4.243 TRILLION $$

 

Global Real Estate Industry: Total Revenues of $4,243.6 Billion in 2020 - Market Summary, Competitive Analysis and Forecast to 2025 - ResearchAndMarkets.com

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A real estate agent, referred to often as a real estate broker, is a person who represents sellers or buyers of real estate or real property. While a broker may work independently, an agent usually works under a licensed broker to represent clients.^[1] Brokers and agents are licensed by the state to negotiate sales agreements and manage the documentation required for closing real estate transactions. 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.

Categories of representation

Generally, real estate brokers or agents fall into four categories of representation:

• Seller's agents, commonly called "listing brokers" or "listing agents", are contracted by owners to assist with marketing property for sale or lease.

• Buyer's agents are brokers or salespersons who assist buyers by helping them purchase property.
• Dual agents help both the buyer and the seller in the same transaction. To protect their license to practice, a real estate broker owes both parties fair and honest dealing and must request that both parties (seller and buyer) sign a dual agency agreement. Special laws/rules often apply to dual agents, especially in negotiating price. In dual agency situations, a conflict of interest is more likely to occur, typically resulting in the loss of advocacy for both parties. Individual state laws vary and interpret dual agency rather differently, with some no longer allowing it. In some states, dual agency can be practiced in situations where the same brokerage (but not agent) represents 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 an "intra-company" agent. Only the broker is the dual agent.
• Transaction brokers provide the buyer and seller with a limited form of representation but without any fiduciary obligations. Having no more than a facilitator relationship, transaction brokers assist buyers, sellers, or both during the transaction without representing the interests of either party who may then be regarded as customers. The assistance provided are the legal documents for an agreement between the buyer and seller on how a particular transfer of property will happen.

A real estate broker typically receives a real estate commission for successfully completing a sale. Across the U.S, this commission can generally range between 5-6% of the property's sale price for a full service broker but this percentage varies by state and even region.^[2] This commission can be divided up with other participating real estate brokers or agents. Flat-fee brokers and fee-for-service brokers can charge significantly less depending on the type of services offered.

Real estate licensing and education

To become licensed in the United States, real estate brokers and salespersons are authorized by each state, not by the federal government. Each state has a real estate commission (governing body) who monitors and licenses real estate brokers and agents. For example, some states only allow lawyers to create documentation to transfer real property, while other states also allow the licensed real estate agent to do so. Most states require that an applicant must attend a pre-license course with a minimum number of classroom hours to study real estate law before taking the state licensing exam. Such education is often provided by real-estate firms or by education companies, either of which is typically licensed to teach such courses within their respective states. The courses are designed to prepare the new licensee primarily for the legal aspects of the practice of transferring real estate and to pass the state licensing exam. Some states, like Massachusetts, require as little as 40-hours classroom time to get licensed. Others, like California, mandate over 100 hours. Many states allow candidates to take the pre-licensing class virtually. Candidates must subsequently pass the state exam for a real estate agent's license.

Upon passing, the new licensee must place their license with an established real-estate firm 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, the principal one, manages the firm itself. That individual is then legally responsible for all licensees held under their license.

In most jurisdictions in the United States, a person must have a license to perform licensed activities, and these activities are defined within the statutes of each state. The main feature of the requirement for having a license to perform those activities is the work done "for compensation". Hence, hypothetically, if a person wants to help a friend out in either selling or buying a property, and no compensation of any kind is expected in return, then a license is not needed to perform all the work. However, since most people would expect to be compensated for their efforts and skills, a license would be required by law before a person may receive remuneration for services rendered as a real estate broker or agent. Unlicensed activity is illegal and the state real estate commission has the authority to fine people who are acting as real estate licensees, but buyers and sellers acting as principals in the sale or purchase of real estate are usually not required to be licensed. It is important to note that in some states, lawyers handle real estate sales for compensation without being licensed as brokers or agents. However, even lawyers can only perform real estate activities that are incidental to their original work as a lawyer. It cannot be the case that a lawyer can become a seller's selling agent if that is all the service that is being requested by the client. Lawyers would still need to be licensed as a broker if they wish to perform licensed activities. Nevertheless, lawyers do get a break in the minimum education requirements (for example, 90 hours in Illinois).^[3]

Requirements vary among states but after some period of time working as an agent, one may return to the classroom and sit for a test to become a broker. For example, California and Florida require licensees to have a minimum experience of two years as a full-time licensed agent within the prior 5 years. However, Indiana only requires one year experience as a real estate salesperson and Arizona requires three out of the prior five years. Brokers may manage or own firms. Each branch office of a larger real estate firm must be managed by a broker.

Some other states have recently eliminated the salesperson's license, instead, all licensees in those states automatically earn their broker's license.

The term "agent" is not to be confused with salesperson or broker. An agent is simply a licensee that has entered into an agency relationship with a client. A broker can also be an agent for a client. It is commonly the firm that has the actual legal relationship with the client through one of their sales staff, be they salespersons or brokers.

In all states, the real estate licensee must disclose to prospective buyers and sellers the nature of their relationship ^[4] within the transaction and with the parties. See below for a broker/licensee relationship to sellers and their relationship with buyers.

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

Specific representation laws

Some U.S. state real estate commissions – notably Florida's^[5] after 1992 (and extended in 2003) and Colorado's^[6] after 1994 (with changes in 2003) created the option of having no agency or fiduciary relationship between brokers and sellers or buyers.

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

"The Transaction Broker crafts a transaction by bringing a willing buyer and a willing seller together and provides the legal documentation of the details of the legal agreement between the same. The Transaction Broker is not a fiduciary of any party, but must abide by the 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 had "all licensees ... operating as transaction brokers, unless a single agent or no brokerage relationship is established, in writing, with the customer"^[7][8] and the statute required written disclosure of the transaction brokerage relationship to the buyer or seller customer only through July 1, 2008.

In the case of both Florida^[8] and Colorado,^[6] dual agency and sub-agency (where both listing and selling agents represent the seller) no longer exist.

Other brokers and agents may focus on representing buyers or tenants in a real estate transaction. However, licensing as a broker or salesperson authorizes the licensee to legally represent parties on either side of a transaction and providing the necessary documentation for the legal transfer of real property. This business decision is for the licensee to decide. They are fines for people acting as real estate agents when not licensed by the state.

In the United Kingdom, an estate agent is a person or business entity whose business is to market real estate on behalf of clients. There are significant differences between the actions, powers, obligations, and liabilities of brokers and estate agents in each country, as different countries take markedly different approaches to the marketing and selling of real property.

The difference between salespersons and brokers

Before the Multiple Listing Service (MLS) was introduced in 1967, when brokers (and their licensees) only represented sellers by providing a service to provide legal documentation on the transfer real property, the term "real estate salesperson" may have been more appropriate than it is today, given the various ways that brokers and licensees now help buyers through the legal process of transferring real property. Legally, however, the term "salesperson" is still used in many states to describe a real estate licensee.^{[citation needed]}

Real estate salesperson (or, in some states, real estate broker)

When a person first becomes licensed to become a real estate agent, they obtain a real estate salesperson's license (some states use the term "broker") from the state in which they will practice. To obtain a real estate license, the candidate must take specific coursework (between 40 and 120 hours) and pass a state exam on real estate law and practice. To work, salespersons must be associated with (and act under the authority of) a real estate broker. In Delaware, for example, the licensing course requires the candidate to take 99 classroom hours in order to qualify to sit for the state and national examination. In Ohio, a license candidate must complete 120 hours of classroom education. Each successive year thereafter, the license holder must participate in continuing education in order to remain abreast of state and national changes.

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.^{[citation needed]}

Real estate broker (or, in some states, qualifying broker)

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. In addition, some states allow college graduates to apply for a broker's license without years of experience. College graduates fall into this category once they have completed the state-required courses as well. California allows licensed attorneys to become brokers upon passing the broker exam without having to take the requisite courses required of an agent. Commonly more coursework and a broker's state exam on real estate law 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) or take charge of their own brokerage and hire other salespersons (or broker), licensees. Becoming a branch office manager may or may not require a broker's license. Some states allow licensed attorneys to become real estate brokers without taking any exam. In some states, there are no "salespeople" as all licensees are brokers.^[9]

Agency relationships with clients versus non-agency relationships with customers

Agency relationships in residential real estate transactions involve the legal representation by a real estate broker (on behalf of a real estate company) of the principal, whether that person(s) is a buyer or a seller. The broker and his licensed real estate salespersons (salesmen or brokers) then become the agents of the principal.

• Agency relationship: Conventionally, the broker provides a conventional full-service, commission-based brokerage relationship under a signed listing agreement with a seller or a "buyer representation" agreement with a buyer, thus creating under common law in most states an agency relationship with fiduciary obligations. The seller or buyer is then a client of the broker. Some states also have statutes that define and control the nature of the representation.

• Non-agency relationship: where no written agreement or fiduciary relationship exists, a real estate broker and his sales staff work with a principal who is known as the broker's customer. When a buyer who has not entered into a Buyer Agency agreement with the broker buys a property, that broker functions as the sub-agent of the seller's broker. When a seller chooses to work with a transaction broker, there is no agency relationship created.

There are state laws defining the types of relationships that can exist between clients and real estate licensees, and the lawful duties of real estate licensees to represent clients and members of the public. Rules on the types of relationships between clients and real estate licensees vary substantially as defined by the law from state to state.^{[citation needed]}

Designated agency

The most recent development in the practice of real estate is "designated agency" which was created to permit individual licensees within the same firm, designated by the principal broker, to act as agents for individual buyers and sellers within the same transaction. In theory, therefore, two agents within the same firm act in strict fiduciary roles for their respective clients. Some states have adopted this practice into their state laws and others have decided this function is inherently problematic, just as was a dual agency. The practice was invented and promoted by larger firms to make it possible in theory to handle the entire transaction in the house without creating a conflict of interest within the firm.^{[citation needed]}

Types of services that a broker can provide

Real Estate Services are also called trading services ^[10] by some jurisdictions. Since each province's and state's laws may differ, it is generally advised that prospective sellers or buyers consult a licensed real estate professional.

Some examples:

• Comparative Market Analysis (CMA) — an estimate of a property'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).

• Total Market Overview — an objective method for determining a property's value, where a CMA is subjective.
• Broker's price opinion — estimate of a property's value or potential selling price.
• Real estate appraisal — in most states, only if the broker is also licensed as an appraiser.
• 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.
• For sale by owner (FSBO) document preparation — preparing the necessary paperwork for "For Sale By Owner" sellers.
• Home Selling Kits — guides advising 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 (in most states, only if the broker is also licensed as an auctioneer).
• Preparing contracts and leases (not in all states).

These services are also changing as a variety of real estate trends transform the industry.^{[citation needed]}

Real estate brokers and sellers

Flat-fee real estate agents

Flat-fee real estate agents charge a seller of a property a flat fee, $500 for example,^[11] as opposed to a traditional or full-service real estate agent who charges a percentage of the sale price. In exchange, the seller's property will appear in the multiple listing service (MLS), but the seller will represent him or herself when showing the property and negotiating a sales price.^[11] The result is the seller pays less commission overall (roughly half) when the property sells.^[11] This is because a seller will pay a percentage of the sales price to a buyer's agent but not have to pay a percentage to a seller's agent (because there isn't one; the seller is representing himself).

Brokerage commissions

In consideration of the brokerage successfully finding a 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 buyer for the real estate, the successful negotiation of a purchase contract between the buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller. Under common law, a real estate broker is eligible to receive their commission, regardless of whether the sale actually takes place, once they secure a buyer who is ready, willing, and able to purchase the dwelling.^[12] The median real estate commission charged to the seller by the listing (seller's) agent is 6% of the purchase price. Typically, this commission is split evenly between the seller's and buyer's agents, with the buyer's agent generally receiving a commission of 3% of the purchase price of the home sold.

In North America, commissions on real estate transactions are negotiable and new services in real estate trends have created ways to negotiate rates. Local real estate sales activity usually dictates the amount of agreed commission. Real estate commission is typically paid by the seller at the closing of the transaction as detailed in the listing agreement.

Economist Steven D. Levitt famously argued in his 2005 book Freakonomics that real estate brokers have an inherent conflict of interest with the sellers they represent because their commission gives them more motivation to sell quickly than to sell at a higher price. Levitt supported his argument with a study finding brokers tend to put their own houses on the market for longer and receive higher prices for them compared to when working for their clients. He concluded that broker commissions will reduce in future.^[13] A 2008 study by other economists found that when comparing brokerage without listing services, brokerage significantly reduced the average sale price.^[14]

RESPA

Real estate brokers who work with lenders can not receive any compensation from the lender for referring a residential client to a specific lender. To do so would be a violation of a United States federal law known as the Real Estate Settlement Procedures Act (RESPA). RESPA ensures that buyers and sellers are given adequate notice of the Real Estate settlement process.^[15] Commercial transactions are exempt from RESPA. All lender compensation to a broker must be disclosed to all parties. A commission may also be paid during negotiation of contract base on seller and agent.

Realtor

In the United States, the term realtor is trademarked by the National Association of Realtors, which uses it to refer to its active members, who may be real estate agents or brokers.^[16][17][18] In Canada, the trademark is used by members of the Canadian Real Estate Association.^[19] Both organizations advise against the use of realtor as a generic synonym for real estate agent.^[19]

Continuing education

States issue licenses for an annual or multi- year period and require real estate agents and brokers to complete continuing education prior to renewing their licenses. For example, California licensees must complete 45 hours of continuing education every 4 years in topics such as agency, trust fund handling, consumer protection, fair housing, ethics, and risk management.^[20]

Organizations

Several notable groups exist to promote the real estate industry and to assist professionals.

• The National Association of Realtors (NAR)

  • The Realtor Political Action Committee (RPAC) is the lobbying arm of the NAR.

• The National Association of Real Estate Brokers (NAREB)
• The Real Estate Institute of Canada (REIC)^[21][22]
• The Real Estate Roundtable^[23]
• Building Owners and Managers Association focusing on commercial property

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