Should Business Sellers Offer Exclusive Agency?

One of the biggest misconceptions I see with business sellers is that engaging multiple brokers on a nonexclusive basis will increase the likelihood of completing a sale for their business.  The theory is that by hiring multiple intermediaries, the business for sale will touch a greater audience, therefore increasing the likelihood of sale.   

Although this is great in theory, it is flawed in logic.  Even the hardest working and most dedicated brokers have a fixed amount of time and resources to invest in selling your business.  There are only 24 hours in a day!  Since intermediaries are paid mainly by commission they are bearing the economic risk for selling your business.  It can be argued that without the security of an exclusive agency agreement, the intermediary’s risk in a potential transaction will exceed the potential economic benefit. 

Example:  Let’s assume Intermediary A agrees to a nonexclusive agency agreement for XYZ Company. 

XYZ Company also has nonexclusive agency agreements with Intermediaries B, C and D.  Intermediaries A, B, C and D are now all assuming 100% of the risk on the same transaction.  They are each in essence agreeing to invest their valuable time, effort and resources into selling the same business with a maximum 25% success rate and a minimum 75% failure rate.  At best, one will succeed and 3 will fail.  Now, you may respond with the following, “As long as one succeeds, why do I care?”  Or, “I don’t care who sells it as long as it sells.”  This is very true.  However, understand that although brokers and intermediaries are by nature risk players, they are not fools.  They understand that a nonexclusive agency agreement has compounded risk. 

Therefore, most intermediaries will hedge risk by shifting their limited assets (time, resources, marketing dollars, etc.) to lower risk opportunities (those with exclusive agency).    Just as a buyer will calculate the risk of your business against a potential rate of return, so will a broker assess his/her risk against their time, effort and potential rate of return.  If the risks of representation exceed the return, the relationship will not succeed and the business will not sell. 

If you as a seller require an intermediary to assume the economic risk of the transaction you must be prepared to offer exclusive agency as a hedge.

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