To the average person, the term real estate agent and real estate broker may seem like the same thing. Even some agents have a hard time distinguishing between the two and understanding the difference or possible advantages and disadvantages to either.
Today, we are going to be covering the difference between these two license types.
We will clear up some terminology, discuss the advantages and disadvantages of either license type, and talk about other options than receiving a brokers license.
“Real Estate Agent”
The most common term is “real estate agent.” In actuality, most licenses that are received are actually called a “Salespersons license”. When you’re considering two different licenses, you have a “Brokers License” and “Salespersons License.”
There is not an “Agent License.” This term is something that we all say because it is familiar to most people, but realistically, what we’re comparing is a Broker to a Salesperson’s license. That’s the standard across most of the states.
You’re also going to hear the term “Realtor.” What is a Realtor? Where does that fit into all of this?
Well, realistically, a Realtor is a salesperson or broker that is part of the National Association of Realtors. They pay additional dues to become part of this organization. Realtors have to abide by the Realtor Code of Ethics to be a member of the Realtor community.
A salesperson can be a Realtor. A broker can be a Realtor. That doesn’t distinguish between salespeople or brokers. So don’t let that get you confused.
“Realtor” is not a generic term. “Realtors” are members of the National Association of Realtors. It’s not just a generic term. A lot of times you’ll hear that thrown out for just somebody who’s in the real estate industry. “Oh, they’re a Realtor.”
Not every agent or broker is a Realtor. They could be just a salesperson or broker. They don’t necessarily have to be a Realtor.
Some MLS’s do require salespeople and brokers to be a Realtor. That’s kind of a separate thing. But in most places, they do not have to be.
You might have heard the term “sub-agent.” A sub-agent usually refers to a salesperson as well. Typically, that salesperson is a sub-agent of their broker. Salespeople cannot go out and just conduct business in real estate on their own. Salespeople have to have a real estate broker sponsor their license. Typically, that salesperson is considered a sub-agent of the broker.
A salesperson license is what most new agents receive, usually after successfully completing a real estate course. There are great classes offered both in person or online. Finding the best real estate school online will depend on your education preferences. Typically, it’s easier to pass the salesperson exam than the broker exam. Usually the pass-fail criteria for the salesperson exam is 70% whereas the broker exam can be 80-85 percent.
A salesperson’s license is useless if you never get it sponsored by a broker. You have to have a sponsoring broker, as a salesperson, to be able to go out there and conduct real estate business, earn commissions, and represent a client.
In some states, like Washington, all of their agents are considered brokers. So, every agent is a broker. However, these states typically have different levels of brokers.
For instance, you might be a “broker” or “managing-broker.” In this case, a managing broker is the person that oversees a brokers actions.
Advantages of a Broker License vs a Salesperson License
Operate on Your Own
I speak to many brokers and one of the reasons I hear most often for why they became a broker is not having to answer or rely on someone else. Brokers can do their own thing, within reason, of course. Don’t get me wrong, you are always answering to your clients and there are legal and ethical guidelines that you have to answer to. However, as your own broker, you don’t have somebody forcing you to do things a certain way.
Whereas, if you’re a salesperson and you’re at a brokerage, you have to do things how the broker requires because they are responsible for your actions. If you are your own broker, you can do whatever you want to do in terms of your paperwork and how you conduct business. Of course, you still need to abide by your states real estate rules and regulations and the Realtor Code of Ethics, if you’re also a Realtor.
Recruit Other Agents to Work For You
As a broker, you can recruit agents that sell transactions on your behalf.
To be clear, a broker doesn’t have to have other agents. That may be one reason they want to get their broker’s license, but some brokers choose to be their own broker and conduct business on their own.
For brokers that want to build a real estate business, receiving their broker’s license, may seem like the only option to do that. With a brokers license, a broker is able to recruit other agents and brokers to conduct business on their behalf and earn a percentage of the commission.
Later we’ll discuss additional options for agents and brokers wishing to scale their real estate business but not necessarily have to get their brokers license or be held liable for agents they sponsor.
The “Broker/Owner” or “Broker Associate” Title May Give an Edge in the Mind of a Prospective Client
If you’re going into a listing or buyer presentation and competing with another agent, the title “Broker” may provide an edge. If one agent has their broker’s license, and the other only has their salespersons license, in the eyes of the client, that broker title may carry more weight.
You just never know, right? It can happen. Sometimes, brokers want to get their broker’s license just to give them that extra edge.
Depending on your state, there may be significant tax advantages to having your broker license. For this next part, be sure to consult your CPA for more information.
For instance, here in Texas. If I have an LLC and I want to get paid into that LLC for tax purposes, then I need to have my own Broker’s License. If I only have a Salesperson’s License, then whatever brokerage that I work at, they can only pay me as an individual. They will only pay my social security number. They cannot pay my EIN (Employer Identification Number) for my business for tax purposes. That makes a big difference.
You should consult your CPA to see what advantages or disadvantages that may pose for you. You also want to check with your state to see if that is, in fact, true for your state as well.
How to Earn a Broker License
In most states, you’ll need to be a salesperson
For instance, you’re going to need to have a certain length of time as a salesperson. Like here in Texas, we have to have our Salesperson License for four years before we can go and get our broker’s license. But that’s not it. There are other requirements too.
There’s also a required amount of experience. I know in Texas we’ve got a point scale. I think that we’ve got to have something like 3600 points to be able to qualify to go sit for our Brokers License exam. Those 3600 points consist of things like closing transactions, doing rentals, doing listings, all sorts of different things like that related to the experience. I believe you can get designations. That will give you points.
Every state I’m sure is a little bit different but in general, I would imagine that the majority of the states are going to require some form of experience as far as the requirements to get your license. And so, that’s going to be much higher than if you just wanted to go get your Salesperson License. Typically, to get your Salesperson’s License you just have to go sit for classes and then take the exam. That’s pretty much it.
Whereas with getting your Broker’s License, you have to do all that to get your Salespersons license, then have your license for a certain amount of years. I’ve heard anywhere from two to three to four years. In most states, you got to have experience closing deals, doing rentals, doing listings, all that type of stuff.
And then, you still need to complete additional education. More education that’s required than just getting your Salesperson’s License. I believe in Texas, you have 270 hours to get your Salesperson’s License. A hundred and eighty hours upfront, and then an additional 90 hours of mandatory continuing education as soon as you’ve gotten your license within, I think, the first year or so.
But then, to get your broker’s license, there’s something like, I think, 630 hours that you need to get your license. Now in Texas, we can also use some of our college education. If you went to school, got a degree, or maybe you just took some classes, a lot of that can be used for your Broker’s License education requirements. But if you don’t have that, then yes, you would need to go and figure out. There are different classifications and different things that you can do as far as taking additional education that will get you eligible here in Texas, and I would imagine for most places.
And then, of course, you got to pass the broker exam. I’ve heard that it’s a beast. I’ve heard that it’s tough. That it is a good amount of work. And so, you got to go in there and sit for it. You got to have a higher passing grade, I believe, than a 70. I think it’s a little higher. It’s like an 80 in Texas. (Don’t quote me.) But I do know, I think it’s California, it’s got to be 80%. So, all sorts of different things in different states, but in general, most of these ideas are correct.
Held to a Higher Standard
There are not a whole lot of disadvantages to obtaining your broker license. However, you are going to be held to the highest level of the law. If you’re doing things right and you’re an ethical person, this shouldn’t come into play, but that being said, everybody makes mistakes. If you are a broker, you will be held to the highest level of the law. If you’re a salesperson, your broker is typically the one that is responsible for most of what you do. That’s not to say you can go out there and do just whatever you want. But in general, you are expected to have known more things if you’re a broker than if you’re a salesperson. Competency comes into play. If you ever got in a sticky situation, being a broker might come back to bite you.
More Education Required
But the other one, more classes. You got more education. You got to do more continuing education, all that good stuff compared to a normal Salesperson’s License, much harder exam with a higher pass-fail limit, possibly higher insurance and licensing costs, especially if you’re going out there and sponsoring other agents.
You are going to face higher insurance requirements because not only are you ensuring your license that you are going to do everything properly, but if you have other agents, of course, your insurance has got to cover them as well. So that can also be a disadvantage.
You’re going to also be liable for the actions taken by salespeople whose license you’ve sponsored.
So, if you are bringing in agents into your brokerage, of course, we all want to say that we are there for our agents and we can manage and make sure we oversee all of their transactions, but there’s just so many little facets of a transaction that even with the best intentions, things can go wrong. And so, whenever you have your own broker’s license and you start taking on other agents, you’d increase the chances of that.
There are other options as far as not having to get your broker’s license. You can stay a salesperson and do a couple of other things that might be similar to having a brokerage.
Build a Team
It’s kind of somewhere in the middle. As a team leader, you’re still most likely a salesperson. You don’t have to be a broker to have a team in most cases. Let’s just say you want to be able to scale up or you want to be able to build your business a little bit larger than just yourself. Typically, if you build a team that allows you to do that.
Now, of course, every brokerage is going to have some pros and cons to doing that. Like each agent may have additional caps or they might add to your cap, the splits could change, all sorts of different things there. So, you got to look at it and see financially if that’s a good option for you but it’s certainly an alternative. You don’t have to do anything different. You don’t need to go out there and take the broker exam or take extra education. Typically, you just check into what your team policies are for your brokerage and see if that’s something you want to do. You can figure out more information about that.
I mentioned I had my brokerage, to begin with. This is how we ran it. We had an LLC. That was the LLC that I owned. And then we have a sponsoring broker, who basically, they were licensed here in the state of Texas. I paid that person to sponsor my LLC so that way my LLC could run as a brokerage. And then, at that point, I could go out and I could still hire agents to work under that LLC.
Now, of course, I did still need to get some approval by the sponsoring broker that sponsored that LLC because that person is still liable for everything, they’re sponsoring the LLC, but it allowed me as a salesperson to be able to kind of operate a little bit more independently. I didn’t have to go work for a franchise brokerage. I didn’t have to go work for an independent brokerage. I could start up my own thing. I had to find somebody willing to sponsor the brokerage. And when I say willing, it’s typically a financial situation. You got to pay somebody to do that. But there are all sorts of different options out there.
It’s similar to if you’re an agent and you just need your license sponsored by a broker, there’s a lot of brokers that you can pay per transaction or something like that and have your license be sponsored by a broker. They may not have brick and mortar offices. They might not have all this stuff. They’re essentially just sponsoring your license so you can conduct business, and it’s kind of like a per transaction thing.
Same thing, kind of in the LLC brokerage space. There are brokers out there that sponsor LLCs. And of course, you’ve got to be a good candidate, a good fit. You got to show that, hey, if you’re managing this, you’re trustworthy. You’re not just going to send them all sorts of agents that are doing unethical things, or you are doing unethical things. That could be an option, right, if you wanted to look into it.
Build Revenue or Profit Share Within a Brokerage
That’s what ultimately, I chose to do. Back in 2017, I ended up making the move over to eXp. I took my independent brokerage, the brokerage LLC that was sponsored at the time and I decided, “Hey, I don’t want to do that anymore. I want to instead kind of build.” It’s almost like a hybrid, right? It’s almost like building a team but it’s also like building a brokerage within a brokerage. Essentially, at this point, I’ve got about 250 agents across 30 different states that I’ve sponsored. I earn a percentage of their gross commission income on every single deal that they do. I can still actively sell real estate myself here in San Antonio, Texas. And so, there are options like that out there. The brokerage I’m with, eXp Realty, we pay a revenue share. I’ve got other videos that talk about revenue share and how that works and the advantages to it. There’s Keller Williams. I know they do a profit share. There are pros and cons to both profit share versus revenue share, and the Keller Williams model versus the eXp model. I got all sorts of content that I’ve created around those types of things. I’ve talked to all sorts of agents that ask me every day about the difference. But then there are also other ones. I think Exit Realty might have been one, where you’d get paid on agents that you sponsor into the company.
There are different models like that, where if you want to still just sell you can be a salesperson. If you may have ambitions to kind of scale-up and either build a team or get some kind of benefit from agents that you might bring into the business, there are other options versus having to go out there and just start up your brokerage. I would say make sure to explore all of your options first before you go out there and do all of that.
Are you a real estate agent or broker? Did I miss any pros or cons to either? I’d love to hear from you. Put a comment below!