What is a Brokerage?

A brokerage is a firm that acts as an intermediary between a purchaser and a seller. More commonly, a brokerage is referred to as a brokerage firm. 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 brokerage 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, the brokerage may collect a portion of the money obtained. In some cases, a brokerage receives money from both parties. In others, the brokerage receives a commission only from the seller. Brokerage firms are most commonly thought of in relationship to the sale and purchase of stock shares. Fees are variable, depending on the degree to which the brokerage 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 their brokers for researching new stock for purchase. This type of brokerage firm usually assesses a fairly large fee, and regardless of whether the owner loses or earns money, the firm is paid. Other brokerage 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. These firms 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. Brokerages exist to acquire art or antiquities. Also, restaurants and other service companies may use brokerage 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. However, the price of merchandise obtained through a broker generally has a mark-up that makes up for this lack of commission. Brokerage firms 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 brokerage firm may mean added expense. Buyers and sellers who come to an arrangement between each other “cut out the middle man,” and are thus 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 brokerage firm must often compensate the purchaser and take legal action against the seller.