By Automan Empire
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2013 Sep 10, 9:20am
4,468 views 8 comments
I have a commercial property that I am considering selling; it is an auto repair shop in Los Angeles County.
Right now I am kind of waiting for the market to improve. I moved my repair operation to a bigger place nearby and this property was underutilized for 3 years, not good for the bottom line. The first half of this year I tried marketing it for sale or lease but no good offers came through. I did rebuff a guy who seemed to have read every Robert Allen book ever; he wanted me to carry 5 figures of down payment in a junior position to the mortgage- I'm a little more sophisticated than that! Under deadline with the city, I decided to reopen as a general repair shop, and operate it for at least 6 months, then next year market it for sale as an operating business.
I was approached by a realtor chick who says she has a buyer looking for an auto shop location- all well and good. Now her broker wants me to sign an agreement making him the buyer's and seller's agent for 6% commission, good for one offer with one buyer then the agreement is terminated if he doesn't want to move forward.
On the one hand, selling this property comes at a good time (can REALLY use liquid capital now) and a few percent either way is better than no sale, I have 6 figures of equity to work with. Though it was not my intent to utilize a seller's agent (have a RE attorney to help with the sale, same way I bought it) I might give this guy a try.
Aside from the commission, any other pitfalls I should beware of, signing the buyer's agent as my selling agent too? I think it's a conflict of interest, and if he didn't supposedly have an earnest buyer lined up I'd tell him to walk. What do you think, Patnet brain trust?
Why not counter that you will represent yourself, and you will pay 3%. Or maybe even go for 4.5% (but you still had better look out for your own interests). If the contract is truly written to be exclusive to this one buyer (they would have to name the buyer, I suppose) then what is at risk? If you can't get the price you want, you walk and wash your hands of it...
If you do decide to list it with an agent, you would wan to disclose to that agent that the commission they would receive is exclusive of the previous buyer (assuming the buyer would still be covered by the previous contract).
Why not continue to operate the business? If it's a going concern and it's profitable, why not milk it?
Thanks Swebb. It does name one specific buyer.
The agent and broker have stopped in a few times to talk about it; today the broker was waiting along with a small crowd of customers who arrived early when I drove back from picking up lunch. He seemed to expect to plop it on the counter and have me sign it! Now that things have calmed down, I looked over the form.
This is a CAR form, Single Party Compensation Agreement. It looks like standard boilerplate, and I can understand the realtor wanting to protect his interest. If he brings in a buyer, he has earned himself a commission; that much I can agree to. However, this form states SELLER will pay 6.00% commission, to which I don't agree. I think I will counter with BUYER to pay 3% commission and seller to pay 1.5% commission. I don't need a seller's agent to hold my hand; does this seem reasonable if he's bringing a buyer to the table on his initiative?
I notice that the term of the agreement is for 1 year! That provision I do not agree to. I will counter with perhaps this. Buyer to enter escrow within 30 to 45 days or agreement terminates. Escrow to close within 90 to 120 days total or agreement terminates.
If the business was profitable, I would have turned away the agent who approached me, at her first contact. Fact is, the auto repair business is not what it used to be, and it has proven difficult to bring in general repair work. It is a whole different clientele than the European marque my main shops specialize in. (Side question, is it normal now to bring your own groceries to a restaurant, and your own 12 pack to a bar? Every, I mean EVERY caller requests a quote, which I busy myself making, only to have them drop a deuce on the table: So how much is it if I bring my own parts? Grrrr!) This agent and broker approached me saying they had a buyer, so if they wave enough money around I will sell now rather than later.
My plan was to retain a RE attorney in lieu of a seller's agent, which is how the owner sold it to me. Not trying to sneak out of paying an earned commission at all. Rather, I feel I don't need the services of a listing/selling agent, certainly not the buyer's same agent.
OTOH, the buyer seems to be trotting them about the city inquiring about properties; I don't see why I as seller should pay 100% of the commission- or is that the way commercial is done?
I think, as a seller, you should expect to pay the buyers agent fee (typically 3% on a residential property, not sure about commercial) Why? Because they expect to get paid, and the buyer doesn't expect to pay it. Can the buyer even use the loan proceeds to pay the agent fee, or does that have to come out of their pocket? What if they don't have the money for closing costs, 20% down AND 3% realtor commission? Bottom line is, don't go against the grain here...You will probably just irritate the other parties. Get it on the front end if you must. It works better for everyone that way.
I'd counter with 3% and let them walk you up to 4.5% (if you are ok with that), knowing you are going to pay the whole commission, whatever it is. It sounds like the buyer is interested...and it's not a bad thing that there were customers waiting for you -- you look more profitable than you actually are. Play hard to get if you can afford to.
As far as customers bringing their own parts - I have mixed feelings on this one. I used to work in the business, and I understand that selling parts is a big profit center for auto shops. I'm also (and primarily, now) a customer, and from my perspective why shouldn't I be able to bring my own parts -- I'm paying you to do work, and for many jobs I'm paying for more book hours than it takes you to do it in clock hours.
It comes down to value -- what value do you provide to me when I buy the part from you?
1. You do the legwork of getting the part
2. You may stock the part to enable a faster repair
3. You will handle any issues that arise from broken parts, incorrect parts, or parts that fail prematurely.
#1 and #2 have no value to me if I'm able to walk in with the parts. #3 is where it is at, and this is what you need to focus on with the customers. Explain that if they bring their own parts, they have to pay additional labor if the part is wrong or broken, and that you won't warranty any failed parts. Also, you might have to get used to a smaller markup -- you should be getting compensated for the value you bring, and then some for profit, but you shouldn't be making a killing on parts. My opinion.
3. You will handle any issues that arise from broken parts, incorrect parts, or parts that fail prematurely.
#1 and #2 have no value to me if I'm able to walk in with the parts. #3 is where it is at, and t is what you need to focus on with the customers. Explain that if they bring their own parts, they have to pay additional labor if the part is wrong or broken, and that you won't warranty any failed parts.
This is why I wouldn't even allow customers to bring in their own parts. The same cheapskate that's looking to pinch penny to bring in their own parts will be a total PITA to deal with in the event of defunct parts. When you supply the parts + markup, it is implied that you will also handle any issue that may arise from faulty parts
Auto shop practices deserve their own thread. I'll start one later this week. "same cheapskate that's looking to pinch penny to bring in their own parts will be a total PITA to deal with in the event of defunct parts." THIS! UNlike this type of cheapskate, I do NOT need or want an agent to hold my hand or incur time and expenses on my behalf, rife with scope creep and open ended obligations toward vague and fickle desires.
I'm trying to fairly negotiate the value added for me, where there is no fee split with another agent, and I use very little of the agent's time and energy, yet the fee is paid 100% from my proceeds. The buyer nominally pays 0% of the commission, but most of the agent's time and energy is spent on their behalf.
My ideal plan is to pay a RE attorney to handle the paperwork and recording and be 100% acting in my interest; let the buyer's agent collect 3% for services to the buyer. The agent's value-added to ME is walking in a buyer- I expect no seller services from them.
I like the idea of 3% and consider talking it up to 4.5%, that is fair dinkum. If he insists on a higher percentage, then we are up in the ballpark of a buyer's agent's commission without the services.
focus ONLY on how much you get out of it
Get it on the front end if you must
Most helpful advice for putting it into perspective here, thanks guys.
Don't sign an exclusivity clause, because if they drag their feet you are going to be stuck waiting for them to get a buyer.
And I'd bargain on the commission there too. It's free money to them, not like they'll say no, and as you know offer price is important don't undervalue.
Okay, here's my update.
The broker probably would have provoked jeers and catcalls from some of the more anti-Realtor factions here.
He acted like he didn't understand the concept of split commission. I told him I wanted to rewrite the contract so he represents the buyer exclusively, then went to work negotiating up from the 3%. It looks like he pretty much wants the 6% commission or he doesn't want the deal. I held that if he brings a buyer above $XXX,XXX it would be well earned, but held firm at not paying 6%; we settled at 5%.
He tried to say, "Everything is negotiable in RE. Right now we are arguing the commission but no sale price. (duh) You can negotiate the commission later." Not if I sign a form agreeing to pay you 6% commission regardless of other agency connections. "Where does it say 6%??" Uuuuh, right here on the top of the form! "Oh yeah! (scribble scribble) Well we can change that..."
Then he set about trying to (slowly, while phones are ringing and things going like mad all around us) talk me into hiring him as a listing agent if this particular deal doesn't fly, which I have said from the get-go I don't want. I have a different agent in mind already if I go that route, and this seriously annoyed me.
If he can bring this buyer to the table above a certain amount, I'll have the property off my balance sheet earlier than expected. If this buyer doesn't put an acceptable offer on the table, there is no deal and no tying up my property. The agent is protected from the buyer waiting out a short contract and buying the same property without the agent. Looks like we've tentatively hammered out a win-win situation.
Thanks for the help, Patnet brain trust, both in this thread and in the forum at large. I'll update what happens next.