by Tom West
Founder of the IBBA
Publisher: Business Brokerage Press
When it comes to selling your business, an exclusive listing with a business broker provides the greatest likelihood of success for both the seller and the broker.
Only a limited number of business brokers and specialty business brokers will accept an open listing, and typically, a broker that chooses to work with such a limited commitment from a seller will NOT provide the greatest amount of effort to sell the business. Likewise, the commitment level of the seller is questionable. To understand this point in more detail, let’s start with a definition of the two types of business for sale listings
An Open Listing is an authorization to sell a business or property. It may be given to several brokers concurrently or the business may be sold by the owner himself. There is usually no time limit associated with this type of listing. If the owner sells the property through his own efforts, he is not responsible to pay commissions to any of the listing brokers. An open listing may be canceled by either party at any time.
Exclusive Right-to-Sell Listing:
The Exclusive Right-to-Sell listing is the most common type of listing. It provides one broker the right to sell the business exclusively. This listing entitles the broker to commissions on the sale during the life of the listing agreement, even if the owner himself sells the business. This type of listing runs for a specific period of time, usually six months. The agreement may only be cancelled by the listing broker during that period.
Initially, the open listing may sound like a great way to maintain more options; however, typically this type of listing agreement is a waste of time for both the seller and the broker. Here are a few reasons why this agreement can be counter-productive.
For a business broker to do his job properly, he must invest a large amount of time and effort up front long before the business actually sells or even goes to market. He must review the business from many different perspectives and understand the many unique aspects of the business including operations, financials, history, marketing, licensing, leasehold and personnel. This work must be performed before the business goes to market. The only way a broker can protect this initial effort is to secure an exclusive agreement with the seller. That way he can feel secure in dedicating the proper amount of time and effort necessary to do his job well.
Often a broker will have concerns about offering the business to other cooperating brokers with only an open listing. Unfortunately, there are some less ethical agents that may try to circumvent the original broker and bring a buyer directly to the seller. With an open listing, this is a real concern. You want your broker to be able to offer the business opportunity to any qualified business broker without hesitation. With an exclusive right-to-sell listing he has protection from any non-principled brokers.
The concerns about the way an open listing is marketed are two fold. First, a broker will be concerned about the amount of money they are willing to invest in marketing an open listing, knowing that it may be canceled at any moment. Secondly, the broker must be very careful about the details he reveals to prospective buyers because a buyer can move to a different broker, or even try to work directly with the owner at any time. Both of these worries restrain the marketing effort.
Competing With the Owner
Often in an open listing the seller can and will compete with the broker by bringing in his own buyers. This type of environment can create an adversarial relationship between the seller and broker. Without the cooperation of both broker and seller, deals rarely ever close. I always describe the right relationship between the seller and his broker to be just like a good partnership. Both parties work together toward the same goal. Selling a business is a difficult operation; make sure you work together with your broker for the same goal. By doing this you have the highest likelihood of a successful transaction.