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Who Really Represents The Business Buyer? Does Dual Agency Work?



Posted By: Peter Siegel MBA: BizBen Founder, Lead Advisor.   Who really represents the buyer? The selling broker or agent through dual agency? Many brokers and agents weigh in on this Discussion on BizBen. Bottomline is all business buyers need to know who really represents them and has their best interest at heart when seeking and negotiating on deals.

Technically and legally, it is the seller of a business whom the business sales intermediary represents in a sale. The contract forming the relationship is typically a listing agreement. The broker with that agreement and any other broker who procures the buyer, are bound by that contract, and so they are contractually representing the seller.

While there are many instances that might be referred to as "dual agency," by which the broker who represents the seller also brings the buyer, the legal basis of these relationships is the broker's responsibility to the seller. The broker does, however, have a legal responsibility of "fair dealing" with the buyer, consistent with the use of ethical practices in working with all parties.

Yes, what is referred to as "dual agency" can work in a business sales transaction if the broker discloses the nature of his or her relationships to all parties in a transaction and is careful not to share with one party any confidential information regarding the other party.

In other words, the sales intermediary should not reveal to the seller or to the buyer the negotiating limits, in price and terms (for example, the highest price to which the buyer will agree or the lowest price the seller will accept), that the other party has revealed in confidence to that intermediary.

The way I think about dual agency is that I don't think about the commission I'm going to make, because the broker is to play it fair and square with both parties. I remember when I was selling a tanning salon, and I told the buyer to go down to city hall and make sure all the permits were in order, and well they were not and the escrow got cancelled. The buyer of the tanning salon would not have been able to get a business license. I handle the buyer and seller right down the middle.

The way I think about dual agency is that I don't think about the commission I'm going to make, because the broker is to play it fair and square with both parties. I remember when I was selling a tanning salon, and I told the buyer to go down to city hall and make sure all the permits were in order, and well they were not and the escrow got cancelled. The buyer of the tanning salon would not have been able to get a business license. I handle the buyer and seller right down the middle.
Contributor: Broker/Consultant: Elderly Care Services
Dual Agency is a topic that I think will never be resolved. This is a topic that will never go away and most likely for good reason.

All too often Business Brokers forget what their true job is; and that is simply to bring Buyers and Sellers together.

Sure there are a ton of other activities a Business Broker will be involved in such as writing offers, negotiating on behalf of all Clients, assisting in due diligence, hand holding, encouragement and such.

But at the end of the day the successful Business Broker who operates his/her business with integrity and honesty will always encourage their Buyers and Sellers to seek a licensed professional such as an Attorney or CPA to review all documents and due diligence items.

Dual Agency is a topic that I think will never be resolved. This is a topic that will never go away and most likely for good reason.

All too often Business Brokers forget what their true job is; and that is simply to bring Buyers and Sellers together.

Sure there are a ton of other activities a Business Broker will be involved in such as writing offers, negotiating on behalf of all Clients, assisting in due diligence, hand holding, encouragement and such.

But at the end of the day the successful Business Broker who operates his/her business with integrity and honesty will always encourage their Buyers and Sellers to seek a licensed professional such as an Attorney or CPA to review all documents and due diligence items.
We primarily represent Buyers in a specific industry (Vended Laundries) that we are experts in. So in these cases it actually makes for a smoother and more transparent transaction.

I would not recommend any broker taking on a listing of a highly specialized business, without outside resources who do specialize. In a recent litigation that I was designated as an Expert Witness, the Broker had no knowledge of the industry and used that lack of knowledge as his defense when everything was finally discovered,; after the transaction. Sorry! You might get away with that but you better be sure to put the Buyer in touch with experts and make sure that all is transparent in the transaction and that good diligence is performed.

While no broker can be knowledgeable about every business, he does have the role of presenting the facts. So, unless the Buyer is well familiar with the business model it is advisable to seek knowledgeable people.

We primarily represent Buyers in a specific industry (Vended Laundries) that we are experts in. So in these cases it actually makes for a smoother and more transparent transaction.

I would not recommend any broker taking on a listing of a highly specialized business, without outside resources who do specialize. In a recent litigation that I was designated as an Expert Witness, the Broker had no knowledge of the industry and used that lack of knowledge as his defense when everything was finally discovered,; after the transaction. Sorry! You might get away with that but you better be sure to put the Buyer in touch with experts and make sure that all is transparent in the transaction and that good diligence is performed.

While no broker can be knowledgeable about every business, he does have the role of presenting the facts. So, unless the Buyer is well familiar with the business model it is advisable to seek knowledgeable people.
In any transaction where I represent the seller, I always tell the buyer that while I am the agent of the seller, I have a legal, ethical, and moral obligation to deal fairly and honestly with all parties and reveal all relevant material facts that are known to me. Once a buyer has found a business on their own without the assistance of a broker, once they have assessed the value of the business they are buying, and certainly once they have submitted an offer, they no longer need a "buyer's broker" to enter into the transaction. What they need at that point is a good CPA ad a good business transaction lawyer. Whether the buyer does or does not have a broker, I always strongly recommend that they retain competent professional accounting and legal advisors.

In any transaction where I represent the seller, I always tell the buyer that while I am the agent of the seller, I have a legal, ethical, and moral obligation to deal fairly and honestly with all parties and reveal all relevant material facts that are known to me. Once a buyer has found a business on their own without the assistance of a broker, once they have assessed the value of the business they are buying, and certainly once they have submitted an offer, they no longer need a "buyer's broker" to enter into the transaction. What they need at that point is a good CPA ad a good business transaction lawyer. Whether the buyer does or does not have a broker, I always strongly recommend that they retain competent professional accounting and legal advisors.
Contributor: Business Appraisals, Valuations Advisor
I have to agree with Christina. If you have integrity, are honest and open with both the buyer and seller, dual agency works. I actually wanted the buyer to understand the short comings of the business and the seller to feel comfortable trusting in the buyer. Many times I told a seller I wasn t happy with a buyer we were working with, and with his agreement I looked for a new buyer. My goal was not just to sell the business but to sell it to the right person. I never pushed a seller into a sale. I gave him my advice but I made sure it was his decision. I didn t follow through with some buyers because they didn t fit the type of person needed to run the business. I knew I was only looking for one buyer and my experience told me that he would show up. I always did my best to help a buyer get all the information he needed, answer all his questions and help him work his way through the purchase process. Most buyers had never purchased a business before and it was my responsibility to help them through the entire process.

I have to agree with Christina. If you have integrity, are honest and open with both the buyer and seller, dual agency works. I actually wanted the buyer to understand the short comings of the business and the seller to feel comfortable trusting in the buyer. Many times I told a seller I wasn t happy with a buyer we were working with, and with his agreement I looked for a new buyer. My goal was not just to sell the business but to sell it to the right person. I never pushed a seller into a sale. I gave him my advice but I made sure it was his decision. I didn t follow through with some buyers because they didn t fit the type of person needed to run the business. I knew I was only looking for one buyer and my experience told me that he would show up. I always did my best to help a buyer get all the information he needed, answer all his questions and help him work his way through the purchase process. Most buyers had never purchased a business before and it was my responsibility to help them through the entire process.
Contributor: Business Broker, Northern California
This is an interesting topic and so I'll add my perspective. I agree with Christina and think Dual Agency is very much a positive for both buyer and seller and this is supported by the comments below.

For example, Mark suggests Dual Agency doesn't work as the sale of a business is more complex than selling a home. This is the reason Dual Agency does work because Mark is correct, the sale of a business is much more complicated. Without fail, the only reason a business or most transactions get done is due to good communication. If the communication is poor then the result will be poor. When communication takes place with many parties it tends to break down. Email is probably one of the poorest forms of communication.

The benefit of Dual Agency is that one broker is the pivot between all the communication between the buyer, seller, landlord, lender, attorney's, CPA's and more. If there is a misunderstanding and the broker knows what they are doing, this will be caught and resolved.

Probably the greatest benefit of Dual Agency is that the broker is the party representing the business. That is, the business can't speak for itself as no one is supposed to know the business is for sale except the seller and the buyer and disinterested third parties. The broker wants to get a deal done as quickly as possible if the buyer and seller want to do a deal as they know that the business is vulnerable while their are negotiations and its therefore in limbo.

As a Certified Business Broker I really don't care on how much the buyer pays or the seller accepts - that's their decision and responsibility. My responsibility is to disclose EVERYTHING so that a motivated buyer and a motivated seller knowing the full facts of a deal can decide if they wish to do a transaction.

To Timothy's point, I am not serving two masters. I am serving two customers. There is only one Master which is the business and I see my role as protecting it and making sure if no deals get done, the business is in the same condition as when I was hired to try and sell it.

I also agree with other comments that a bad broker is a problem. This is the reason to look for a Certified Business Broker as they have training and certification to support their skills.

This is an interesting topic and so I'll add my perspective. I agree with Christina and think Dual Agency is very much a positive for both buyer and seller and this is supported by the comments below.

For example, Mark suggests Dual Agency doesn't work as the sale of a business is more complex than selling a home. This is the reason Dual Agency does work because Mark is correct, the sale of a business is much more complicated. Without fail, the only reason a business or most transactions get done is due to good communication. If the communication is poor then the result will be poor. When communication takes place with many parties it tends to break down. Email is probably one of the poorest forms of communication.

The benefit of Dual Agency is that one broker is the pivot between all the communication between the buyer, seller, landlord, lender, attorney's, CPA's and more. If there is a misunderstanding and the broker knows what they are doing, this will be caught and resolved.

Probably the greatest benefit of Dual Agency is that the broker is the party representing the business. That is, the business can't speak for itself as no one is supposed to know the business is for sale except the seller and the buyer and disinterested third parties. The broker wants to get a deal done as quickly as possible if the buyer and seller want to do a deal as they know that the business is vulnerable while their are negotiations and its therefore in limbo.

As a Certified Business Broker I really don't care on how much the buyer pays or the seller accepts - that's their decision and responsibility. My responsibility is to disclose EVERYTHING so that a motivated buyer and a motivated seller knowing the full facts of a deal can decide if they wish to do a transaction.

To Timothy's point, I am not serving two masters. I am serving two customers. There is only one Master which is the business and I see my role as protecting it and making sure if no deals get done, the business is in the same condition as when I was hired to try and sell it.

I also agree with other comments that a bad broker is a problem. This is the reason to look for a Certified Business Broker as they have training and certification to support their skills.
I'm sorry but I have to disagree with both of you. Dual agency can be a slippery slope, I agree on that! If the broker isn't totally ethical then there can be a problem, but in that case you'll surely have some other problem at some point. After literately hundreds of deals and 99% of them duel agency, I can honestly say that the purchase price is really the only awkward issue.

I have a way of handling it and I disclose it to ALL my clients. I tell them to do whatever they feel is fair & right. Unless I have been given specific instructions by the seller to not even present something below a certain number, I tell the buyer that the seller can counter of he doesn't like it. On deals when I had to work with another broker, I found could be more difficult for me because its another personality thrown in the mix. Not every broker is as fast at responding, thorough, or can translate information so that its not inflammatory.

The bottom line is that EVERYTHING has to be disclosed, regardless of whom it benefits and whom it detriments. My job is to navigate two parties that mutually want to close a deal but given that small businesses are run by regular individuals not large corporations, emotionally charge clients are part of the territory. My role becomes mediator and I have found that it is not a gift everyone possesses. Perhaps dual agency isn't for everyone but it can be done with integrity, when handled correctly.

I'm sorry but I have to disagree with both of you. Dual agency can be a slippery slope, I agree on that! If the broker isn't totally ethical then there can be a problem, but in that case you'll surely have some other problem at some point. After literately hundreds of deals and 99% of them duel agency, I can honestly say that the purchase price is really the only awkward issue.

I have a way of handling it and I disclose it to ALL my clients. I tell them to do whatever they feel is fair & right. Unless I have been given specific instructions by the seller to not even present something below a certain number, I tell the buyer that the seller can counter of he doesn't like it. On deals when I had to work with another broker, I found could be more difficult for me because its another personality thrown in the mix. Not every broker is as fast at responding, thorough, or can translate information so that its not inflammatory.

The bottom line is that EVERYTHING has to be disclosed, regardless of whom it benefits and whom it detriments. My job is to navigate two parties that mutually want to close a deal but given that small businesses are run by regular individuals not large corporations, emotionally charge clients are part of the territory. My role becomes mediator and I have found that it is not a gift everyone possesses. Perhaps dual agency isn't for everyone but it can be done with integrity, when handled correctly.
With my academic and professional background as a lawyer, "dual agency" has never made any sense to me. The agent's primary fiduciary obligation is to the principal, "the master." "No man can serve two masters ... (Matt. 6:24)" is as true for business transactions as it is for theology. While, as a licensed broker I have a fiduciary obligation of integrity and fair dealing to all parties, my obligation to my principal should not be compromised by confusion concerning who it is I represent.

When I have listed a business for sale, I am representing the seller. My contract makes it abundantly clear that I am the agent of the seller, NOT the buyer. In most cases, buyers inquire about a business for sale directly and I deal with them directly; but, I advise them that they should not enter into an offer or a contract without seeking professional advice, preferably from an attorney. In fact, once the buyer has contacted us about a business and has received disclosure of the seller's information, a "buyer's broker" serves little if any purpose. At that point, the buyer should be consulting with an attorney and a CPA, especially during due diligence. Unfortunately, tall too often, the buyer will not make the relatively minor investment of retaining an attorney to review documents and a CPA to review financials; it's foolish--"an ounce of prevention IS worth a ton of cure."

Very important: The buyer should retain only an attorney and a CPA experienced in business law and business ownership transfer transactions. This is a specialized area, and too many professionals think they know everything about everything. Having a business law specialist, like Mark Chatow, Esq. in Southern California (Newport Beach) at the buyer's side will be worth far more than the nominal cost.

With my academic and professional background as a lawyer, "dual agency" has never made any sense to me. The agent's primary fiduciary obligation is to the principal, "the master." "No man can serve two masters ... (Matt. 6:24)" is as true for business transactions as it is for theology. While, as a licensed broker I have a fiduciary obligation of integrity and fair dealing to all parties, my obligation to my principal should not be compromised by confusion concerning who it is I represent.

When I have listed a business for sale, I am representing the seller. My contract makes it abundantly clear that I am the agent of the seller, NOT the buyer. In most cases, buyers inquire about a business for sale directly and I deal with them directly; but, I advise them that they should not enter into an offer or a contract without seeking professional advice, preferably from an attorney. In fact, once the buyer has contacted us about a business and has received disclosure of the seller's information, a "buyer's broker" serves little if any purpose. At that point, the buyer should be consulting with an attorney and a CPA, especially during due diligence. Unfortunately, tall too often, the buyer will not make the relatively minor investment of retaining an attorney to review documents and a CPA to review financials; it's foolish--"an ounce of prevention IS worth a ton of cure."

Very important: The buyer should retain only an attorney and a CPA experienced in business law and business ownership transfer transactions. This is a specialized area, and too many professionals think they know everything about everything. Having a business law specialist, like Mark Chatow, Esq. in Southern California (Newport Beach) at the buyer's side will be worth far more than the nominal cost.
Contributor: Transactional Attorney
While dual agency works reasonably well for the sale of homes, there are a lot of problems with it in the more complex world of business transactions.

To give a specific example, I represented the buyer recently in a transaction where the broker had provided a P&L that was about one quarter behind and a pro forma income statement showing projections through year end.

When I took a quick look at the numbers it was very clear that things were not adding up. Even accounting for seasonality the actuals could not have supported the projections. When I talked with the broker about it he admitted that he wasn't sure how the numbers added up either but that he was, "just passing on what the seller had provided".

That is the key problem with dual agency. If a broker is going to just "pass along" what the seller provides then they are not taking an active role in representing the interests of the buyer. At the same time, if they alert the buyer to problems proactively are they fulfilling their duty to the seller?

I agree with Bob that having someone represent the buyer can slow down a transaction and may not allow the one-on-one connection you have in dual agency. But I believe the risks far outweigh the relatively minor benefits of dual agency.

If the buyer is represented by a competent broker or attorney who is incentivized to watch out for the buyer's best interests and--not just to close a deal--it can be beneficial to all parties.

The buyer has someone in their corner whose only job is to make sure they are protected, and the Seller can be assured that the buyer goes into the transaction with full knowledge and can possibly avoid legal issues down the line.

While dual agency works reasonably well for the sale of homes, there are a lot of problems with it in the more complex world of business transactions.

To give a specific example, I represented the buyer recently in a transaction where the broker had provided a P&L that was about one quarter behind and a pro forma income statement showing projections through year end.

When I took a quick look at the numbers it was very clear that things were not adding up. Even accounting for seasonality the actuals could not have supported the projections. When I talked with the broker about it he admitted that he wasn't sure how the numbers added up either but that he was, "just passing on what the seller had provided".

That is the key problem with dual agency. If a broker is going to just "pass along" what the seller provides then they are not taking an active role in representing the interests of the buyer. At the same time, if they alert the buyer to problems proactively are they fulfilling their duty to the seller?

I agree with Bob that having someone represent the buyer can slow down a transaction and may not allow the one-on-one connection you have in dual agency. But I believe the risks far outweigh the relatively minor benefits of dual agency.

If the buyer is represented by a competent broker or attorney who is incentivized to watch out for the buyer's best interests and--not just to close a deal--it can be beneficial to all parties.

The buyer has someone in their corner whose only job is to make sure they are protected, and the Seller can be assured that the buyer goes into the transaction with full knowledge and can possibly avoid legal issues down the line.
Contributor: Business Appraisals, Valuations Advisor
The seller's broker has a fiduciary responsibility to the seller but he also has a responsibility to treat the buyer with the same level of honesty and cooperation. I sold businesses for 23 years with duel agency. Cooperating with other brokers made everything more complicated. Instead of having three people involved in the transaction now you have four. The buyer's broker would have to go through me to ask a question of the seller. I would have to ask the seller the question with no other details and then tell the buyer's broker the answer and never know how the answer went over with the buyer or if he was ever told the correct answer. I think the length of the last few sentences tells it all. With a Buyer broker I totally missed out at getting to know the buyer, understanding his needs and helping him build a good relationship with the seller. If you feel you need a broker on your side you have the right to do so.

The seller's broker has a fiduciary responsibility to the seller but he also has a responsibility to treat the buyer with the same level of honesty and cooperation. I sold businesses for 23 years with duel agency. Cooperating with other brokers made everything more complicated. Instead of having three people involved in the transaction now you have four. The buyer's broker would have to go through me to ask a question of the seller. I would have to ask the seller the question with no other details and then tell the buyer's broker the answer and never know how the answer went over with the buyer or if he was ever told the correct answer. I think the length of the last few sentences tells it all. With a Buyer broker I totally missed out at getting to know the buyer, understanding his needs and helping him build a good relationship with the seller. If you feel you need a broker on your side you have the right to do so.

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