A broker is someone or organization that arranges financial transactions between a seller and a buyer either for a fee when the transaction is carried out or independently. In order for a broker to offer brokerage services, they must be registered with the relevant regulatory authority in their respective country or province. There are two basic types of brokers that exist today. A broker that acts as both a buyer or a seller becomes a principal participant in the transaction. A broker must keep aside money on behalf of the principal in order to perform these financial transactions. The money keeps the principal company insulated from the varying conditions of the market.
Brokers can also be hired to manage their business tasks. They are often known as estate planners. Estate planners handle the entire transaction process on behalf of the principals. Brokers can also represent the principal in matters involving trusts, wills, mortgages and so forth. Brokers have to follow the legal requirements pertaining to securities and licensing of their specific brokerage type. As agents of the principal, they are charged with many duties.
Brokers must collect a fee from the principal for facilitating the transaction. They are paid a fee per transaction that takes place on behalf of the principal. Some brokers receive a portion of the commission from the principal and others get a flat fee for arranging all the necessary deals. The flat fee is based on the volume of business done by the brokers and on the success of the investment plan put together by the broker. Sometimes the fees charged by a certain broker differ from the other brokers because of the different service offerings put forward to the clients. Brokers also take care of all the legalities involved in transactions and they ensure that they follow the legal requirements as laid down by the government.
The principal should make sure that the broker he has hired is not a sub-contractor or an affiliate of another firm. If the brokerage firm has sub-contracts or affiliates, the broker needs to confirm the contract between him and his firm. There is no need to conduct a transaction through a broker he does not know. Also, it is important to check whether the firm has adequate safeguards in place for the principal. Ensuring that the principal gets full access to relevant information during investments, whether he gets timely updates on the status of various deals and whether he is informed about the activity of any particular broker is of prime importance.
Brokerage firms are regulated by government bodies and it is important for the principal to check whether the broker has an authorization to do so. It is an unethical act to allow a broker to act as an intermediary or a commission agent for another firm while the latter is not licensed. Such practices may lead to criminal prosecution. Brokers should not take part in any transaction involving the principal, his family or any other person closely related to him. They should not even talk about their own transactions with the said people.
Buyers and Sellers present in a transaction will have to give their consent before any information from them is given to a third party. Brokers representing either the buyer or seller may represent either one of the parties. However, it is possible that brokers representing both the parties may also represent themselves at a later stage of the transaction. It is important to check the registration status of any broker. This is because the broker should be registered with the appropriate government body and he should also be affiliated with a recognized regulatory body.
A commission is paid by agents for each lead they produce. This can also include a market research report. However, a broker representing either a buyer or seller may represent either one of the parties in the initial stages of the transaction. The information gathered from a market research report is the possible base for future negotiations between the buyer or the seller. The market research also enables a broker to gauge the value of a deal by providing details such as the location, population and other factors affecting the property market in a particular area.
Sometimes, the role of a real estate broker is complex and requires a real estate attorney's presence. This happens when a case is brought before a court of law. When a lawyer represents a client before the court, his role is to explain the facts of the case. This is not limited to negotiations but includes inspections, repairs and other preparatory works. If there are properties on sale on behalf of a client, his lawyer may even act as a manager and put the buyer in contact with buyers and sellers. He may even negotiate on behalf of the buyer.