Matrix Business Investments
About Business Brokers

Agency Relationships with Clients and Customers
Dual or limited Agency
Types of services that a broker can provide
General
Services Provided to Seller as Client
Services Provided to Buyer as Client
The Listing Contract
Brokerage Commissions
Licensing of business brokers
 

Dual agency occurs when the same brokerage represents both the seller and the buyerunder written agreements. Individual state laws vary and interpret dual agency rather differently.
 

Types of services that a broker can provide

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Since each state's laws may differ from others, it is generally advised that prospective sellers or buyers consult a licensed real estate professional.

Some Examples:

• Comparative Market Analysis - an estimate of the businesses value compared with other businesses for a similar type. This differs from an appraisal in that businesses currently for sale may be taken into consideration (competition for the subject business).
• Exposure - Marketing the business to prospective buyers.
• Facilitating a Purchase - guiding a buyer through the process.
• Facilitating a Sale - guiding a seller through the selling process.
• FSBO document preparation - preparing necessary paperwork "For Sale By Owner" sellers.
• Hourly Consulting for a fee, based on the client's needs.
• Preparing contracts and leases. (Not in all states.)

The sellers and buyers themselves are the principals in the sale, and business brokers (and the principal broker's agents) are their agents as defined in the law. However, although a business broker commonly fills out the offer to purchase form, agents are typically not given power of attorney to sign the offer to purchase or the closing documents; the principals sign these documents. The respective business brokers may include their brokerages on the contract as the agents for each principal.

The use of a business broker is not a requirement for the sale or conveyance of a business or for obtaining a Small business or SBA loan from a lender. However, once a broker is used, A special escrow attorney sometimes called a settlement attorney (or party handling closing) will ensure that all parties involved be paid. Lenders typically have other requirements, though, for a loan.

Upon signing a listing contract with the seller wishing to sell the business, the brokerage attempts to earn a commission by finding a buyer for the sellers' business for highest possible price on the best terms for the seller. To help accomplish this goal of finding buyers, a business brokerage commonly does the following:

• Listing the business for sale to the public, often on a Multiple Listing Service, in addition to any other methods.
• Based on the law in several states, providing the seller with a business condition disclosure form, and other forms which may be needed.
• Preparing necessary papers describing the business for advertising, pamphlets, tours, etc.
• Advertising the business. Advertising is often the biggest outside expense in listing a business.
• Being a contact person available to answer any questions about the business and to schedule showing appointments
• Ensuring buyers are prescreened so that they are financially qualified to buy the business; the more highly financially qualified the buyer is, the more likely the closing will succeed.
• Negotiating price on behalf of the sellers. The seller's agent acts as a fiduciary for the seller. This may involve preparing a standard offer to purchase contract by filling in the blanks in the contract form.
• In some cases, holding an earnest payment in escrow from the buyer(s) until the closing. In many states, the closing is the meeting between the buyer and seller where the business ownership is transferred and the businesses name is conveyed.

Business brokers attract prospective buyers in a variety of ways, including listing limited details of available businesses on their websites and advertising in business newspapers and magazines. Brokers also directly approach prospective buyers and sellers to gauge interest.

Upon signing a listing contract with the seller wishing to sell the business, the brokerage attempts to earn a commission by finding a buyer for the sellers' business for highest possible price on the best terms for the seller. To help accomplish this goal of finding buyers, a business brokerage commonly does the following:

• Researching businesses for sale based on clients search criteria.
• Obtaining financial documents that support the sale of the prospective business.
• Prepare business valuation to determine value of the business that is for sale.
• Reviewing and advising buyer on the seller's purchase agreement.
• Being a contact person available to answer any questions about the business and to schedule viewing appointments
• Prescreening the buyers so that they are financially qualified to buy the business; the more highly financially qualified the buyer is shown to be, the more likely the closing will succeed.
• Negotiating price on behalf of the buyers. The seller's agent acts as a fiduciary for the buyer. This may involve reviewing/preparing a standard offer to purchase contract by filling in the blanks in the contract form.
• Guiding the buyer through the buying process until the closing. In many states, the closing is the meeting between the buyer and seller where the business ownership is transferred and the businesses name is conveyed.

Although there can be other ways of doing business, a business brokerage usually earns its commission after the business broker and a seller enter into a listing contract and fulfill agreed-upon terms specified within that contract. The seller's business is then listed for sale, often on a Business specific Multiple Listing Service (MLS) in addition to any other ways of advertising or promoting the sale of the property.

In most of North America, a listing agreement or contract between broker and seller must include the following: starting and ending dates of the agreement; the price at which the business will be offered for sale; the amount of compensation due to the broker.

In consideration of the brokerage successfully finding a satisfactory buyer for the property, a broker anticipates receiving a commission for the services the brokerage has provided. Usually, the payment of a commission to the brokerage is contingent upon finding a satisfactory buyer for the business for sale, the successful negotiation of a purchase contract between a satisfactory buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller.

In North America a commission in the 10% to 12% range is considered "standard" for business brokerage services and is typically paid by the seller at the closing of the transaction. Commissions may be negotiable between seller and broker. The commission could also be paid as flat fee or some combination of flat fee and percentage, particularly in the case of lower-priced businesses, businesses in the multi-million dollar price, or other unusual business assets. The details are determined by the listing contract.

Out of the commission received from the seller, the broker will typically pay any expenses incurred to do the work of trying to sell the listed businesses, such as advertisements, etc.

Business brokers who work with lenders may not receive any compensation from the lender for referring a client to a specific lender. To do so would be a violation of a (US) federal law known as the Real Estate Settlement Procedures Act (RESPA). All compensation to a broker must be disclosed to all parties.

In the US, licensing of business brokers varies by state, with some states requiring licenses, some not; and some requiring licenses if the broker is commissioned but not requiring a license if the broker works on an hourly fee basis. State rules also vary about recognizing licensees across state lines, especially for interstate types of businesses like national franchises. Some states, like California, require either a broker license or law license to even advise a business owner on issues of sale, terms of sale, or introduction of a buyer to a seller for a fee. The following require a license to practice as a business broker: Arizona, Arkansas, California, Florida, Georgia, Idaho, Illinois, Michigan, Minnesota, Nebraska, Nevada, Oregon, South Dakota, Utah, Wisconsin, and Wyoming.

In all states the broker must be a licensed real estate agent if real estate interest is involved in the transaction or the transfer of real estate interest is a requirement for the sale.