Should I have a "buyers broker": Seeking Advice from Experienced Buyers

January 29, 2024

by an investor in Denver, CO, USA

Hello fellow searchers,

I'm seeking your advice. I've identified a business I'm interested in purchasing and managing. I've already had a conversation with the seller's broker and met with the seller, as well as with a finance company to discuss if the business qualifies for an SBA loan. I'm planning to begin the negotiation process next week. However, I've managed all this independently, without a "buyer broker" on my side. My previous experience with buying or selling businesses was as part of a team in large companies, where we had an array of lawyers and financial advisors.

The business is relatively small, and the process seems straightforward, but as they say, the devil is in the details. So, I would appreciate your advice on a few points:

Is it advisable to request the seller's broker to represent both parties – acting as a broker for the seller and for me, the buyer?
Should I simply prepare the necessary documents for the finance company and engage a lawyer who works with them?
Or is it better to collaborate with an independent broker?

If I go with option 1, is there a potential conflict of interest? And for option 3, is it too late to introduce my broker to the seller? And what is the broker's responsibility for that side?

Your insights would be greatly valued.

Thank you!

Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA

It all depends on what you need and what you want the buyer's broker to do. They can perform a host of services that the attorney and CPA aren't going to have the time or inclination to do. If you are looking for assistance, I would hire your own. Since you are already in contact with the Seller and their broker, it is unlikely the seller's broker is going to co-broke (share fees) with your broker, so you will likely be responsible for your broker's fees. At this point, I wouldn't hire the seller's broker to also represent you as their Client, but you are their Customer, and they have statutory requirements on how they serve you and what duty of care they owe you -- particularly if real estate is involved, these are defined terms and obligations. If we were representing both the buyer and seller, we rarely practice dual agency, but would more likely practice designated dual agency -- where one person from our firm is assigned to one party, and another from our firm to the other party. Some states define, if regulated at all, a Transaction Broker, which is somewhat of a hybrid role. If a broker you are considering working with isn't well versed in all of the different possible types of agency and how they apply to you and your transaction, look for another.

Reply by a professional
from University of Michigan in Detroit, MI, USA

Hi Anon, business brokers are regulated at the state-level. Only a minority of states allow them to act as a dual agent (as a representative of the buyer and seller simultaneously). But regardless of whether your state permits it, I would be cautious before entering into that type of relationship. As you note, conflicts of interest abound.

As for hiring a team to represent you, normally the buyer in a small transaction relies on a lender (if debt financing), a CPA, and a lawyer. I suppose there is nothing to stop you from hiring a broker, but just be aware that deal fees will start to mount. In a larger transaction, you'd have an investment bank representing the buyer. In a smaller deal, lean on the above three professionals to help you navigate the process.

Let me know if I can help. Feel free to DM me here or email me redacted Always happy to have a friendly chat and answer any legal related questions you may have.

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