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Does a buyer need to pay the seller broker any commission during the sale of a business.

Does a buyer need to pay the seller broker any commission during the sale of a business. Also in which stage of the buying process do I need a Lawyer & Accountant (due diligence would be one) and how much are their estimated fees.

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Jul 5, 2017
Satish Patel
Sunbelt Business Advisors
Middlesex County, MA
Premium Broker

Jas,
Good question. There is no one answer since it depends state to state and what type of broker you’re working with. In New England for example there is buyer broker representation but 90% of the time the broker fee is paid by the seller. Even if a business brokers work together and “co-broke” often times they are being paid by the seller’s broker and work as a sub agent to the seller’s broker.
Please call my office at 617-945-5338 or mandoni@sunbeltne.com to discuss this further.

Thank you
Mariola Andoni, CBI
Sunbelt Business Sales & Acquisitions
www.sunbeltne.com

Aug 5, 2009
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The BAF Group LLC
MD

In most cases, the Seller contracts with the Broker to represent him/her (let's say "him", for brevity's sake,) and all commissions are paid by the Seller. In that case, please keep in mind that, no matter how friendly the Broker is, he is NOT your friend and he is NOT representing your best interests. He works for the Seller, and ONLY for the Seller.

However, if you want your own Broker - someone that is working on your behalf to look out for your interests - you may be required to pay YOUR Broker, for any services rendered to you. In Residential Real Estate, Brokers split commissions with other Brokers and Agents; that is not the case with most Business Brokers. We do quite a bit of business as Buyer's Brokers, and in most cases, the Buyer must pay our fees. How much and when they are paid is negotiated with each Broker.

When you need an Accountant is before you are ready to make an offer. You need to know what the business is worth, how much you will be expected to pay in Debt Service (regardless of how your finance the deal,) and what the Net would be once you take it over. You cannot make an offer until you have a darned good idea of the numbers.

When to get an Attorney involved is a little scarier. In the majority of our deals, the Buyer provides a Letter of Intent (LOI), and the Attorneys become involved when that is accepted by the Seller. Many Attorneys will insist you need to have a Lawyer write the LOI, and they are not necessarily wrong! If the LOI is correctly and fairly done, there is really no liability for you to be concerned about. On the other hand, there are some Brokers that will provide you with a "template" LOI that binds you into the deal in such a way that any deposit is forfeit, if you back out of the deal, no matter what. This is a rare, but very real concern.

Our LOI template was put together by an Attorney, and its sole purpose is to see if the Buyer and Seller can agree on basic price and terms, before incurring any legal costs and entering into a Contract of Sale. In more than ten (10) years of working in this field, we have only had two (2) Buyers lose their deposits, and interestingly enough, both of them occured when they had Attorneys write their LOIs. THIS IS NOT TO CRITICIZE ATTORNEYS! All it says is that there are SOME risks, no matter how you strike the deal, and your best means of protection is to be aware of all of your risks, and make certain you understand all of the issues at hand. You are the only person that can really safeguard yourself.

Jul 27, 2009

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