The Buyer Pays Real Estate Commissions

Implications: The author provides a good explanation of real estate brokerage commissions and the correct way to think about it.

Analysis: The artlicle helps to understand the basic flaw in the discount brokerage pricing model. Even though sellers write the check at settlement since it is the buyer that pays the price of any product, all marketing costs of a product are passed on to the buyer. Lower marketing results in lower priced sales in a seller's market and little or no sales in a buyer's market. Due to the high volume of sales during a seller's market even low priced sales are sufficient to keep discount brokerage profit margins within sustainable limits. In addition buyers are unable to demand any more service when the market is against them. When the market changes, buyers want more service and given choices often opt to go for more service for their money. Hence several discount brokerage companies are now facing bankruptcy and going out of business. Practioners in the real estate industry who are in for the long haul have to have a pricing model which is designed to ride out the cyclical nature of residential real estate.