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These terms often get thrown around interchangeably, but they actually have pretty distinct differences between each other. Let’s start with the term realtor.
A realtor is a real estate professional who’s an active member of something called the National Association of Realtors, NAR for short. It’s an organization that fosters and promotes best practices within the real estate industry.
You do not have to become a realtor in order to hold a real estate license, but you do have to hold a real estate license in order to become a realtor. In fact, at the time of this recording, I’m describing myself here. I personally hold my real estate license for the state of Indiana, but I’m not currently a member of the National Association of Realtors.
One of the major benefits of joining the NAR is that it gives you access to something called the Multiple Listing Service or MLS for short, which is a database of regional properties that have sold in the past, or that are currently on the market for sale. And therefore, most people who get their real estate license also become realtors.
In commercial real estate, it’s a little bit different though. Access to the MLS is not as essential because a lot of the deals happen off-market or through relationships or through alternative databases like CoStar. It’s more common to find people who are licensed, but not realtors on the commercial side of real estate. The National Association of Realtors breaks up each state into different regions and each region has its own local chapter.
In order to access the MLS for a particular region, a person would have to subscribe to that regional chapter of the NAR.
To do so a person has to pay annual membership fees, attend the ongoing education and agree to uphold certain standards of professionalism. So with that out of the way, let’s not talk about the difference between a real estate agent and a real estate broker.
The term real estate agent can actually mean different things depending on what state you’re in. Certain states run their real estate licensing on a two-tier credential system whereas on the lower tier, you have something called the real estate salesperson who people commonly refer to as a real estate agent. And on the higher tier, you have something called the real estate broker.
In this two-tier system, each designation requires an entirely different set of tests and licensing, but the broker designation is also requiring two years of experience as a salesperson. And say, it’s with this two-tier system, you have to get your salesperson license first, hold that license actively for at least two years.
And then you can start the process to obtain your broker’s license if you want. In order for the salesperson to conduct business legally in real estate, they have to “hang” their license under a real estate broker and pay them a portion of their commission. The reason behind this is that it’s assumed that a broker is more experienced than the salesperson and they will oversee their activities and ensure that they’re not making any mistakes or causing problems.
Typically the broker will provide ongoing resources like guidance, education, and business advice to the salesperson and their compensation for that is a portion of the salesperson’s commission. So to recap in states with this two-tier system, our real estate professional that holds their salesperson’s license is commonly referred to as a real estate agent. Whereas someone who holds a real estate broker‘s license is simply called a real estate broker.
Now, in other states, this two-tier system is still somewhat in effect, but there’s only one standardized license in all of real estate, namely the real estate brokers license In these states, no one holds a salesperson’s license at all. They only hold a broker’s license.
The way these states distinguish between the less-experienced broker who still has to hang their license and share a portion of their commissions legally. And the more experienced broker is by requiring the more experienced broker to hold an active license for at least two years, and then take a class that certifies them as a managing broker.
So when in these states you have brokers and managing brokers, and here’s where things might get a little confusing. Most people in the states refer to non-managing brokers as real estate agents and then refer to managing brokers as brokers. Regardless of what state you’re in probably the easiest way to remember the difference between an agent and a broker is to think of a real estate agent as a professional who primarily does business just for themselves.
Whereas a broker normally runs a real estate brokerage firm. The real estate broker is normally more experienced and serves more in a management role compared to the agent who primarily focuses on sales. To wrap this all up, there is actually one exception to what I’ve mentioned here. In commercial real estate, most real estate professionals are universally referred to as brokers, regardless of whether they hold a sales person’s license or not.
They simply distinguish between the two tiers by calling one-tier a broker, and one-tier a managing broker.
I hope this article at least cleared some things up for you.
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