Real Estate Agent: Definition, How Agents Work, and Compensation

Updated March 30, 2024

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A real estate agent is a licensed professional who arranges property transactions, connects buyers and sellers, and represents them in negotiations. Real estate agents are usually paid through a commission—a percentage of the property’s sale price—so their income depends on the size and number of deals they close. In almost every state, a real estate agent must work for or be affiliated with a real estate broker, someone who is more experienced, has taken additional coursework, and is licensed.

Key Takeaways

A real estate agent is a licensed professional representing buyers or sellers in real estate transactions.
A real estate agent usually works for commission, a set percentage of the final sale price.
In most states, a real estate agent must work with a real estate broker, firm, or fellow professional with more experience and a specialized license.

What a Real Estate Agent Does

Real estate agents usually specialize in either commercial or residential real estate. In either case, their duties largely depend on whether they work for the buyer or the seller. Agents who work for the seller, known as listing agents, advise clients on how to price the property and prepare it for sale. They commonly supply tips on last-minute improvements to boost prices or encourage faster offers. Seller agents market the property through listing services, their network of professionals and others, and advertisements.

Agents who work for the buyer search for available properties that match the buyer’s price range and wish list. These agents usually look at past sales data for comparable properties to help prospective buyers create a bid that is at least realistic.

From there, the agents act as go-betweens for the principal parties, conveying offers, counteroffers, and other questions back and forth, essentially negotiating on the client’s behalf. Once a bid is accepted, agents on both sides have work ahead: helping their clients through the paperwork, communicating on their behalf, advising on inspections and moving, and generally shepherding the deal through to closing.

When you’re engaged in a real estate transaction, you should be clear about which party a real estate agent represents: the buyer, the seller, or both parties. The party that the real estate agents represent and have a fiduciary responsibility to can significantly affect how they act during the transaction. State laws regulate whether an agent can represent both parties in a real estate transaction, technically known as “dual agency.” Agents must disclose whom they represent so that buyers and sellers are aware of any conflicts of interest.

Dual agency, in which one person represents both the buyer and seller in a real estate transaction, is illegal in eight states: Alaska, Colorado, Florida, Kansas, Maryland, Texas, Vermont, and Wyoming.

Real Estate Agent Compensation

Traditionally, agents were paid a percentage of the property’s sale price through commission. The more the house sells for, the more money the agent makes. However, payment arrangements for real estate agents are changing, with online listings allowing consumers to do much of the shopping on their own without help from an agent.

Some brokerages charge a lower commission for more expensive properties, and some handle the entire transaction for a flat fee that ends up lower than a regular commission. Other companies offer an à la carte price structure that lets sellers pay only for certain parts of the sale process, such as adding the property to a multiple listing service or helping with an open house.

You hear people use the terms “real estate agent,” “real estate broker,” and “realtor” interchangeably. While there is overlap among them, there are key differences to know.

Real Estate Agent vs. Real Estate Broker

The distinctions between a real estate agent and a real estate broker vary across states. Generally speaking, anyone who earns a basic real estate license, which involves taking a certain number of accredited courses and passing an exam, is a real estate agent: a salesperson qualified to help consumers buy or sell property.

A real estate broker is a step up the professional ladder. Brokers have additional training and education and have a broker's license. Most states also require that brokers have a certain amount of recent experience as active real estate agents. Brokers handle the technical aspects of the real estate transaction. A client signs a contract with a brokerage, not an individual agent. In many states, brokers' additional certification authorizes them to handle other legal and financial aspects of a deal, such as handling the earnest money deposit and establishing the escrow account.

Brokers normally own a firm or a franchise. They can be on their own but must obtain an additional license to hire agents or other brokers to work for them. Meanwhile, a real estate agent ordinarily cannot work alone but must operate with a real estate broker; the exceptions are in states such as Colorado and New Mexico, which mandate that every real estate professional be licensed as a broker. More typically, agents work for brokers and split commissions with them.

On March 15, 2024, the National Association of Realtors settled a class-action lawsuit brought by home sellers who alleged that the association had inflated the commissions paid to its realtors. As part of the proposed $418 settlement, the NAR agreed to prohibit offers of broker compensation when a property is listed on its multiple listing services (MLS). If approved by the court, the new rule is expected to give buyers more room to negotiate on agent commissions.

Real Estate Agent vs. Realtor

Every real estate broker is or has been a real estate agent, but not every real estate agent is a broker. How do realtors fit into the equation?

A realtor is a member of the National Association of Realtors (NAR), a trade association. Both agents and brokers can be realtors, along with property managers, appraisers, and other real estate industry professionals. Realtors are expected to be experts in their field and must follow the NAR’s code of ethics, which requires agents to uphold specific duties to clients, customers, the public, and other realtors. In addition to NAR, realtors must belong to a state or local real estate association or board.

All realtors are real estate agents, brokers, or in a related profession, but not all agents or brokers are realtors. There are about three million active real estate licensees in the U.S., almost 1.6 million NAR members, and about 106,500 brokerage firms in the U.S.

What Does a Real Estate Agent Do?

A real estate agent juggles various tasks, like property appraisals, negotiations, and administrative duties while also meeting with clients. Their research typically involves studying market trends, property values, local zoning laws, neighborhood features, and marketing strategies. They also keep abreast of the latest real estate laws and regulations.

How Do I Become a Real Estate Agent?

To become a real estate agent, you need to complete some steps, though these vary by jurisdiction. Here's what's typical: you are above a certain age, a legal resident of where you plan to practice, have completed the necessary pre-license education, passed your state's real estate exam, have activated your license, and finally, have joined a real estate brokerage.

What Is a Real Estate Agent's Salary?

The median annual salary was $49,980 for real estate sales agents and $62,190 for real estate brokers in 2022, according to the U.S. Bureau of Labor Statistics. However, salaries for agents can vary significantly depending on experience and location. These professionals make money primarily through commissions on property sales, which means their income can fluctuate based on the real estate market and the size and number of deals they close. It's also the case that many real estate agents do so part-time, and experience and skill can vary widely—and also the pay.

What Is a Real Estate Professional?

A real estate professional is someone who works in the real estate industry. They can have different titles as an agent, broker, property manager, or someone else involved in real estate.

What Does it Take to Succeed as a Real Estate Agent?

To have success as a real estate agent, you need good communication skills, the ability to network, be adept at technology, and have an in-depth knowledge of the relevant housing market. Good real estate agents should also be skilled at setting goals, creating a marketing plan, maintaining connections with past clients, and staying resilient in the face of challenges, given the volatility in the industry.

The Bottom Line

A state regulatory board authorizes a real estate agent to represent clients in property transactions, generally working under a licensed broker. Essential skills include communicating and reading other people for client interaction and deal negotiation, understanding local market trends, having knowledge of real estate law, being organized enough to handle many listings at once, and having the integrity to build trust and ensure successful transactions. Many factors can influence the success and earning potential of those working in real estate.