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Discussions > Going Behind A Brokers Back: How Does A Broker Protect Themself?
Going Behind A Brokers Back: How Does A Broker Protect Themself?
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Posted By: Joe Ranieri 
What are some ways a broker can prevent a buyer and seller from doing a deal behind their back and what to do about it if it happens? Joe Ranieri (Orange County Business Broker) discusses ways a business broker or agent can protect themselves from buyers and sellers trying to circumvent them.
Topics: Business Brokerage, Buying A Business, Selling A Business Tags: business brokers, buying a business, escrow bulk sales, selling a business
What are some ways a broker can prevent a buyer and seller from doing a deal behind their back and what to do about it if it happens? Joe Ranieri (Orange County Business Broker) discusses ways a business broker or agent can protect themselves from buyers and sellers trying to circumvent them.
Topics: Business Brokerage, Buying A Business, Selling A Business Tags: business brokers, buying a business, escrow bulk sales, selling a business
What are some ways a broker can prevent a buyer and seller from doing a deal behind their back and what to do about it if it happens?
For most business brokers, it's something that has happened: finding out one of your sellers and perhaps one of your buyers have decided to the deal without you. The scenario is usually the same, both parties lower the agreed price a little, but not more than the amount the seller would owe the broker a commission. For a broker, who has invested many hours and resources in selling the business, it's frustrating to feel cheated out of an earned commission. Just like there are some dishonest brokers, there are also dishonest buyers and sellers, and I've learned that although there will always be people who try to cheat the system, there are some ways to deter it.
1. Take only listings that you can adequately service.
It's tempting to take as many listings as possible, because we all know the list/sell ratios in business brokerage, but if you take too many then it's impossible to service them all appropriately. I've found that the sellers/buyers who have tried to make a deal without me, even though there is a listing contract in place, are primarily the ones I took that were out of the area, and beyond my normal sales territory. If the listing is an hour and half away, I must ask myself, "do I really want to make a 3-hour round trip to get a modification of terms or some other contract signed?" Does taking a listing that I can't properly service really serve the buyer, seller, or myself correctly?
2. Subscribe to a service of escrow publications.
There are companies out there which will tell each week which businesses have opened an escrow or have posted with ABC. These companies are invaluable in monitoring what is going on in the market. I've found a few of my clients over the years who have opened an escrow amongst each other, thinking I wouldn't find out. If I do see that one of my clients has gone to escrow without me, I'll call the escrow company and put a claim into escrow for my commission. If the seller and buyer decide to sell it amongst themselves and don't go to escrow, then of course I have fewer opportunities of recourse.
3. Always keep a record of Non-disclosures with buyers.
Never, never be tempted to send a buyer out to one of your listings without having them sign an NDA. Some buyers will try to say, "I'm on the road and have no access to a computer, can you just give me the listing?” Keep a good record of who you send out to the business listings, and avoid giving out too many to one buyer at a time. Also, beware of buyers who want addresses on listings that aren’t the same type, such as, "your laundromat, coffee shop, bar, liquor store, mail box, and pool hall." In my listing contract and on NDA, there is language which prevents the buyer and seller from doing a deal without me for 90-120 after the expiration of the listing contract, so keep good records!
4. Produce a list to the seller of all prospective buyers you have procured the buyer.
At the end of the listing contract, provide the seller with names, not numbers, but names of all the buyers you procured through your marketing efforts. This reminds them that you keep good records, and their commitment to your listing contract, which has expired, but may have terms that spells how to deal with buyers found during the length of the contract. I have seen brokers who have taken their clients to small claims court for an earned commission, but even if you do get a judgement, it's still on you to collect, so possibly see an attorney for advice.
5. If it happens to you, don't let it get you down.
If you do get cheated out of your commission, deal with it in the way you think is best, but don’t allow it to consume you or affect the way you deal with future clients. Most my clients are trustworthy, and so I don't let a few of the bad ones, make me a jaded person. Trust in our business is very important.
For most business brokers, it's something that has happened: finding out one of your sellers and perhaps one of your buyers have decided to the deal without you. The scenario is usually the same, both parties lower the agreed price a little, but not more than the amount the seller would owe the broker a commission. For a broker, who has invested many hours and resources in selling the business, it's frustrating to feel cheated out of an earned commission. Just like there are some dishonest brokers, there are also dishonest buyers and sellers, and I've learned that although there will always be people who try to cheat the system, there are some ways to deter it.
1. Take only listings that you can adequately service.
It's tempting to take as many listings as possible, because we all know the list/sell ratios in business brokerage, but if you take too many then it's impossible to service them all appropriately. I've found that the sellers/buyers who have tried to make a deal without me, even though there is a listing contract in place, are primarily the ones I took that were out of the area, and beyond my normal sales territory. If the listing is an hour and half away, I must ask myself, "do I really want to make a 3-hour round trip to get a modification of terms or some other contract signed?" Does taking a listing that I can't properly service really serve the buyer, seller, or myself correctly?
2. Subscribe to a service of escrow publications.
There are companies out there which will tell each week which businesses have opened an escrow or have posted with ABC. These companies are invaluable in monitoring what is going on in the market. I've found a few of my clients over the years who have opened an escrow amongst each other, thinking I wouldn't find out. If I do see that one of my clients has gone to escrow without me, I'll call the escrow company and put a claim into escrow for my commission. If the seller and buyer decide to sell it amongst themselves and don't go to escrow, then of course I have fewer opportunities of recourse.
3. Always keep a record of Non-disclosures with buyers.
Never, never be tempted to send a buyer out to one of your listings without having them sign an NDA. Some buyers will try to say, "I'm on the road and have no access to a computer, can you just give me the listing?” Keep a good record of who you send out to the business listings, and avoid giving out too many to one buyer at a time. Also, beware of buyers who want addresses on listings that aren’t the same type, such as, "your laundromat, coffee shop, bar, liquor store, mail box, and pool hall." In my listing contract and on NDA, there is language which prevents the buyer and seller from doing a deal without me for 90-120 after the expiration of the listing contract, so keep good records!
4. Produce a list to the seller of all prospective buyers you have procured the buyer.
At the end of the listing contract, provide the seller with names, not numbers, but names of all the buyers you procured through your marketing efforts. This reminds them that you keep good records, and their commitment to your listing contract, which has expired, but may have terms that spells how to deal with buyers found during the length of the contract. I have seen brokers who have taken their clients to small claims court for an earned commission, but even if you do get a judgement, it's still on you to collect, so possibly see an attorney for advice.
5. If it happens to you, don't let it get you down.
If you do get cheated out of your commission, deal with it in the way you think is best, but don’t allow it to consume you or affect the way you deal with future clients. Most my clients are trustworthy, and so I don't let a few of the bad ones, make me a jaded person. Trust in our business is very important.
Contributor: Broker/Consultant: Elderly Care Services
Thank you Joe for bringing this topic of discussion. All of us Veteran Agents I am sure have many stories to share on this topic, good and bad.
We all need to remind ourselves over and over that Business Brokerage, like many other sales jobs is a relationship based business. No matter how many contracts and agreements we have in place, if trust, respect and honor are not in place people will unfortunately go outside the set boundaries.
So how does a Business Broker protect themselves from an unscrupulous Buyer or Seller?
1. Educate the Buyer and Seller as to what is expected of one another and what we can and can not do.
2. Work your butt off to create loyal fans for life.
3. Treat everyone with respect and in turn ask for respect back.
4. Cut ties with "challenging" Buyers and Sellers as quickly as possible with great respect.
And, remember to have fun.
We all need to remind ourselves over and over that Business Brokerage, like many other sales jobs is a relationship based business. No matter how many contracts and agreements we have in place, if trust, respect and honor are not in place people will unfortunately go outside the set boundaries.
So how does a Business Broker protect themselves from an unscrupulous Buyer or Seller?
1. Educate the Buyer and Seller as to what is expected of one another and what we can and can not do.
2. Work your butt off to create loyal fans for life.
3. Treat everyone with respect and in turn ask for respect back.
4. Cut ties with "challenging" Buyers and Sellers as quickly as possible with great respect.
And, remember to have fun.
| Helpful Resources To Assist In Selling And Buying California Businesses |
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Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063. |
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Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393. |
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Helen Yoo: Escrow & Bulk Sale Services - Southern California New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151. |
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Diane Boudreau-Tschetter: Escrow And Bulk Sale Services California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100. |
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Peter Siegel, MBA - SBA Loans, Non SBA Financing Assistance For over 25 years I have provided niche business purchase financial advisory and loan placement services with SBA and Non-SBA Loans, Retirement Plan Conversions, Private Investors, etc. Financing amounts available: $20K to $7MM. Call today to get pre-qualified or receive financing: 866-270-6278. |
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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. |
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Steve Erlinger: Laundry Broker, Consultant - Orange/Riverside Counties I specialize in the laundry industry (Broker/Consultant at 949-500-5893) - Riverside, Orange Counties. I assist buyers navigate the many facets of finding, evaluating, and operating a laundry business. I also help current laundry owners find additional stores, sell, evaluate an existing laundromat. |
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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. |
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