Broadly speaking, an agent is anyone hired by a principal (also referred to as a client) to act on her behalf and represent her best interests. In highly regulated industries like real estate or financial securities, there’s a further distinction made to distinguish between an agent and his assistants. Within the real estate industry, the agents are called brokers and assistants are called salespersons.
Here’s where the confusion starts. Over the years, real estate marketing convention has interchangeably called the salesperson a “sales agent” or just “agent”. Since only the broker is an agent and a salesperson is a sub-agent of the broker, the typical use of the term “agent”, such as on Trulia, is a misleading misnomer.
So far, there’s been little attempt by the real estate industry to self-correct for this confusion. California’s regulators have made at least some half-hearted efforts to clarify by using the terms broker and salesperson in its literature. By contrast, the recently chastised finance industry has led with its self-governing body, FINRA, to adhere very strictly to “broker” and “sales representative” as its standard industry terms for an agent and assistant.
(For clarity, I’ll refer to agents as “brokers” and assistants or sub-agents as “salespersons” from here on.)
In both the real estate and finance industries, a broker is one who is licensed to execute transactions while a salesperson is only permitted to assist the broker in bringing together a transaction. Hence, this leads to the more pragmatic definitions of brokers and salespersons:
- must stand to a high level of industry knowledge and competence as verified by examination,
- are able to legally open a brokerage,
- take on nearly all liability for issues with transactions, and
- bear additional operating expenses like insurance and legal services.
- meet minimal standards of industry knowledge by examination,
- must work for a licensed broker,
- have fewer responsibilities and accept fewer liabilities, and
- receive after-expense commission splits from brokers.
A broker can choose to work under another broker’s brokerage and be positioned somewhere between a broker and a salesperson in terms of responsibility. In that case, the broker would be called a broker-associate and would become the sub-agent of his managing broker.
While both a broker and salesperson are in the business of selling real estate, the relationship between them is akin to that between a doctor and nurse or a lawyer and paralegal. Just like an experienced nurse may have far more practical knowledge than a fresh doctor, the ultimate responsibility still lies with the doctor and his judgment. Similarly, a salesperson may believe a transaction has been prepared correctly but her broker may find valid reasons to amend the contract.
Now that these terms are cleared up, what does that mean for a client?
While an experienced salesperson can very capably handle your needs as as client, a broker has more latitude than a salesperson in the range of options available in a tight negotiation and can resolve complicated issues more quickly. A salesperson may need to verify information or discuss with his broker before providing a response. For most homebuyers, this difference may not be meaningful. But for professional investors or experienced homebuyers, brokers are clearly preferred.
At many real estate firms, especially large Internet-based firms, there’s not even a choice to work with a broker. It’s simply not possible at those firms since the brokers are busy managing their brokerage and reviewing contracts for dozens or hundreds of salespersons. This is why clients will often get better service at smaller real estate firms like Archers Homes, a broker-only brokerage, where they can work closely, if not directly, with a broker.