Business Brokerage Showdown
Agency: Who Really has your back?
Not many people have gone through the process of buying or selling a business and are surprised to learn that some aspects work a lot differently than what they’re used to in residential real estate. You could say that residential is like Little House on The Prairie and business brokerage is like the wild west (cue the tumbleweeds). One of the most glaring differences is the concept of agency.
Let’s start with the definition of agency from the National Association of Realtors. The concept is no different if you’re selling houses, commercial real estate, or businesses.
“Agency, which creates a legally binding relationship between the real estate agent and their client during the buying and selling process, is one of the most important aspects of the real estate profession. Because of agency, real estate agents act in their client's best interest.”
The biz-brokerage industry blurs the agency line pretty hard. Some would say the concept doesn’t exist. When you list your business with a broker it’s likely an exclusive agreement. They lock you in for 6 months to a year with a listing agreement that repeatedly threatens what will happen if you breach the contract: the fee is due. But there’s nothing in that agreement that explains what happens when your trusted broker comes in contact with a potential buyer.
They go berserker and the concept of agency slinks quietly out the back door.
I’ve heard countless business owners cry out, “who do you really represent?” once their broker starts interacting with buyers. What is it about the business brokerage culture that's so conducive to this agency flip-flopping?
The broker gets dollar bill signs in her eyes and does anything to make a sale
A buyer is often not represented and requires extra hand holding
Biz-Brokerage isn’t a culture of cooperation. Many firms won’t split commissions with outside brokers like they do in residential or commercial.
Most firms proudly work both sides of the deal even though they claim to represent the seller.
After a while on the market a relationship with a seller can disintegrate and a broker sees the buyer as a shiny new thing.
Many brokers lean hard on the concept of the seller being the client and the buyer the customer. While contractually true, this is difficult to pull off emotionally.
My opinion: you can’t ride two horses with one ass. So what’s the solution? Let’s continue with that wild west theme: pick a horse of course!
Ask the broker how they’ve handled agency in past deals.
Ask your broker if they co-broke and tell them you’d like them to cooperate with other brokers. Note: this will expand your buyer pool now that buyers with representation will be welcomed instead of turned away. Seriously, that’s a thing…ugh.
In addition to your broker, engage with an experienced advisor who has your back throughout the entire process. Ideally, someone whose compensation isn’t tied to a commission. This can look like a lawyer or a consultant who is well versed in business transactions.
The cost of this cultural-kink is high for both buyers and sellers. The lack of cooperation in the industry leaves many buyers unrepresented and sellers feeling like they’ve been left in the lurch. Having these conversations with your broker on the front end will make a huge difference in how the sale of your business plays out.
