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  • Why Only a Business Broker with a Real Estate License Should be Used to Sell a Business

    Jan 16, 2018

    Business brokerage is often considered the “Wild West” of real estate.  Many residential & commercial real estate companies do not allow their real estate brokers to sell businesses due to the enhanced liability created for the company; the lack of knowledge & experience by brokers, managing brokers, and designated brokers with business sales; the absence of standardized forms & processes for transactions; the spectrum of tax implications associated with transactions; the sophistication of an escrow process that often requires an attorney; and the different financing products necessary to fund acquisitions.

    Many business brokerage firms do not require their brokers to obtain real estate licenses. This practice is not in the public’s “best interest”.

    A significant majority of business sale transactions inherently require a real estate license as part of the sale process. 

    A real estate license is legally required to professionally sell commercial or residential real estate or facilitate negotiations relating to the leasing or assignment of the lease of commercial space.  All businesses, with the potential exception of some home-based businesses, occupy commercial retail, office, or industrial space that will require a transition of occupancy at time of business sale.

     

    The implications of this legal requirement are as follows:

     

    1. If the business or its owner directly or through a separate entity own the real estate occupied by the business and a simultaneous sale of the real estate with the business is desired the seller, if their business broker does not have a real estate license, will need to separately engage a real estate professional to sell the real estate or represent themselves in the sale of the real estate. Either scenario, involving a business broker not possessing a real estate license, is potentially detrimental to the “best interest” of the seller.  If a second professional is engaged to represent the real estate communication, negotiations, and transaction facilitation with potential buyers will increase in complexity and the possibility of divergent negotiating objectives will exist. Compare this with professional representation where a real estate licensed business broker comprehensively represents both the business & real estate for sale at the same time.

     

    Business sales traditionally require collaboration between the seller, their mergers & acquisitions professional, attorney, and accountant with mirrored collaboration with a similar set of professional advisers on the other side of the transaction (likely with the addition of a banker).  The business broker often fills the role of communication hub and lead negotiator for the group.  If the business brokerage professional’s knowledge & experience do not allow them to serve a real estate advisory role, negotiations can be impacted, liability created, and/or additional costs accrued by the client.

     

    If a business owner represents themselves in the sale of the real estate the potential exists to save money on commission, but the possibility also exists that the property will not be sold at a “fair market” value and administrative details associated with the sale of real estate will be missed increasing post transaction liability.

     

    An experienced, knowledgeable commercial real estate broker will be able to determine the “fair market” value of the real estate and facilitate administrative activities related to a “best practice” sale of real estate.  The top professionals in the business brokerage industry have the ability to complete this project, in addition, to professionally facilitating the sale of the business.

     

    1. If the business or its owner either directly or through a separate entity own the real estate occupied by the business and leasing of the real estate to the buyer of the business is desired, if the engaged business broker does not have a real estate license, the seller will need to separately engage a real estate professional to lease the real estate or represent themselves in the leasing of the real estate.  Either scenario is potentially detrimental to the “best interest” of the seller.  If a second professional is engaged to represent the real estate communication & negotiations with potential buyers will increase in complexity and the possibility of divergent negotiating objectives will exist. Compare this with the straight forward scenario where a real estate licensed business broker comprehensively represents both the business & facilitates leasing of the real estate for sale at the same time.

     

    It also should be noted, in the case of IBA, that our firm does not charge a leasing commission for negotiating a lease with the buyer of a business on behalf of a business sale client.  We offer this service on a complimentary basis for the following reasons:

     

    1. We would facilitate lease negotiations for no additional charge for our client and the buyer with the property owner, if the business was in a leased facility that was not owned by the business owner.

     

    1. Facilitation of a new lease or lease assignment for the buyer is part of IBA’s comprehensive representation services and a process we desire to have control of because it is a requirement to complete a business sale that the buyer and/or their lender receive a satisfactory lease.

     

    If a business owner represents themselves in the leasing of the real estate the possibility exists that the property will not be leased at a “fair market” value and administrative details associated with the lease of the real estate will be missed increasing post transaction liability.

     

    An experienced, knowledgeable commercial real estate broker will be able to determine the “fair market” value of the leased real estate and facilitate the administrative activities necessary to establish a proper commercial lease between the property owner & tenant.  The top professionals in the business brokerage industry have the ability to complete this project, in addition to professionally facilitating the sale of the business.

     

    1. If the business is located in a commercial space not owned by the owner of the business and establishing of a new lease or the assignment of the existing lease of the real estate is desired by the seller and/or buyer, if the business broker does not have a real estate license, one or more of the parties will need to separately engage a real estate professional to lease the real estate or represent themselves in negotiations to lease the real estate. Either scenario is potentially detrimental to the “best interest” of the buyer and/or seller.  If a second or possibly third professional is engaged to facilitate lease negotiations communication & negotiations for the transaction will increase in complexity and the possibility of divergent negotiating objectives will exist. Compare this with professional representation where a real estate licensed business broker comprehensively represents both the business & facilitates leasing of the real estate for sale at the same time maintaining direct control of the lease contingency variable and incorporating the lease negotiations into the context of achieving the transactional goals established by the parties.

     

    If a business owner or buyer represents themselves in lease negotiations the possibility exists that the property will not be leased at a “fair market” value and administrative details associated with the lease will be missed increasing post transaction liability.

    An experienced, knowledgeable commercial real estate broker will be able to determine the “fair market” value of the leased real estate and facilitate the administrative activities necessary to establish a proper commercial lease between the property owner & tenant.  The top professionals in the business brokerage industry have the ability to complete this project, in addition, to professionally facilitating the sale of the business.

    There is no substation for knowledge, experience, and professional ability in the sale of a business.  The top business brokers have knowledge & experience with legal, accounting, banking, and the real estate issues associated with the purchase & sale of a privately held company or family business.  A business broker that has not taken the time & made the effort to obtain a real estate license for the geographic area they serve is also likely a business broker that does not employ “best practices” or have a comprehensive knowledge base to share with their clients.

    IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

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