Is Business Brokerage the Same as Commercial Sales? NO!
October 1, 2021
As we all know, Article 11 from the Code of Ethics states that we will provide services to clients and customers within our specific area of expertise. Commissioners Rule R4-28-1101 also states we will not provide professional services that are outside our field of competence. I dare say that most of your company policy manuals also specify that you will NOT engage in business brokerage.
According to Infotopia, a business broker is an individual or company that assists in the purchase and sale of small businesses. These agents can take on a variety of tasks to help their clients achieve their acquisition and offloading objectives. Business brokers help clients establish a probable selling price by evaluating financials and the earning potential of the business for the next owner, while commercial real estate brokers are not typically trained in this sort of assessment.
Residential and commercial agents that try to separate the tangible and intangible assets of a business brokerage transaction are on a slippery slope of working outside of their scope, legal exposure and damaging what is often the largest transaction of a seller’s lifetime.
We need to start with the understanding that it’s very different than selling a house or even a commercial building though it may sometimes include the sale of property. The first rule of thumb is that confidentiality requirements preclude the person marketing the real estate from sharing the fact that the business is for sale as well. The business and the property have an inherent relationship. Both need to be represented properly, confidentially and by the same broker, not a commercial broker and a business broker. If not handled properly, this could be catastrophic to the business sale. A business could lose customers, employees, vendors, and risk competitors using the information against them and hurting revenues. An inadvertent disclosure may compromise the business to the extent that it can’t be sold.
Is real estate ever sold with the business? Yes. Typically, the business sale is negotiated first, and the real estate sale follows. Both can be done at the same time but it’s really in the client’s best interest to have the same entity handle both. The closings will then be simultaneous and mutually contingent. A business broker knows how to confidentiality market your business, and they are also well-versed in negotiating leases, or including or excluding the real property from the transaction, licensing and permitting concerns and will have relationships with other brokers and buyers who are currently in the market looking for a business like it.
So, what do you do if a long-time client owns a convenience store, they would like to sell? That’s particularly tempting if you’re a commercial broker and subscribe to Co-Star and LoopNet and can analyze the value of the property. It may be tempting but I recommend referring it to a competent Business Broker who can analyze the value of the business and the real estate without compromising either. The business financials and assets may have an impact on the value of the property that you wouldn’t be aware of. A poorly structured transaction could easily damage the value of the business and create legal exposure for the agent and brokerage office.
I know my limitations, and for this article I consulted with Dana Cole the Designated Broker/Owner of Long Realty Business Brokerage. Dana has over 25 years’ experience providing business brokerage services and is a long-time member of the Arizona Association of Business Brokers. She also pays generous referral fees to REALTORS ® who refer businesses with real estate attached to her.
If you’re one who is looking for a new area of specialization you might be interested in business brokerage. It’s certainly worth evaluating. But if you’re a residential or commercial specialist and content to remain in that genre I urge you to refer out the “business business” to someone competent and licensed to handle it.