One of the greatest misconceptions business buyers have is the role of the seller’s broker in a deal.
Part of this has to do with people believing a business broker works similarly to a real estate agent. However, the only commonality between the two positions is they are both paid on commission; that’s it.
Unlike a real estate agent who knows that the majority of prospective buyers will ultimately purchase a home and will therefore dedicate numerous hours to prospects showing them properties, in the business for sale world less than ten percent of the alleged buyers ever purchase a business.
Based on this statistic alone, it’s understandable why a business broker may not be willing to dedicate any meaningful time to a buyer in the early stages
That aside however, the single biggest complaint I get from prospective buyers who use our guides is the lack of attention, diligence, and oftentimes overall dismissive nature of many brokers. Don’t get me wrong, there are good brokers in the industry, but there are a disproportionate number of incompetent ones – this is typical of any commission-based industry.
Nevertheless, the fact remains that a business broker may be involved in the deal and you have to know how to use them. In this post I’ll talk about the scenario where a broker represents the seller. Note that in some states, brokers can act as a “dual agent” meaning they can represent both sides of the deal. Personally, I think it’s absurd and encourage any buyer to opt out of that relationship. How can anyone truly represent opposite parties? It’s ridiculous!
Anyhow, when a broker is representing the seller, it’s important for a buyer to realize that they (the broker) are, at least initially, the gatekeeper to the deal. They may be over controlling and try to limit any access between the buyer and seller or make demands about how the process is going to work. While it can be frustrating, as a buyer, you have to play the game, at least in the early stages.
Brokers only have one asset; their time. They do not want to waste it with unqualified buyers, and they don’t want to parade countless prospects in front of their client (the seller) and to not have any evolve into an offer. Keep this in mind. Ideally, you want to open a direct line of communication with the seller and that will often happen as the deal moves forward, but not in the early stages. Also, brokers are concerned about the parties circumventing them and putting their commission in jeopardy. While it does happen periodically, it’s not the norm, but, it is a broker fear.
Insofar as the relationship to a broker, if they represent the seller they do NOT represent the buyer – end of story.
Moreover, they have one job goal and that’s to sell businesses. If they don’t close deals; they don’t eat. Do not expect them to dispense unbiased advice and guide you through the process with your best interests as a priority. That’s not going to happen nor is it their role. Their job is to keep the deal moving forward and to act as a buffer between the parties.
If you want an unbiased advisor then hire one, but do not expect a business broker who represents the seller and is getting paid by them to fulfill that role.
Similarly, try to avoid getting frustrated if they become more of a liability than an asset to the dialogue. It happens often and usually can be diminished over time. If they are continually hindering the dialogue don’t be afraid to take a hard stance and let them know in very clear terms this it’s your money and future at stake and they’re not going to either dictate the terms of the deal or provide obstacles to you having a meaningful exchange with the seller.