Business owners sometime think of hiring a real estate agent to sell their business. This seems like a good idea for a few reasons. If the real estate agent is charging a lower commission rate than the business broker, the owner figures he can save money on the commission. In addition, if the business owner is also selling the real estate with the business, he may think that he needs to hire a commercial real estate agent. Actually, many business brokers have real estate licenses and can sell the commercial property with the business. Since real estate brokers and business brokers are both called “brokers”, some sellers question how much difference there is between them.
It is a bad idea to hire a real estate agent to sell a business for a number of reasons.
The first reason it is a bad idea is that the area of expertise of real estate agents is real estate, not business. A broker needs to know a lot about business in order to do a good job of selling a business. A good business broker does. They have experience selling businesses. Many have owned businesses before becoming a business broker. Many business brokers have business degrees. They understand financial statements. They may have experience selling the type of business the seller owns.
Another reason to use a business broker is to price the business. The methods for pricing real estate and businesses are different. In most business sales, the business broker helps the owner decide on a selling price. He also needs to justify the price and be able to have an intelligent negotiation with a buyer about how the business should be valued. Business brokers have that training and experience.
Once a deal is under agreement, the process for closing on the sale of a business is not the same as the process for closing on the sale of real estate. In particular, the due diligence, financing, and purchase and sale agreement are all done differently.
A business broker and a real estate agent have different types of buyers. A business broker has clients who are looking for a business to buy. A real estate broker either has people looking for a house to live in or investors looking for a real estate investment. One reason real estate buyers like this investment is because it doesn’t require active management. This is just the opposite of a business which requires active management. If you are selling your business, it helps to hire a salesperson who already knows prospective business buyers. A good business broker will have a list of active business buyers.
Today, the primary advertising for commercial real estate or business sales is on the Internet. But, the sites where each is marketed are different. Most business for sale websites require a monthly subscription. Only by selling many businesses can a business broker afford to market businesses on many of the websites. In addition, Google will rank a business broker’s website more highly for the search terms buyers will use when searching for a business to buy. This makes it more likely a business buyer will find the business broker’s website, and the business for sale, when doing a search.
What about the situation where real estate is included in the sale? A commercial real estate agent probably knows more about selling commercial real estate to an investor than a business broker. But, in a business sale that includes real estate, the sale of the business is what drives the transaction. The choice to buy the real estate is only made after, and is dependent on, the decision to buy the business. Selling the commercial real estate in this situation is not complicated. The buyer is not making the same investment decision that a real estate investor makes. They are determining if the cost to purchase the real estate is acceptable as compared to what the rent would be.
There are business brokers and there are real estate brokers. Although both are called brokers, that doesn’t mean they are the same. If you are selling a business, hire a broker that specializes in selling businesses. You will end up with a better sale using a business broker to sell your business.