for those agents. A broker is usually required by law to maintain professional liability insurance for each and every agent. The broker maintains the business and financial records. A broker also has a fiduciary responsible for any money placed in escrow.

Someone licensed as a real estate broker may work under the supervision of another licensed broker, but legally has greater freedom of action than does a real estate agent. A broker in this situation is permitted by law to accept funds into escrow and sign contracts on behalf of third parties; however, what that broker may do depends on the contract between the two brokers.

States require that a real estate broker maintain professional liability insurance, both for himself, and covering any agents that may be working under him. Generally, this insurance is mandatory for the broker to maintain his license and stay in business. This insurance is to protect the public from illegal and unethical business practices.

The general public tends to confuse a Realtor® with a real estate agent or broker. A Realtor® is a member of a professional association, the National Association of Realtors. Becoming a Realtor® generally requires a person to be either an agent or a broker whose license is in good standing in their state. While an agent or broker may be a Realtor®, there is no legal reason requiring them to hold the Realtor® designation.