What Is a Broker? Definition and Types (2024)

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A broker is a person that facilitates transactions between traders, sellers, or buyers. Think of a broker as a middleman who ensures transactions can run smoothly and that each party has the necessary information. Brokers exist in many industries, including insurance, real estate, finance, and trade.

But what does a broker do, exactly? It’s a little different depending on the industry.

Types of Brokers and What They Do

Business Broker

A business broker helps clients buy or sell businesses. Typically, business brokers only work on selling and purchasing companies worth less than $1 million, while managers and investment bankers handle sales of larger businesses.

Business brokers have similar responsibilities as M&A managers and investment bankers, though. A business broker must determine the value of the business, pitch the sale to potential buyers, and assist in negotiations. Additionally, business brokers play a crucial role in ensuring the sale is kept confidential and allowing the business owner to keep their focus on running their company.

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Customs Broker

Customs brokers work directly with importers and exporters to ensure that the movement of goods meets federal regulatory standards. These brokers relay pertinent information and payments to the U.S. Customs and Border Patrol. A customs broker also provides information to importers and exporters, so they can understand what the requirements are and what clearances are required.

Data Broker

Also known as information brokers, data brokers are individuals or companies that collect data from various sources and then sell or license the data to third parties, like advertising companies.

Using sources like social media and public records, data brokers gather details about people, such as names, addresses, phone numbers, incomes, and occupations. These types of details help advertising companies increase the efficacy of targeted campaigns. Other industries use data brokers, too. For example, a bank may utilize a data broker to determine if a loan application has accurate information. Even your employer might have used a data broker to check your employment eligibility!

Insurance Broker

Insurance brokers work with their clients to find the right policy for the clients’ individual needs. Because they are not tied to a specific insurance provider, insurance brokers can sell policies from various insurance companies. As a result, insurance brokers may offer a variety of insurance products ranging from personal auto coverage, homeowners insurance, and life insurance.

>>MORE: Explore if life insurance is the right career path for you.

Mortgage Broker

Mortgage brokers assist hopeful homebuyers with finding mortgage loans from various lenders so they can choose the best rates and terms. Additionally, mortgage brokers act as an intermediary between lenders and borrowers, organizing and gathering paperwork from borrowers and ensuring its relayed accurately to the lender.

Mortgage brokers can work independently, but some work as part of a mortgage brokerage firm. These brokers typically earn money through commissions or origination fees on mortgages.

Real Estate Broker

A real estate broker works for either a real estate buyer or seller to negotiate sales and manage documentation involved in closing real estate transactions.

“With their sellers or buyers, brokers find a buyer or home for sale, respectively, and draw up contracts for the impending transaction,” says Matt Woods, co-founder and CEO of real estate brokerage SOLD.com. “They show and list homes, facilitate inspections and appraisals and negotiate sale contingencies.”

Sometimes confused with real estate agents, real estate brokers are agents who have had experience in real estate and have passed a broker licensing exam. Having a broker license allows real estate brokers to run a firm and have agents work under them and assist in selling and purchasing properties.

Stockbroker

Stockbrokers are financial entities that trade securities (tradable assets such as bonds, stocks, or options) on behalf of clients. Stockbrokers also provide other services like investment management and giving financial advice

There are three types of stockbrokers:

  • Discount stockbrokers manage trades and take low commissions on deals, but they can’t provide financial or investment advice due to having different licensing and registration.
  • Full-service brokers, or advisory brokers, can provide insight to their clients on when and where to trade, but they typically take higher fees because of this advice.
  • Discretionary stockbrokers can choose and make trades without consulting the client, but their asset management typically includes a heftier price tag.

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Why People Hire Brokers

People likely need a broker if they want to purchase or sell something big and expensive, like a property or a business. Having a go-between can be beneficial for various reasons. For instance, brokers have better access to information in their industry than the average person, knowing what documents must be filed and how to do the transaction efficiently. Additionally, for buyers and sellers alike, brokers can utilize their industry connections to find the best deal.

How Brokers Make Money

Brokers typically make money through commissions, advisory fees, and mark-up fees (also called spreads). Commissions are a percentage of the overall sale. For example, if a real estate broker sells a house valued at $200,000, they may take a 5% to 6% commission on that sale equaling $10,000 to $12,000. That commission is charged on top of the sale price; the seller is usually responsible for paying it.

Some brokers charge fees instead. A stockbroker licensed as a financial adviser often charges fees for helping clients decide which stocks to trade. However, stockbrokers can also make money from spreads —they mark up the value of a security and take the difference in price as profit.

According to the Bureau of Labor Statistics, brokers working in securities and financial investments have an average annual salary of $100,740, while real estate brokers see average salaries of $90,930 per year. Brokers in the top 10% have salaries nearing (and sometimes exceeding) $200,000, though.

>>MORE: Check out some of the highest-paying jobs in finance.

How to Become a Broker

Education

Becoming a broker requires at least a high-school diploma or GED, though certain industries prefer applicants with bachelor’s degrees. A degree in finance can be beneficial since it provides a foundation for the skills needed to read financial documents and facilitate transactions.

Many brokers also work in the industry for a while before going for a broker license.. In fact, most states require real estate brokers to have a few years of experience as licensed real estate agents before they can pass their real estate broker licensing exam.

Licensing and Certifications

Brokers typically need special licenses and certifications which are regulated at state and federal levels.

For instance, “becoming a mortgage broker requires passing a state-licensed exam,” Melody Villasana, mortgage broker and owner of Home Charm Realty, says. “After completing the required education, both pre-license and on-the-job training, individuals seeking to become licensed mortgage brokers must pass the Nationwide Mortgage Licensing System (NMLS) exam.”

Similarly, insurance brokers have strict licensing requirements and must maintain their registration with their state. Stockbrokers need to follow federal regulations and be licensed by the Financial Industry Regulatory Authority (FINRA), which involves passing a series of exams that prove they understand the laws surrounding financial trading and have the skills to do the job.

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Necessary Skills

Brokers of all types must show a strong mix of hard and soft skills. Brokers often learn the hard skills they need through licensing courses and on-the-job training. These skills include:

  • Being able to use sales and customer management platforms
  • Understanding how to craft and read specific documents, like contracts and transaction records

However, brokers also need soft skills, like:

  • Being able to communicate effectively
  • Good people skills
  • The initiative to seek out new customers

Start learning the skills you need to get hired with Forage’s free job simulations.

Image credit: HayDmitriy / Depositphotos.com

What Is a Broker? Definition and Types (8)

Written by

McKayla Girardin→

Writer

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McKayla Girardin is a NYC-based writer with Forage. She is experienced at transforming complex concepts into easily digestible articles to help anyone better understand the world we live in.

What Is a Broker? Definition and Types (2024)

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