Share This Info:  

What You Should Know About Dual Agents In Buying A Business


Know About Dual Agents In Buying A Business

Should brokers and agents be allowed to represent both the buyer and seller in a transaction? Isn't this a conflict of interest? Doesn't California civil code require that when there is only one agent in a deal, that the agent is required to be a dual agent?

These are the questions that I would like to address in this article. I do not want to get into a legal discussion of the points of law, since I am a CPA and a business broker, and not an attorney.

I would, however, like to discuss the business consequences of a broker being the sole agent in the transaction.

Let's define in simple language the three types of agency relationships. An agency is when one person acts as an agent/fiduciary/middle man for another. They have limited authority, but they are there to assist the principal they represent in the business transactions. Real estate agents, stockbrokers, insurance agents, and business brokers are all agents for their clients.

Who are the clients of a broker or agent? Everyone agrees the brokers represent the seller of the business. If the buyer has a business broker working for him, everyone agrees he is the agent of the buyer. Each of the brokers works for the benefit of their client.

What about when there is only one agent/business broker? In a real estate transaction it is clearly defined that the one agent will represent both the buyer and seller. In the area of business selling and buying, I have had discussions with many attorneys that say that is not necessarily true. A business listing broker can say he is not a dual agent (representing both buyer and seller) or many try not to specify, in writing what their legal relationship is. The courts are a lot stronger on this point of law. The courts feel that if there is only one broker that he is a dual agent if the broker helped the buyer in any way other than give information and accept offers. This, of course, must be proven in court, it is not automatic.

What is the legal effect of being a dual agent rather than just representing the seller? The agent has a much higher duty to protect the buyer. An example would be the length allowed for due diligence. If a broker wrote the contract so the buyer only had two days, this might not be considered protecting the buyer. Another issue is disclosing information about the seller's business that the broker knows or should have known is false. A dual agent must disclose any info related to the business, while a seller's agent might not have to.

The challenge comes when a listing broker, refuses to be a dual agent, even when I tell him he is acting like one. I just saw an agency disclosure form- that is required by law to explain the three different kinds of agency relationships; clearly explain that the agent is not a dual agent. The buyer did not have a clue that this was the case, even though he signed receipt of the form.

Now let us just forget the legal issue and talk plain talk. Why would a broker not be willing to be a dual agent?  The commission is totally going to the listing agent, and it is very likely that the listing agent has refused to split his commission with an agent who wants to represent the buyer. Quite often the broker's response is that the buyer can pay the buyer's agent fee, if he wants representation.

When the buyer hires an experienced business broker, due diligence expert or attorney, at least someone is watching the buyer's back. When no such experienced help is hired, it is very likely that when the deal is completed, that he was been taken advantage of. After it is too late these unhappy buyers go to an attorney, only to find out it will cost thousands of dollars to sue and even then there is no guarantee of success. Even if you win a law suit, collecting the now hidden money the seller was paid, is also a big problem.

My recommendations are:

1. Hire an experienced CPA or business due diligence expert who has been involved with business brokering for years. They have looked at hundreds of  leases, purchase contracts and financials.

2. Hire an attorney to review at least the purchase agreement and lease. They may or may not be able to help you with the financial and non-financial issues covered in due diligence.

3. Never do business with a broker or agent that refuses to represent both the buyer and seller in a transaction where there is only one broker. What is he doing or what does he know that he is so afraid of being sued by the buyer? By the way, the purchase contract and many other escrow forms clearly say that you have been advised to hire an adviser. When you don't you have lowering your chances of winning a law suit.

In conclusion:

Buying a business is a major investment; it is one of the two biggest investments you will ever enter into. The big boys have a team of attorneys, CPAs, and brokers working for them. Even the small time sellers have professional advisors, and the buyers should have the same. When buying a business, you will quickly find that there are many people who have put their own interests ahead of your interests. You need at least one experienced professional on your side.

An attorney, CPA, Due diligence expert or a buyer's agent. It is preferable, of course, if you have two or more people watching your back, but take what you can get and afford.

It has been said, "A man who represents himself, has a fool as a client." and "It is very hard to watch your own back when you are looking forward."

Willard MichlinAbout The Author:  Willard Michlin, CPA (106752) offers business buyers Due Diligence Services (Second Opinion, Offer Assistance, Final Due Diligence) when they are thinking of making an offer on a business or in the process of investigating a business purchase. He has written numerous articles on the due diligence process and can be reached direct at 800-864-0420 for more information and an appointment.


Categories: Deal And Escrow Issues, How To Buy A Business, Legal Topics


Comments Regarding This Blog Post


Dual agency is a constant issue when selling and buying business, because of the way that businesses are marketed (i.e., confidentiality, NDAs, non-cooperating brokers, etc.) If a client wants to have their paperwork or lease reviewed by an attorney, I'm fine with that, many brokers do know that once an attorney gets involved then the chances of the deal going sideways goes up, because attorneys job is to minimize risk for their client, and owning a business involves risk. I've acted as dual agent, but think of my job as merely facilitating the transaction, because ultimately, the buyer makes the decision how much they are willing to pay for a business, and the seller decides how much they are willing to sell it for and on what terms. During the due diligence period I make a note not to make it appear that I'm putting my thumb on the scale and just facilitate the process between buyer and seller.


  Helpful Resources To Assist In Selling And Buying California Businesses
Bob Baumgarten, Business Broker: Orange, LA Counties

National Business Brokerage is a full service brokerage company that has been serving buyers and sellers of Southern California businesses since 1994. We are dedicated to providing the highest standards of professional service for our clients. Phone Bob direct at 949-588-8727.

Taj Randhawa, Business Broker Specialist - Gas Stations, Liquor Stores

If you are interested buying or selling a gas station, liquor store feel free to phone me for a consultation. My vast experience & specialization in gas stations & liquor stores helps me in serving my clients with full confidence, trust & sincerity. Serving Central Valley, SF Bay Area. 559-259-4247.

Steve Zimmerman: Restaurant Broker Specialist

Steve founded Restaurant Realty in 1996. He has personally sold/leased over 900 restaurants, bars & clubs, & completed over 3000 valuations. The author of "Restaurant Dealmaker - An Insider's Trade Secrets For Buying a Restaurant, Bar or Club" available on Amazon. Reach Steve direct at 415-945-9701.

Joanne Weber, Broker - Preschool Specialist - Southern California

The Ryan Craig Company is in its 35th year as the recognized expert in Southern California, dealing exclusively in the sale of preschools, Montessori schools, day care centers, and private schools. Our extensive list of references speaks for itself. Phone Joanne at 818-760-3684 for more info.

Mike Brewer: Liquor License Brokers, ABC Consulting Services

Liquor license brokerage and consulting services. We provide: Alcohol License Transfers Application Consulting & Processing, Liquor License Purchases & Sales, City Zoning Permits & Land Use Entitlements, Public Convenience or Necessity Findings and Letters. Phone Mike Brewer direct at 800-437-1100.

George Lanza, Business Broker, At Plethora Business Sales

Plethora Businesses, a division of A Premier In Services, Inc., is a Business Intermediary Consulting Firm headquartered in Orange, California. Plethora specializes in the listing and sale of small and medium sized private businesses.

Ryan Clark, Business Broker, Southern California

The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups. Phone Ryan at 310-652-8353.

Rick Carlson, Business Broker - Southern California

You Will Never Feel Lost In The Shuffle. Many Brokers Simply Send Out An NDA And That's The End Of Communication. All Buyers Receive A Personal Meeting With An Ace Acquisition Specialist So They Can Recommend The Perfect Business For You. Phone Rick direct at 800-985-4939.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
Why Restaurant Buyers Typically Fail: Best Pro Tips For Buying A Restaurant

Buying a restaurant (no matter what type) can have many pitfalls, and potential restaurant buyers should know how to avoid getting burned! Several restaurant intermediaries and advisors weigh in on this BizBen Discussion about the best way to find, purchase and run a restaurant successfully!

Buying A Restaurant With Financing: 5 Options For Restaurant Business Buyers

In this Discussion, Peter Siegel MBA (Business Purchase Financing Advisor at 925-785-3118) discusses financing of purchasing a small to mid-sized restaurant business (with or without real estate). When it comes to financing a restaurant, potential restaurant buyers have many options to choose from.

Selling Your California Deli Restaurant - 5 Key Tips For Restaurant Owners

The key to successfully selling your deli or any other business for that matter is preparation. Being prepared to sell your deli restaurant could mean the difference between closing a deal and not. With BizBen offering many deli sales, here are 5 tips to help you get prepared to sell your deli.

6 Reasons You Should Consider Buying A Commercial Cleaning Franchise Service

If you are open to exploring franchises available - the commercial cleaning industry is an area you should consider. Commercial cleaning franchises are quickly becoming a popular choice among business buyers. Peter Siegel, MBA (BizBen ProBuy Program) at 925-785-3118 explores this business industry.

Podcast/Vlog: Business Purchase Financing Chat: SBA Loan, Non SBA Financing

Ever wonder what is involved in obtaining business purchase financing to buy a business or franchise? Peter Siegel, MBA who has over 20 years advising and obtaining all types of financing for business buyers in this video/podcast - SBA loans, Non-SBA Financing, Alternative Financing Sources.

Restaurant And Fast Food Franchises - Successful Tips From Franchise Buyers

Restaurant franchise offerings are among the most popular of the business types potential business buyers seek. What many would-be owners don't realize is that there are specific tips for buying fast food or restaurant franchises that don't necessarily apply to independent restaurants for sale.

Business Purchase Financing Expert Gives Tips On Proving Cash Flow

What are the actual "provable" adjusted net earnings (cash flow) of a small to mid-sized business being purchased? Buyers need to look carefully at all financial info for the "real" adjusted net income or cash flow. Peter Siegel, MBA (business purchase financing expert) at 925-785-3118 explains.

Due Diligence Checklist: 10 Key Items To Investigate When Buying Businesses

Buying a California small business involves reviewing due diligence checklists so buyers can learn enough to determine whether to proceed with a deal. Here's a due diligence checklist. Peter Siegel, MBA (BizBen ProBuy Advisor & Business Purchase Financing Expert) at 925-785-3118 shares his views.

See All News, Tips And Events


Veld Group Business Brokerage Los Angeles County
Business Purchase Financing SBA Loans
Harry Sidhu SF Bay Area
Restaurant For Sale Mono County
Facebook
Twitter
Linkedin
Google Plus You Tube
Vlogs and Podcasts


Auto Related
Business Services
Children Related
Communication Related
Computer, Internet Related
Construction Related
Entertainment Related
Financial Services
Health, Beauty Related
Home Improvement Related
Maintenance Related
Manufacturing Related
Media, Publishing Related
Pet Related
Photography/Video Related
Real Estate Services
Restaurant, Food Related
Retail Related
Service Related
Sports Related
Transportation Related
Travel Related
Wholesale Related

Auto Body Shops
Auto Repair Shops
Bakeries
Bars, Sports Bars
Cafe Restaurants
Car Washes
Cleaning Services
Clothing, Apparel Stores
Coffee Shops
Convenience Stores
Deli Restaurants
Discount, Dollar Stores
Dry Cleaners
eCommerce Websites
Fast Food Restaurants
Florists, Flower Shops
Full Service Restaurants
Gas Stations
Gift Shops
Gyms, Fitness Facilities
Home Health Agencies
Hotels/Motels
Ice Cream Shops
Juice, Smoothie Shops
Laundromats
Liquor Stores
Markets, Marts
Nightclubs
Pizza Restaurants
Postal, Shipping Stores
Preschools, Day Care
Print Shops
Salons, Beauty Shops
Sandwich Shops
Smog Test Only Shops
Smoke Shops
Spas, Med Spas
Sushi Restaurants
Tire Shops
Towing Services
Vending Routes
Wireless, Cellular Shops
Yogurt Shops

Alameda
Alpine
Amador
Butte
Calaveras
Colusa
Contra Costa
Del Norte
El Dorado
Fresno
Glenn
Humboldt
Imperial
Inyo
Kern
Kings
Lake
Lassen
Los Angeles
Madera
Marin
Mariposa
Mendocino
Merced
Modoc
Mono
Monterey
Napa
Nevada
Orange
Placer
Plumas
Riverside
Sacramento
San Benito
San Bernardino
San Diego
San Francisco
San Joaquin
San Luis Obis
San Mateo
Santa Barbara
Santa Clara
Santa Cruz
Shasta
Sierra
Siskiyou
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tulare
Tuolumne
Ventura
Yolo
Yuba

0 to $99,999
$100,000 to $249,999
$250,000 to $499,999
$500,000 to $999,999
$1 million to $2 million
over $2 million



BizBen - Where California Deals Get Done! 925-785-3118
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2019, All Rights Reserved

               Vlogs and Podcasts  
Join Us On Social Media - Content Updated Daily
Sign Up Today - For Our FREE BizBen Weekly Email Newsletter
Includes The Best Info On Buying, Selling, Valuing, Financing California Businesses:
Articles, Blog Posts, Podcasts, Videos/Vlogs, Discussions, Q&A, Workshops, Webinars,
Resources. Watch For An Email Confirmation After Signing Up Above. Thank you.
Clost Login


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 
Search BizBen.com

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
Buying A Restaurant With Financing: 5 Options For Restaurant Business Bu...
Read More News
Why Restaurant Buyers Typically Fail: Best Pro Tips For Buying A Restaur...
Read More News