What is a Brokerage?

A brokerage is a firm that acts as an intermediary between a purchaser and a seller. To broker a deal is to communicate with both the buyer and seller as to acceptable price on anything sold or purchased. A broker, a single person, or the firm completes any necessary legal paperwork, obtains the appropriate signatures, and collects money from the purchaser to give to the seller. Since the buyer and seller are employing the brokerage to complete the deal, it may collect a portion of the money obtained. In some cases, a firm receives money from both parties, while in others, it receives a commission only from the seller.

Brokerage firms are most commonly thought of in relationship to the sale and purchase of stock shares. Their fees are variable, depending on the degree to which the firm is involved in decisions about purchase. Some stockowners give their brokers power of attorney to make decisions about when to buy or sell stock and depend upon them for researching new stock for purchase. This type usually assesses a fairly large fee, and regardless of whether the owner loses or earns money, the firm is paid.

Other firms are employed by people who like to do their own research and make all their own decisions about what and when to buy and sell. They have a tendency to charge per transaction and can be quite reasonable to employ. In the past few years, several brokerage firms have begun stock trading on the Internet, allowing their clients access to information that will help them carefully research their decisions. These companies are not a sound economical choice for clients who do not do adequate research or cannot consistently read up on their stocks. Extensive involvement by the stockowner is necessary to hopefully make the best deals.

In other areas of business, brokerage firms may be employed to acquire and sell real estate. They may acquire art or antiquities, and restaurants and other service companies may use firms to obtain meat and produce, restaurant supplies, or furniture. Sometimes, employing a broker in this last sense is not initially expensive to the purchaser, because the broker receives a fee from the companies used by their clients. The price of the merchandise obtained through a broker generally has a mark-up that makes up for this lack of commission, however.

Brokerages can be helpful because they save their clients, whether buying or selling, time. Not everyone has time to look at 40 real estate properties before purchasing. Not every restaurant manager wants to interview a slew of potential food supply companies before selecting one.

For those who are cost conscious, however, employing a firm may mean added expense. Buyers and sellers who come to an arrangement between each other “cut out the middle man,” and are, therefore, able to save money. On the other hand, employing a reputable brokerage firm generally means that the firm assumes liability for the seller’s claims. Should any portion of a sale be conducted illegally, the firm must often compensate the purchaser and take legal action against the seller.