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We are a private party selling a business - question about how broker commissions work.

If the buyer is represented by a broker, are they responsible for paying the commission that their broker will charge? Or is it like Real Estate and the Seller pays the commission?

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The BAF Group LLC
MD

Legally, the Broker and the Client negotiate the commission. The amounts vary, in various parts of the Country and between different Brokers. They are generally higher than Real Estate commissions because we cannot just plant a sign in front of your business and put the address on MLS. For the sake of confidentiality, businesses are normally described very vaguely, particularly in terms of location. That means that we need to speak to every prospective Buyer, doing so again with a high sense of confidentiality until he/she is qualified in terms of financial capabilities and experience. That can be an extremely time-consuming set of activities, which also means that a responsible Broker cannot take on too many listings at any one time. Again, compared to a Residential Real Estate Agent who may list 20 or 30 homes, the responsible Business Broker should probably, only be listing 8 or so, in order to adequately represent his/her Client in a personalized manner. (Other Brokers have more or less thresholds for those numbers...there is no rule or regulation about it.) Some Brokers will negotiate commission rates, but others will not. Some charge for Inventory as well as the business, while others do not. Some will charge small fees in advance, but most will be paid only at settlement. Finally, some will co-broker with other Business Brokers, but others do not. This is important! Co-brokering means that the Listing Broker will share his/her commission with the Buyer's Broker. That allows you to benefit from having a lot of different Brokers working on your business and it does not cost you any more, in terms of commission dollars. If they do not co-broker, that limits your field of Buyers to only those working with your Listing Broker. Co-brokering allows you potentially faster sales, and if there are more than just one potential Buyer in the field, it helps you - the Seller - with keeping the price at the highest, possible level. In this case, competition can be good. I hope this helps.

May 7, 2013

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