Please note that the term “principal” in real estate can be used in several different ways:
The principal can refer to the party in a real estate transaction represented by an agent. For example, if you are selling your home and have a real estate agent, you are the principal in the transaction.
In the context of a mortgage, the principal is the amount the borrower owes on the loan, excluding interest. For instance, if you take out a mortgage for $200,000, that amount is the principal, and the interest is what you pay on top of that.
In some cases, the principal could refer to the head of a real estate brokerage or the lead agent in a team responsible for overseeing the business operations.
In this discussion, we will focus on the use of the word principal, which means “agent in charge.”
What is a Principal in Real Estate?
A principal in a real estate office is the principal broker or managing broker of a brokerage. This person holds the highest level of real estate licensing and is responsible for overseeing the actions of the agents working under their license. They are in charge of ensuring all transactions are legal and ethical and protect the interests of all parties involved.
What Does a Real Estate Principal Do?
Principals in a real estate brokerage are licensed real estate brokers with additional duties. Here’s what agents can expect from their real estate principal.
1. Leadership and vision
The principal is often responsible for defining the brokerage’s long-term vision, including the business’s goals, values, and overall mission. The principal sets the tone for the company’s culture and develops and plans to achieve the business objectives. They provide leadership and direction to the agents and staff and make critical decisions that affect the brokerage’s operations, growth, and position in the market.
2. Management and operations
The principal of a brokerage also oversees business operations, ensuring that processes and systems run efficiently. They also oversee budgeting and financial planning to ensure the brokerage’s financial health.
In addition, the principal broker oversees marketing and agent recruitment.
3. Growth and development
The principal oversees the growth and development of individual agents and the brokerage itself. Principals act as mentors, helping agents develop their skills and careers. They provide training, resources, and support to help agents succeed, strengthening the brokerage. Principals also play a role in identifying and nurturing future leaders within the brokerage.
4. Licensing and compliance
The principal broker ensures that the brokerage complies with state and federal real estate laws and regulations, including maintaining proper documentation and records. The principal broker is typically held accountable if anything goes wrong within the brokerage, such as legal issues arising from transactions.
5. Client relations
Principals often serve as the face of the brokerage, representing the company at industry events, in media, and within the community. Their leadership style and public image can significantly impact the public perception of a brokerage.
Skills and Qualifications to Become Principal in Real Estate
As you can see, a lot goes into being the principal of a brokerage. From overseeing transactions to ensuring office bills are paid, the principal’s duties are vast and varied. Is your career goal to obtain a leadership position within your brokerage – or perhaps open your own brokerage?
Here are the skills you need to become a principal in a brokerage and what you need to do to qualify for the job.
Skills needed to become a principal in real estate:
- A real estate principal needs strong leadership skills to inspire, guide, and mentor agents and staff and foster a positive and productive work environment.
- They must be skilled in resolving conflicts within the team, with other real estate professionals, and with clients.
- A real estate principal must understand local, state, and federal real estate laws to ensure the brokerage complies with all legal requirements.
- They must have an in-depth knowledge of the local real estate market.
- A brokerage leader should also have top-notch negotiating skills to achieve the best outcomes for clients and the brokerage.
- A principal must be adept at financial management, including budgeting, forecasting, and resource allocation.
- They must have excellent strategic planning skills to set the brokerage’s direction, identify expansion opportunities, and navigate market challenges.
- The best real estate principals have these additional qualities:
- Excellent communicators and public speakers
- Strong mentoring skills
- Able to delegate tasks to others with opposing skill sets
- Excellent time management skills
- Professional presence and high ethical standards
How to become a principal broker
You must have a broker’s license (or managing broker’s license in some states) to become a principal in a real estate brokerage. Here’s how the process typically works:
Step 1: Obtain a real estate license in your state.
This process involves taking pre-licensing courses, passing a test and background check, and getting hired at a brokerage.
Step 2: Gain experience as a real estate agent.
Most states require a certain number of years of active real estate sales experience before you can apply to become a broker (usually 2-3 years). During this time, hone your skills and expand your network.
Step 3: Obtain a broker license in your state.
Brokers must complete additional coursework and pass their state’s broker licensing exam.
Step 4: Gain experience as a broker.
To become a principal broker, start by working as an associate broker to gain further experience in brokerage management. Develop your leadership and management skills, focusing on overseeing other agents, handling brokerage operations, and growing the business.
With sufficient experience, you can start your own real estate brokerage and become the principal broker. Alternatively, you can become the principal broker of an existing firm by either joining or being promoted within the organization.
Step 5: Participate in continuous professional development
Even after becoming a principal broker, it’s important to continue your education to stay current with industry trends, laws, and best practices. Consider earning additional designations or certifications to enhance your expertise and credibility as a principal broker.
When Does a Principal Become a Client?
As we mentioned earlier, the term “principal” is used in at least three ways in real estate. A principal can be a buyer or seller in a real estate transaction or a broker in charge, so it is entirely possible that a principal can become a principal.
Principals become clients when they buy or sell property for personal use or as a real estate investment. Sometimes, they may choose to have another agent handle their personal real estate transactions to avoid conflicts of interest or for convenience.
However, when a principal broker is involved in a transaction, they must disclose their status as a licensed real estate professional.
One of the benefits of being a real estate agent is that you have limitless income potential and more control over your professional growth. If your goal is to become a principal broker of your own real estate brokerage or obtain a leadership position within an existing brokerage, turn to Colibri Real Estate School for all your pre-licensing needs.
No matter where you are in your journey to becoming a principal broker, Colibri can help. Colibri Real Estate School (formerly Real Estate Express) offers pre-licensing, broker, and continuing education courses.
Key Takeaways
- A real estate principal, often the principal broker, is responsible for defining the brokerage’s long-term vision, setting goals, and guiding the company’s culture.
- The principal oversees the brokerage’s operations, including financial management, agent recruitment, and ensuring compliance with state and federal real estate laws.
- Principals play a crucial role in the growth and development of individual agents within the brokerage. They act as mentors, providing training, resources, and support to help agents succeed and to identify and nurture future leaders.
- To become a principal broker, one must obtain a real estate license, gain experience as an agent, pass the broker’s licensing exam, and continue professional development.
