Why Hire a Broker?

“Why do I need a broker?” No doubt countless businesses and individuals have asked themselves this question when considering a real estate transaction. Many prospective real estate consumers and the public at large seem to have a misunderstanding of real estate brokerage – both why it is critical to a successful transaction and how it works.

The answers are actually quite simple.

Why?

You or your business should hire a broker to realize the benefits of expert guidance within a fiduciary relationship. A fiduciary relationship is a legal term and it means your broker owes you the duties of loyalty, obedience, accounting, disclosure of information, and skill, care, and diligence. In other words, hiring a broker gives you the protection of the law of agency. When you hire a broker, that broker becomes legally responsible for protecting your interests and helping you make the best real estate decision possible. In practical terms, this means that your broker must share their market knowledge and transaction experience with you so that your real estate deal is the best it can be.

Let’s use an analogy. Hiring a broker is like hiring an attorney. An attorney is hired to protect the interests of their client throughout the duration of a legal matter. The attorney-client relationship is a fiduciary relationship. The client benefits from the attorney’s education and experience in legal matters. The attorney-client privilege is one well-known benefit of hiring an attorney.  Under that privilege, the attorney must keep certain client information confidential. The goal of hiring an attorney is for them to help you obtain the best outcome for your legal matter.

Similarly, a real estate broker is hired to protect the interests of their client throughout a real estate transaction. The client benefits from the broker’s education and experience. After all, real estate brokers work on real estate deals every day. Like attorneys, real estate brokers must keep certain client information confidential. The goal of hiring a broker is for them to help you obtain the best real estate deal.

Intelligent clients know they need an attorney in court and a broker in a real estate deal.

How It Works

The law of agency, as discussed above, is not well known. Even more misunderstood is how brokers are paid.

Unlike attorneys, most of whom charge by the hour, real estate brokers are paid a commission on each transaction. While compensation is always negotiable, the broker’s commission is usually a percentage of the total value of the transaction and is paid at closing (or lease signing, as the case may be). In other words, the broker does not get paid unless the transaction is completed.

Payment of the commission at closing is an important feature of real estate brokerage. It aligns the financial interests of the client and the broker. Both are working towards closing. The client wants to buy/sell/lease the real property and the broker wants to get paid for helping make that happen.

Understandably, brokers do not often spend time assisting individuals or businesses who are not yet clients. Until a broker is hired, there is no guarantee they will be paid for their work. Moreover, if you have not hired the broker, you do not enjoy the protections of a fiduciary relationship. If you or your business are unwilling to hire a broker, the broker will be unwilling to give you much, if any, advice. After all, a broker’s knowledge is how they make a living.

Some people think brokers are pushy and act like salesmen. Often, they are right. You should seek out a broker who fits your personality and/or your business’ culture. A good broker will be well-educated, knowledgeable, easy to work with, and honest. But keep in mind that brokers are trying to make a living just like everyone else. Most brokers are not paid a salary. They only get paid when your transaction succeeds. Therefore, a good broker strives to be professionally persistent.

In sum, hiring a broker is beneficial to the client and the broker. Not only is a broker incentivized by law to protect the client’s interests, the broker is incentivized by money (in the form of a potential commission) to provide advice and service to the client. Hiring a broker means client and broker both get what they want.