Foundations of Real Estate: What is a Brokerage?

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A brokerage in real estate is a business that facilitates the purchase and sale of real estate assets.

In real estate fashion, a brokerage is broad. Most brokerages you see and hear about are residential brokerages. Keller Williams, Remax, and the like are all well-known residential brokerages, but there are many more in other areas, such as Cushman & Wakefield and Marcus and Millichap, which primarily do commercial deals.

Within a brokerage, there are agents, and there are brokers.

The key difference between real estate agents and brokers lies in their level of responsibility and autonomy. Real estate agents work under brokers, helping clients buy or sell properties. Brokers with more experience and education can operate independently and oversee agents like a sensei and his apprentices.

For most, the first step to becoming a broker or owning a brokerage is getting their real estate license,

a brief process that takes a few months. In my opinion, it wasn't very hard; you just have to read and study prior to the test.

I took a one-week class that satisfied the hour requirements and took my test the following week. Three weeks total and one license later, I was able to represent buyers and sellers in buying or selling their property.

Most people stop there. They think that once they have their license, people will line up and ask for their services, but the majority of agents have a rude awakening a couple of months into their licensure.

At first, they have a few close friends or family whom you can represent, but what will you do once they run out? That's when the real work begins.

Agents fall into three buckets:

1. They have their license but use it to run another type of business

2. They are full time agents

3. They are not full time agents

I fall into bucket number one. I don't market myself or my services but use them as part of my business. When I look for deals or sell my own deals, I use my license and can make a small profit from each transaction. I do not hold open houses or post my listings on social media.

Bucket number two is a sales position. You must constantly sell yourself and your services to obtain clients and earn commission on their deals. Being a traditional real estate agent can be very lucrative, but you earn based on your ability to sell.

Most agents fall into bucket number three. They got their license to earn a few dollars yearly by helping friends and family buy and sell. This bucket is a waste of time because you must pay annual dues to retain your license and enroll in continuing education, not to mention MLS fees, brokerage fees, etc. The extra dollars earned don't justify the time and money you spend on yearly operating expenses.

Agents sometimes take it one step further and become brokers. The broker earns a small profit from each transaction that their brokerage does. As a result, a broker's job often becomes recruiting agents to do more deals for their brokerage.

By law, every agent must be part of a brokerage to be able to represent clients, so if you're a broker, selling your brokerage to prospective agents is key.

A brokerage's main service is typically transactions,

such as buying and selling properties. However, brokerages often offer other services, such as leasing and property management, which require different levels of attention and systems to conduct.

It's important to know what you're getting into when you enter the brokerage business. I often see people getting their real estate license as a cop-out. They think it will be easier than getting a traditional job. The truth is that, in most cases, it is a sales job, and you will have to work hard to earn enough money to justify doing it, just like any other job.