A common question we constantly get asked is, what’s the difference between a real estate agent and a mortgage broker and what do they do? For new investors or first time property buyers who are new to the game, this is a very valid question to ask.
Real Estate Agents
Real estate agents are licensed specialists who represent buyers and sellers in the exchange of property transactions. Think of them as the middle man between the buyer and the seller, who takes care of all the leg work- marketing, contracts and the auctioning process. Most real estate agents work independently or for a licensed retailer, who provides supplementary training and certification to their employees. Most real estate agents work on a commission base, which means their wages are set by their ability to close a certain amount of transactions per quota.
Their role goes even further depending on who they represent, the buyer or the seller. Real estate agents who represent the seller, typically advise them on how to price their property compared to the market and how to prepare it for sale. On the other hand, real estate agents who represent the buyer, spend majority of their efforts on searching the market for properties that meet the buyer’s criteria. Real estate agents usually have collected data on market drops and peaks, to help them determine a fair price for a particular property.
The days where only the wealthy could afford a broker to access the property lending markets are now far behind us. With the advent of the internet mortgage brokers have become a lot more competitive, forced to compete amongst thousands of new comers for your business.
A mortgage broker can act as an independent or as a firm. Mortgage brokers usually negotiate your loan capacity on your behalf, typically between the borrower and the lender (in most cases a bank). Brokers perform most of the leg work on researching the market, aiming to get you the best possible loan that suits your criteria.
The loan searching and application process can be quite daunting for new buyers, with hundreds of different offers out there, it’s hard to make sure you get the right deal. Firstly, they can shop around for you. Everyone knows shopping around could lead to a better deal but it’s time consuming, especially if it involves contacting a number of banks and lenders separately. A mortgage broker can search the range of loans available from multiple lenders very quickly to find you the right home loan for your needs. Acting as the all-knowing hub for all your mortgages questions and requirements can be very comforting, especially for a first time property buyer.
So how do mortgage brokers make their bread and butter? A mortgage broker's fee or commission for arranging a loan is often paid by the credit provider whose products they sell; this is usually a bank. Different credit providers pay different commission levels. This can potentially influence what loans the broker recommends to you. Sometimes a broker will charge you a fee directly instead of, or in addition to, the credit provider's commission. This is where the client needs to perform their own due diligence, as some mortgage brokers have been known to be bias and favour certain lenders.
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