What Exactly Is a REALTOR®?
A REALTOR® is a licensed real estate salesperson who belongs to the National Association of REALTORS®, the largest trade group in the country.
Every agent is not a REALTOR®, but most are. If you’re unsure, you can ask your agent if they’re a licensed REALTOR®.
REALTORS® are held to a higher ethical standard than licensed agents and must adhere to a Code of Ethics.
Some REALTORS® are brokers, while some are agents. Unfortunately, people use the term interchangeably: there are some differences.
Brokers are usually managers. They run an agency and have agents working under them as salespeople. They might own a real estate brokerage or manage a franchise operation. 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.
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.
Some states—like Illinois—have eliminated the real estate salesperson license and mandate all agents take additional course work and pass another test to become brokers. They are broker associates still selling under a managing broker.
The Typical REALTOR®
There is a stereotype of the typical REALTOR® that must be dispelled: the stereotypical agent works a few hours a day and makes millions of dollars a year. Reality TV shows perpetuate this myth.
On television, buyers find the perfect house after visiting just three homes—and write an offer that is accepted immediately. The next thing you know, they’re moving in!
Nothing could be further from the truth.
The typical buyer searches with a REALTOR® for about 12 weeks and looks at about 10 properties before selecting a home, according to the National Association of REALTORS®. They then wait about 30 days—on average—or the deal to close. The agent is only paid once the deal closes.
If the buyer decides to sign another lease—or not to buy—that agent is not compensated. The same is true of listings. If the listing does not sell, the agent is not paid.
The average agent earned $47,700 in 2013, according to the National Association of REALTORS® Member Profile 2014.
Selling real estate is a commission-only business. That means an agent can work with a buyer for months without ever making a commission—because deals fall though and not every listing sells. It’s a business run on trust and faith.
Also, many people see the commission check at the closing table and have no idea how that money is split. They think their agent walks away with all of it—that’s just not true.
Remember, agents work for brokers. The commission check is made payable to the brokerage which then cuts a check to the listing agent and the selling agent. Both agents also must pay a percentage of their earnings to their broker.
Generally, agents also are responsible for paying their own federal and state income taxes, social security tax, and health insurance.
REALTORS® Facilitate the Process
For most people, buying a home is the largest financial investment they will ever make. It is the one time you can say you went shopping and spent a quarter of a million dollars (or more).
So shouldn’t you work with a REALTOR® to get the best advice possible for that investment?
REALTORS® Facilitate the Process
A REALTOR® is a client advocate, the market expert and the negotiating tiger all wrapped up into one independent contractor. Because REALTORS® are usually solo practitioners, they wear many hats. They are sales people, but they are also marketing directors, social media managers and data analysts all in one.
A rising number of home buyers are using REALTORS®. About 88% of home buyers purchase their home through a real estate agent or broker—a share that has steadily increased from 69% in 2001, according to the National Association of REALTOR®’s 2013 Profile of Home Buyers and Sellers.
Homeowners rely on REALTORS® to help them find the most qualified buyer and to navigate the home selling processes. Rules regarding home sales are always changing, and it is the REALTOR®’s job to stay on top of those market dynamics and pass along their expertise to their clients.
REALTORS® direct their home-buying clients to the best financing options for their situation, and they steer all their clients to make better decisions in preparation for the home buying or selling process.
For instance, a homeowner who wants to list their home might be advised to take a home equity line of credit (HELOC) before listing to make necessary repairs—because once the property is listed, a bank will not lend on that property. A buyer might be advised not to buy a car before starting or closing on a home purchase, because such a big ticket purchase would change their debt-to-income ratios and might disqualify them for a home loan.
REALTORS® Offer Great Resources
REALTORS® know the best contractors and can refer them easily to new homeowners and potential sellers. They are the link between all things real estate and the novice.
One of the REALTOR®’s most important roles is as the unbiased voice of reason. The REALTOR® is the objective set of eyes in the transaction. They help sellers see outside their personal connection to a property, and they help buyers stay level when faced with a multiple-bid situation.
A REALTOR® can help a buyer save money and help a seller to make the most money. Because they go through the home buying and selling process daily, they can warn clients of potential dangers and looming changes.
Buyer Agents: Working for You Free of Charge
Home buyers should always have their own agent. Buyer agents work to negotiate the best terms and price for the buyer. Best of all, the buyer agent’s services are free to the buyer.
Most people think they have to pay a sales commission. The truth is this: only the seller pays the commission.
Whether a buyer uses an agent or not, the seller still pays the commission. The only person that wins when buyers are not represented is the listing agent.
Most buyer agents will have their clients sign an agency agreement, an Exclusive Buyer Agency Agreement. It outlines their services, how they are compensated, and how the two parties will work together.
To ensure you’re working with an agent who specializes in representing buyers, seek out an Accredited Buyer Representative (ABR).
Remember, you wouldn’t hire your spouse’s attorney to represent you in your divorce. The same goes for real estate. Why use the seller’s agent to negotiate your best interest? There is an inherent conflict of interest.
The home buying process is stressful enough without worrying about who you can and cannot trust. Your buyer’s agent is your trusted advocate.
Listing Agent vs. Buyer Agent: Who Works for You?
It may seem perfectly logical to call the agent on the yard sign while driving around your dream neighborhood searching for your next house.
The sign might have a QR code or text code to allow you to quickly access more information—but beware. Your information goes directly to the listing agent and the listing agent works for the seller, not the buyer.
Sellers and agents have a written contractual agreement outlining their relationship. It’s called the Exclusive Listing Agreement. It outlines the role of the listing agent, how they will market the party, the commission and the terms of the listing.
The Listing Agent is the Seller’s Representative
That means the listing agent has a legal obligation to work on the seller’s behalf—to get the highest possible price and the best terms available for the seller, not the buyer.
The listing agent legally is obligated to share any information they learn about the buyer with the seller. If a potential buyer walks into an open house and strikes up a conversation with a personable listing agent, any information divulged there can be used against the buyer during eventual negotiations.
So telling a listing agent you are relocating within the next month for a new job at a high profile company with a great offer that increased your salary so now you can afford more house than before? That can hurt you later if it comes to a bid on the property.
Listing Agents Wear Many Hats
There are many facets to a listing agent’s job. They work closely with the seller and provide a bevy of services. Here is a sample of what most listing agents do for each seller client:
- Create a marketing plan for the house
- Have professional photos taken of the house
- Advise the seller about the best ways to stage the house for sale
- Generate Comparative Market Analysis reports to suggest the best selling price
- Recommend contractors and vendors to help prepare the home for market
- Evangelize the benefits of the house and neighborhood to potential buyers
- Coordinate showings with buyer agents and unrepresented buyers
- Host “Broker Opens” to get as many potential buyer agents into the house for feedback and to attract buyers
- Make the house easily accessible for showings
- Provide showing feedback
- Communicate market activity to the seller with weekly updates/reports
- Present and advise sellers of all offers
- Negotiate the highest possible selling price
- Coordinate the purchase process with inspectors, attorneys, appraisers, title company agents and others
- Verify buyer eligibility to purchase
- Make the home selling process as easy for the seller as possible
- The listing agent is the homeowner’s biggest advocate.
Buyer Agents and the Agreements
According to most buyer agency agreements, the buyer’s agent must do these things:
- Protect their client’s financial information
- Negotiate the best possible price for the buyer
- Must disclose to the buyer if they are working with another buyer interested in the same property
- Show all properties the buyer is interested in that fits their criteria and budget
- Connect you with the service providers—inspectors, lenders, home warranty companies—to best suit your needs
- The buyer also has some responsibilities to their buyer’s agent:
- Buyers must work with their buyers agent exclusively
- Buyers should never give personal information to any other agent
- Buyers should not call other agents to see properties, even if they think they are saving their agent some time and effort
- Buyers should clearly define their must haves and deal breakers to help their agent streamline the showing processMake sure the buyer’s agent you select is familiar the type of property you want to purchase, the area you want to purchase in and the particulars of your situation. An agent is only as effective as the information they are given. Clients relocating from one city to another require a different set of skills from a client moving within the same area, for example.
- Buying real estate is a big decision. The best advice is to find a REALTOR® who will guide you through the local market conditions.
- Home buyers are at a premium in today’s housing market. Buyers should interview agents just as seller’s interview listing agents.