What’s the difference between a REALTOR® vs an Agent?
Many people interested in buying a home often ask us, “What’s the difference between a Realtor® and a real estate agent, and, where does a broker fit in the equation?”
We hear the terms real estate agent and Realtor® bandied about quite often, and many people think they’re referring to the same thing.
Before the Multiple Listing Service (MLS) was introduced in 1967, when brokers (and their licensees) only represented Sellers, the term “real estate salesperson” may have been more appropriate than it is today.
The main difference, however, is that a Realtor® is a licensed real estate salesperson who belongs to the National Association of Realtors®, the largest trade group in the country. Realtors® are held to a higher ethical standard than licensed agents and must adhere to a Code of Ethics.
Definition of Realtor®
According to the Realtor® definition, they’re expected to be experts in their field. Among its many requirements, the NAR’s Code of Ethics says that realtors “shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction;” “shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing and other representations;” and shall “pledge themselves to protect and promote the interests of their client” while treating all parties to the transaction honestly.
Realtors® include agents that work as residential and commercial real estate brokers, salespeople, property managers, appraisers, counselors and other real estate professionals.
More than one million real estate agents are Realtors®, and the term is a registered trademark. Realtors® must belong to both a local association or board and a state association.
Every agent, however, is not a Realtor®, but most are.
If you’re unsure, you can ask your Solutions agent if they’re a licensed Realtor® and they’ll be happy to tell you and explain the difference.
Some Realtors® are brokers, while some are agents. Brokers are usually managers. They run an agency and have agents working under them as salespeople. They must take additional courses and pay additional fees to maintain their state-issued broker license.
An agent, on the other hand, is a salesperson selling on behalf of the broker in exchange for a commission. Agents are also state licensed and must pass a written test before legally acting as a real estate agent. Each state has its own licensing laws and standards.
Once licensed, the licensee in most states is initially designated a salesperson and must work under a broker’s license. Typically there may be multiple licensees holding broker’s licenses within a firm but only one broker for the firm itself.
An agent is simply a licensee that has entered into an agent relationship with a client. A broker can also be an agent for a client. It’s commonly the firm that has the actual legal relationship with the client through one of their sales staff, be they salespersons or brokers.
When a person first becomes licensed to become an agent, they obtain a real estate salesperson’s license (some states use the term “broker”) from the state in which s/he will practice. To obtain a real estate license, the candidate must take specific coursework (between 40 and 90 hours) and pass a state exam on real estate law and practice.
Many states also have reciprocal agreements with other states, allowing a licensed individual from a qualified state to take the second state’s exam without completing the course requirements or, in some cases, take only a state law exam.
After gaining some years of experience in real estate sales, a salesperson may decide to become licensed as a real estate broker (or Principal/qualifying broker) in order to own, manage, or operate their own brokerage.
Upon obtaining a broker’s license, an agent may continue to work for another broker in a similar capacity as before (often referred to as a broker associate or associate broker) or take charge of his/her own brokerage and hire other salespersons (or broker) licensees.
Commission is split many ways
Many people look at their Closing Disclosure at Closing and see the commission lines filled out and have no idea how that money is split. They think their agent walks away with all of it, but there’s more to it than that.
Agents typically work for brokers. The commission check is made payable to the brokerage, which then cuts a check to the listing and selling agents. Both agents also must pay a percentage of their earnings to their broker, whether they are with the same company or not.
Generally, agents also are responsible for paying their own federal and state income taxes, social security tax, and health insurance. They’re also responsible for their own education.
Reality TV vs. Real Life
Many people also think, based on the shows they see on television, that a stereotypical agent works a few hours a day and makes millions of dollars a year.
On television, Buyers find the perfect house after visiting just three listings — and write an offer that’s accepted immediately. The next thing you know, they’re moving in.
This isn’t exactly how it works unless you somehow get lucky and find the perfect house online, make an offer and get it accepted immediately – this can and does happen, but it’s far from the norm.
The typical Buyer searches for about 12 weeks and looks at about 10 properties before selecting a home, according to the National Association of Realtor®. They then wait about 30-60 days — on average — for the deal to close. The agent is only paid once the deal closes.
If the Buyer decides instead to sign a rental lease — or not to buy — that agent isn’t compensated. The same is true of listings. If the listing doesn’t sell, the agent isn’t paid.
Selling real estate is a commission-only business. That means an agent can work with a Buyer for months without ever making a commission — it’s truly a business run on trust and faith.