Summary
The model of discount brokerage is based on high volume and quick sales. The article points out how the Foxton's discount brokerage model collapsed at the slightest change in the pace of home sales.
Analysis
There is a prevalent misconception that sellers pay for brokerage services. The discount brokerage model is based on this misconception -- the idea is to convince sellers that they can "save" money by hiring a discount agent.
Enticed by a low brokerage fee the seller is signed on at a low enough selling price where it will sell with little or no effort. A low price during a seller's market may require only a 10-15% market exposure to sell a property.
The seller never realizes that during a seller's market 100% marketing by a highly skilled listing agent would have netted far more money than was "saved".
When markets change to a more balanced market -- which is usually the norm -- or when it actually changes to a buyer's market, 10-15% marketing no longer works.
The pricing structures of full service brokerages are designed for the long-haul ups and downs of a cyclical real estate market. However the discount brokerage model is not designed for riding out the slow periods.
During periods of slow sales or normal markets, the discount brokerage model does not work.
