Yesterday, I was reviewing a buyer’s signed purchase contract. He came to me after signing it, as his agent had said he should. His agent said he needed to hire someone to do the due diligence on the business. When I read the contract, I was shocked.
It turned out, in layman’s terms; the contract stated that the buyer was agreeing that:
- All paperwork had already seen
- What he has seen already was all that he was agreeing to be getting.
- The due diligence investigation time period had ended.
- Due diligence was approved because it was not disapproved, prior to signing this contract.
- Regardless, if he asked for more paperwork or not, if the buyer backed out he lost his deposit.
This was the most restrictive and dangerous contract I’ve seen in a long time. It makes any kind of real due diligence impossible, of course, since the buyer had already waived his rights to back out of the deal. The author of this contract was a dual agent.
Definition of a dual agent
Dual Agency in a real estate transaction means the listing broker represents both the seller and the buyer. A dual agent must not disclose confidential information to either party and must operate in a hands-off manner. A dual agent cannot get the highest price for the seller and the lowest price for the buyer — it is impossible. (Definition provided by about.com)
From what I’m seeing, dual agents are getting more aggressive these days in this market. This is especially true of putting clauses in the contracts that are getting increasingly seller-oriented and box the buyers into corners, more than I’ve seen before. The dual agent is not always providing the legally required dual agent notifications that are given to buyers.
As the business buyer, you’ve got the upper hand, so please act like it. Get your own agent, who is not also your seller’s agent, and get your full due diligence done before releasing your due diligence review rights. And for the sake of your own easy life later on, don’t sign what you haven’t thoroughly read.
Please, do yourself a favor and don’t sign any paperwork, for a business, without reviewing what you’re signing, and making sure that due diligence or getting your deposit back aren’t going to be impossible.
Call me if you have questions, I’m glad to consult.
Creative Commons Attribution: Permission is granted to repost this article in its entirety with credit to Business Buying Services and a clickable link back to this page.
Everything You Wanted To Know About Buying An Auto Body Shop
/in Articles, Business Buying/by Willard MichlinA body shop can be a great investment, if you are the right kind of buyer. Who is the right buyer? Let’s discuss that in detail. Here is what we will cover in detail.
Read more
What is Adjusted Net Income?
/in Due Diligence, Uncategorized/by Willard MichlinDepreciation and Amortization, IRS Taxes, Franchise Taxes, Interest Expense, Donations, Non-Recurring Legal Expenses or Non-essential expenses.
Other Expenses, Owners Medical, Life Insurance for Owners, Pension Plan contributions for owner’s family, Non-Essential Salaries, Health insurance (owner’s family portion), Owners vehicle expenses (lease payments, operating expenses, repairs, gas, depreciation and insurance), Magazine subscriptions, Owner’s Travel, Entertainment, Home office expenses and Home telephone expenses. Any other owners benefit that the seller has hidden in some expense account.
Real examples include:
Read more
Why Are You Doing Your Auto Body Shop Work for Nothing? A Battle Plan for Raising Your Rates
/in Articles, Specialties/by Willard MichlinIn my 15 years as a body shop broker, I have visited hundreds of body shops across the state. Almost 100% of the owners complain that, if they are being honest with me, they work too hard for too little money. They want to sell their body shop business to some other poor sucker who will run into the exact same problems.
Read more
Due Diligence Investigation: Just Call Me Sherlock
/in Due Diligence/by Willard MichlinWhen buying a business one has to see what is not on the financial documents that are provided by the seller. To do that you need to graduate the Sherlock Holmes College of Observation. Mr. Holmes was famous for seeing small clues that appeared to others to be meaningless. But in truth they were the keys to solving the case. Read more
How to Advertise Your Business, Save the Earth and Make Money
/in Articles/by Willard MichlinMaking money keeping the environment green and pollutant free. It’s a win, win business. Read more
Dual Agent or Get Your Own? A Changing, More Aggressive Business Buying Market…
/in Business Buying, Business Due Diligence Horror Stories, Due Diligence/by Willard MichlinYesterday, I was reviewing a buyer’s signed purchase contract. He came to me after signing it, as his agent had said he should. His agent said he needed to hire someone to do the due diligence on the business. When I read the contract, I was shocked.
It turned out, in layman’s terms; the contract stated that the buyer was agreeing that:
This was the most restrictive and dangerous contract I’ve seen in a long time. It makes any kind of real due diligence impossible, of course, since the buyer had already waived his rights to back out of the deal. The author of this contract was a dual agent.
Definition of a dual agent
Dual Agency in a real estate transaction means the listing broker represents both the seller and the buyer. A dual agent must not disclose confidential information to either party and must operate in a hands-off manner. A dual agent cannot get the highest price for the seller and the lowest price for the buyer — it is impossible. (Definition provided by about.com)
From what I’m seeing, dual agents are getting more aggressive these days in this market. This is especially true of putting clauses in the contracts that are getting increasingly seller-oriented and box the buyers into corners, more than I’ve seen before. The dual agent is not always providing the legally required dual agent notifications that are given to buyers.
As the business buyer, you’ve got the upper hand, so please act like it. Get your own agent, who is not also your seller’s agent, and get your full due diligence done before releasing your due diligence review rights. And for the sake of your own easy life later on, don’t sign what you haven’t thoroughly read.
Please, do yourself a favor and don’t sign any paperwork, for a business, without reviewing what you’re signing, and making sure that due diligence or getting your deposit back aren’t going to be impossible.
Call me if you have questions, I’m glad to consult.
Creative Commons Attribution: Permission is granted to repost this article in its entirety with credit to Business Buying Services and a clickable link back to this page.
15 Questions You Should Ask Before Buying a Business
/in Articles, Business Buying, Business Valuation TIps/by Willard Michlin15 Questions you should ask before making an offer, when buying a business.
Most people have questions they need answered before making an offer and before hiring help to evaluate, audit or review the business. The most commonly asked questions are as followed: Read more
Business Ownership Pitfalls: Being an Absentee Business Owner
/in Articles/by Willard MichlinBusiness Ownership Pitfalls – Absentee Ownership
Many business buyers have the idea that they will buy a small business to create a second income. The idea is to put in 10 hours a week, or less doing the management functions such as, posting the quick books, making sure the employment forms are filled out correctly and are complete.
Read more
When Buying a Business Does the Buyer Have Ethical Responsibilities?
/in Articles/by Willard MichlinChoosing a Business to Buy – The Daily Grind Matters
A buyer has a responsibility to act in an intelligent manner when looking for a business. You are not only buying a business for yourself but for your spouse and children. The responsibility to your family requires a higher level of care than you would normally take to protect yourself. Read more
Avoiding Fraud When Buying a Franchise Business
/in Business Buying, Due Diligence, Profitability Analysis/by Willard MichlinDo You Think You Do Not Need Due Diligence When Buying a Franchise?
Opening up a new franchise location can cost upwards of $250,000. This is a lot of money for a business buyer to invest in a new unproven location.
New investigative reports are now stating that the selling of new franchise locations is where the real profit is earned by franchisors, rather then as previously believed on the 5% franchise fee paid from the sale of product. The franchise sales staff earn a large chunk of the $30,000 plus franchise fee charged. Plus the company makes a profit on the construction costs of the new store.
Many people have the idea that our government’s registration rules exist to protects the consumer from being cheated. In truth it has made the problem worse. Read more