A lot of people think that a mortgage broker is another name for real estate agent, but this is not the case. Though they both work to help consumers buy homes, each provides a very different service. By the time you're done reading this article, you'll not only know the difference between a mortgage broker and a real estate agent, but you'll understand how to use each one effectively when you buy your next home.
Let's start by breaking down the role and purpose of a real estate agent.
What Do Real Estate Agents Do?
A successful real estate agent has deep knowledge of the local property market. This person spends most of their time listing properties for sale, giving tours, and discussing the housing market of a specific area for homebuyers like you. A real estate agent can either list your home for sale or help you find a home to buy. Once you’ve found a home, the real estate agent will become the “middleman” between you and the seller. The agent will handle all the paperwork, negotiate for you, and arrange the required inspections and appraisals to complete the sale. Real estate agents are required to be transparent with all parties during a transaction, including you. They must keep everyone in the loop when it comes to the details of anything involved in the sale.
Real Estate Agent Qualifications
Every real estate agent must be licensed in the state where they practice. Typical requirements are a high school diploma and passing a standard state licensing exam. Additional qualifications may include a background in marketing or sales. Depending on the state, agents may be required to have additional or ongoing training for housing laws and financing. Most agents work in a real estate agency which is owned and operated by real estate broker, such as Century 21 or Keller Williams.
Real Estate Agent Salary
The life of a real estate agent is the life of a hustler. What an agent earns depends entirely on the his or her ability to close deals. If they don't close deals, then they don't earn money. Some real estate agents will earn a small salary for their efforts, but usually agents are paid commission only. The commission can range from 1% to 10% of the home price, with the most commissions being 6%. However, if the commission is 6% of the home price, the real estate agent you're working with doesn't necessarily get to keep that. Instead, it will go to the agency or broker, and be divided between the listing real estate agent and the selling real estate agent. Once a sale is closed, all real estate agents and brokers will be paid. But, if the sale falls through, no one gets paid.
Real Estate Agent Hours
In the real estate agent world, there’s an 80/20 rule. This means that 20% of licensed agents make 80% of the sales. That’s not to say 80% of real estate agents aren’t doing their job, but they’re probably doing it part-time, while balancing another occupation. This could work because very few real estate agencies operate Money through Friday on a 9-5 basis. To accommodate clients who work such hours, real estate agents work in the evenings and on weekends. The more successful agents – that top 20% – are likely to be your best representatives when buying a home because they will make themselves available to you whenever is convenient for you.
Though sometimes confused with a real estate agent, a mortgage broker works strictly on financing real estate, they have nothing to do with the sale itself. And while a good real estate agent will understand mortgage financing, the expertise will come from the mortgage broker.
What Does a Mortgage Broker Do?
Mortgage brokers originate loans for home buyers and homeowners (in the case of refinances) on behalf of mortgage lenders. A single mortgage broker may work with dozens of direct lenders. This affiliation with multiple lenders gives mortgage brokers an advantage over banks. For example, a bank or credit union will only sell their own mortgage products. But a mortgage broker can sell mortgage products from a variety of banks and credit unions, helping you get the best deal. Though a mortgage broker may close your loan in their name, the loan will quickly be transferred to a direct lender.
Mortgage brokers work with homebuyers, lenders and real estate agents to facilitate the financing of a home. They analyze the financial documents of their clients to determine if they qualify for a loan, and if so, who the best lender is for the client's situation. Mortgage brokers will help you complete loan applications, select a lender, and gather the necessary supporting documentation. Some mortgage brokers can approve a loan themselves, while others need to send applications out to the lender for approval. It's important to mention there are different kinds of mortgage brokers:
- Pure mortgage broker (PMB). This type of broker meets with borrowers to study their financial structure. The borrower will deposit money into a trust account with the broker and the broker will send out their applications to the lenders. Once the loan closes, the broker receives a fee for helping the client. A PMB is common in commercial real estate transactions
- Correspondent mortgage broker (CMB): This broker creates their own loans with funds provided by a bank or other lender. The loan closes in the name of the broker. But the broker then transfers the loan to the ultimate lender.
- Lending mortgage broker (LMB): This type of broker uses a line of credit or other funding sources without the need to sell or assign the loan to the party providing the funding. The LMB provides the funds to the borrower and assumes the risk of interest rate fluctuation.
Mortgage Broker Qualifications
Mortgage brokers are not usually individuals. Instead, they are companies that hire loan officers to represent them. Loan officers are required to pass certain exams in order to work for a mortgage broker. Although college is not required, it helps to take courses such as finance, accounting, marketing, economics, or business administration. Pre-license training is required under the Nationwide Multi-State Licensing System and Registry to secure a mortgage broker license. This also requires 20+ hours of mandatory training. The Secure and Fair Enforcement Licensing Act (SAFE) was put in place to ensure that all mortgage brokers have properly licensed mortgage loan originators working for them.
Mortgage Broker Salary
Just like real estate agents, mortgage brokers rely mostly on commission to earn a living. A mortgage broker is paid by the lender when a loan is closed, with the fee typically falling between 1% to 2% of the total loan amount. Occasionally the borrower will pay the broker but the fees will be included with their loan. Federal law bans mortgage brokers from charging hidden fees. Mortgage brokers working in areas with higher housing costs typically earn more income than those in lower-cost ones (same goes for real estate agents).
Mortgage Broker Hours
Much like real estate agents, mortgage brokers have considerable scheduling flexibility. However, because the work is often coordinated with the hours of the lender is being used, mortgage brokers will primarily be available during regular business hours. That said, many will work evenings or weekends to accommodate a homebuyer. Though many work of their employer’s office, many others are home-based.
Though mortgage brokers and real estate agents often work together, they are really two very different functions. One works primarily to find houses for buyers (real estate agent), while the other is concerned with helping the homebuyer secure financing.
Since 2009, Kevin Mercadante has been writing about his journey as a mortgage loan officer during the 2008 financial crisis on his website Out of Your Rut.com. The experience gave Kevin perspective and he frequently discusses the big-picture trends that are impacting the American economy today. He’s a regular contributor/staff writer for as many as a dozen financial blogs and websites, including Money Under 30, Good Financial Cents and The Dough Roller.