The Pros and Cons of Becoming a Real Estate Broker
Top 8 Considerations to Becoming a Real Estate Broker (Updated for 2024)
Top 8 Considerations to Becoming a Real Estate Broker (Updated for 2024)
Jacqueline Kyo Thomas
You've spent a few years as an agent and you're ready to take your career to the next step. Now you're faced with two questions: First, is that next step becoming a broker? And second, is it actually worth it to get a broker's license?
Those are both good questions. While you’ll ultimately need to answer these questions on your own, we’ve put together this guide to help. Below, we’ll share the benefits of becoming a broker and some things that you should consider before embarking on this journey. Let’s get started.
Are you new to real estate? Not sure what we're talking about with an agent and broker? Skip this article and check out our article What is the Difference Between an Agent and Broker instead!
Right now, you work for yourself with an asterisk. The fine print is that you have to work under a broker. You may be an independent contractor, you may file your own taxes, you may hire people to help you, you may be in business for yourself, but you’re still under the legal oversight of a licensed real estate broker. However, once you become a broker, you can legitimately work for yourself in the state of Massachusetts. This is because you have twice the amount of knowledge as a real estate salesperson.
To become a broker, you'll need 40 additional hours of real estate education and pass an entirely new licensing test. That's in addition to three years of working experience as a real estate agent. Do that, and you'll have proven your mettle.
One of the biggest benefits of becoming a real estate agent is that there’s no cap on your earning potential. The same is true for a broker, but even more so. Here’s why: Right now, you have to split your commission with your broker. But, if you work for yourself, you can take the entire commission for yourself.
And it gets better.
If you hire your own salespeople, you can earn a commission from their sales or listings just like your broker does now.
By hustling as much as you do now, you’ll earn a lot more as a broker than you do as an agent.
When you become a broker, you get more respect. After all, the move to become a broker shows that you’re serious about your career in real estate. It also proves that you know more about local and national real estate law, especially when it comes to negotiating, marketing, and contracts.
Many buyers and sellers prefer to work directly with brokers because brokers typically have more experience and knowledge about real estate than the average agent.
Becoming a broker gives you automatic bragging rights, among other benefits such as the ability to open your own brokerage, hire agents, and manage office staff.
As an agent, you’re limited in your job responsibilities. You can only do one thing: Work as a salesperson.
However, when you become a broker, you have several options.
The first option is to work as a broker-salesperson. If you choose this option, your job will look almost identical to what it looks like currently. You’ll still work under a broker (only because you choose to) and you’ll split your commission with that broker. But here’s where it gets interesting: Because you’ll have your broker’s license, you can negotiate for a higher percentage of your commission, such as a 60/40 or even a 70/30 split in your favor.
The second option is to work as a managing broker. In this option, you will take a step away from sales and work more on the administrative side. You’ll oversee the day-to-day operation of the brokerage, including hiring, coaching, and managing salespeople. You will also handle all of the business upkeep. In this option, you’ll likely work for a designated broker.
The third option is to work as a designated broker. This position is also known as the principal broker. As the designated broker, you’ll run the entire brokerage, and oversee other brokers and agents. You may also work in a more hands-on capacity in the dual role of principal and managing broker. These types of brokers typically earn an annual base salary instead of a commission.
Your daily responsibilities will change depending on what type of broker you choose to become, but as you can see, you have much more flexibility as a broker than you do as a salesperson.
As an agent, you are paid as a 1099 independent contractor directly. You cannot set up an LLC or S-Corporation to take advantage of tax benefits and deductions.
As a broker you can be paid through an LLC or S-Corp. Why is this an advantage? It's a little complicated, but you can learn more here if you're interested. Or maybe just ask you CPA for details!
Now, let’s talk about the cons.
More money, more paperwork, more administrative work.
You already juggle multiple responsibilities as a real estate agent. But when you become a real estate broker, you have even more responsibilities, depending on what type of broker you become. You may take on the added responsibilities of managing the brokerage or you may be asked to hire or mentor new agents. If you’re a managing broker, you’ll likely train new hires and ensure that they’re ready to bring in the new business that feeds your brokerage. Because you know more, more will be required of you, such as keeping up to date with real estate laws and ensuring that the salespeople on your team are abiding by those laws.
It’s easy to get overwhelmed when you first step into your role as broker. Take it slow. Create a business plan and decide on the best way to move forward. Create procedures and SOPs. And maybe consider hiring an office admin.
Here’s How to Create a Simple Business Plan for Your Real Estate Business.
When you work as a broker, you can’t blame anyone but yourself if something goes wrong. This is especially true if you work as a managing or designated broker. However, even if you’re working as a broker-salesperson, you’re still held to a higher level of responsibility and knowledge.
But let’s be honest. Most agents don’t put themselves through the course and the exam just to become a broker-salesperson. You’ll likely want to open up your own brokerage with your newly minted status.
That brings added weight to your shoulders.
If you hire salespeople, you will be financially accountable for their livelihoods and legally responsible for their actions. If you don’t market enough or if you make a legal error, you can negatively impact your sales team. Your agents could leave, badmouth you, and drag down your reputation. The same is true for clients. They may have an unfavorable interaction with one of your salespeople and then disparage your entire brokerage.
When you work for yourself as a broker, there is no safety net. This is either a con or a pro, depending on your outlook.
Becoming a broker isn’t free. The state of Massachusetts requires that all brokers take a 40 hour course in addition to three years of on-the-job experience.
But the last thing you want is to take your licensure exam more than once (that equals more money).
To ensure that you pass the first time, we’ve created a broker pre-licensure course that’s comprehensive and guaranteed to give superior results. Our students score better and pass at a higher percentage than students from other schools. Learn more about our proven teaching methods and guarantee here.
After paying for the course, exam, and license, you’ll still need to invest more money in your new brokerage. If you choose to open your own firm, you won’t be able to rely on your current broker for administrative help. You’ll have to pay everything yourself, from the rent to insurance to the paper clips. While you may be able to pass some of these costs down to your salesperson, it may take some time before you a) hire and b) close. Most of the business startup costs will need to be paid upfront, and you need to be ready for that.
Taking your real estate career to the next step offers many benefits including more money and more freedom. However, being a broker isn’t for everyone. Some agents prefer the security and extra benefits of working under an established brokerage. However, if you’re adventurous, ready for a challenge, and itching for complete financial freedom, sign up to become a broker. You won’t regret investing in yourself and your future. Becoming a broker will increase your potential and it’s worth considering.
Learn more about our Massachusetts Real Estate Broker pre-licensing classes here.