The art of co-brokerage and learning to fly! Oops, I mean trust!

by Steven Josovitz

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The following is a front page story by Shumacher broker Steve Josovitz and published in the June issue of the GABB Today ( Georgia Association Of Business Brokers ) Magazine.

Twenty years of co-brokerage has had its up and downs, and I have lived to tell you about it. So what the heck is successful co-brokerage? The textbook version is two brokers who successfully sell something and share in the commission. Well, I wish it were that easy. It’s not, but it really can be. I have co-brokered many deals–including one recently with a GABB Broker–that were smooth from start to finish. I will talk more about this later.

I made my first attempt at co-brokerage in 1992, just after I’d joined GABB excited to sell restaurants and network with other like minds who wanted to share the pot and their listings. Except for some business brokerage veterans, I found many brokers who had never had any formal training and really didn’t know how to co-broker, let alone even sell their own listing.

One day, I got a call from an angry seller complaining that some broker barged into his business in the middle of a busy lunch with buyer in hand wanting to talk about his business for sale. This broker actually said in front of customers that he’d heard the business was for sale. Funny how I’d only told this broker the name and address the day before. He even signed a confidentiality agreement.

You might think that no broker, let alone a GABB Broker in good standing, would ever do this. Sadly, this really happened. When I spoke to the broker, he didn’t realize he’d done anything wrong. So what did that teach me? That I need to educate anyone having anything to do with my listings and to assume they are uneducated in the ways of co-brokerage and showing another broker’s listings.

Educating other brokers may not sound like fun. Truthfully, we educate other brokers every time we discuss co-brokerage, from our first call or email to the closing table. It is so crucial to teach your co-broker about your policy, your working code of ethics, and your way of doing business, especially about confidentiality. This can be very challenging because many brokers think they are the cat’s meow of co-brokerage, that they know all the ins and outs and refuse to learn or respect your wishes. Thankfully, this generally happens only on first-time situations, with non-GABB brokers, or residential agents inexperienced in business brokerage transactions.

So how do you educate? You first have to size up who you’re talking to, their level of competency, years of experience, reputation, GABB standing, Georgia real estate License status and company affiliation. Then you go by your gut and intuition. Do you get a good feeling about this person? Can you trust them? Can you work together? Will this broker respect you and your seller? Will they basically follow the rules? Are they competent and do they obey business brokerage protocol? Do they follow all the laws and guidelines set forth by the Georgia Real Estate Commission?

Why would any real estate agent or broker ignore these rules?  A well-known GABB Broker on a co-brokerage transaction I was under contract with in 2009 never adhered to the “Offer To Purchase.” When his buyer never showed up to closing, I discovered that the broker had not placed the earnest deposit in the designated escrow account, even though the broker had provided us with a copy of the earnest deposit check. Shocked? Don’t be, this wasn’t the first time I’d seen this. It did happen, and it could happen to you.

Here’s why. In a competitive environment, a broker may fear losing a potential buyer and caves in to the buyer’s demand to ignore the rules and create a breech of contract with no one knowing anything.  That’s why educating brokers in a co-brokerage situation upfront is crucial. Sometimes you might even steer the broker to refer the buyer over to you for a healthy referral fee if is apparent they do not have any business brokerage experience.  Your sincere desire to educate and work together with others can build a lasting relationship if the broker is open to learning.

So how do you do this co-brokerage thing? I have found that out of respect for another broker’s listing, it is imperative that I pre-qualify anyone looking at not only my listings but at another broker’s listing. That would typically include seeing a buyer’s personal financial statement, proof of funds and a resume. I want to see proof that they either have the money to purchase the business, or the required down payment and working capital to sustain them for a while.  Unless it is a big client, I usually require that a buyer sign a confidentiality agreement in my presence before they get the name, address and or info on a co-broker’s listing. If they say they have an investor and or people with money, then I require proof that they have the money. A landlord will not approve a buyer with a weak personal financial statement or net worth. We don’t go forward or provide the name of a business until the co-broker proves they have a qualified buyer with whom the landlord would sign a lease. If their buyer passes my financial test, then we go forward.

This is the crucial time to teach a novice buyer the protocol of the process: due diligence, confidentiality, discretion and how to act if they visit the business. We teach the potential buyer to visit discreetly and leave. A buyer should not ask managers or employees such questions as “how long you been in business,” or “how are sales.” We want to avoid alerting a perceptive staff member that the business is for sale by noticing that a potential buyer is hanging out a little too long or not acting like a customer. If the potential buyer likes like what they see, then we work with the co-broker to set up a meet and greet.

After acquiring the listing info, negotiating commissions, pre-qualifying buyer, executing a confidentiality agreement, and visiting the business discreetly, what do we do next? Well it’s easy! We work hand in hand with our co-broker, and we respect them. They most likely know their seller better then we do. We are patient. We do not call their client because the co-broker isn’t providing us with the due diligence materials we need. We follow protocol. We tell the co-broker what we need in writing and/or on the phone. We respect their wishes, always.

I recently worked with a broker I’d known for years, but who insisted on a particular way he wanted my buyer to sign off on his listing before providing any information on this business. This was his policy and his listing. He makes the rules of engagement and how he wants to co-broker.

In another recent transaction, I sold a very famous restaurant with another GABB broker without a hitch. Because this broker knows how I pre-qualify, he divulged the name and address of the business. Within two weeks, we were under contract.  We maintained discretion throughout the negotiations. We went to closing a week later and we both walked out with extremely satisfied buyers, sellers and landlords, all impressed at how we worked together and solved any concerns that arose. Everyone copied each other on all emails and kept the lines of communication always open. While the listing broker was away on vacation, he allowed me to facilitate the execution of the Offer To Purchase, to select the GABB closing attorney, accept the escrow deposit, and communicate and negotiate among landlord, seller, buyer and their attorneys.

This warm and cozy co-brokerage environment of trust didn’t spring up overnight, but developed after years of going at each other’s throats and a lot of verbal sparring. It all comes down to educating, following protocol and respect, mixed in with some trust.

Make sure all parties –buyers, sellers and landlords–walk away from the closing table happy. Maintaining integrity and honesty along with professionalism and expertise is a must. The needs of your clients must always come first before your commission.

Steven Josovitz is vice president of The Shumacher Group, having joined the firm in 1992, and he heads up the company’s restaurant business brokerage division in addition to providing commercial retail and restaurant real estate site selection, sales and lease negotiation expertise.

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