Brokers are facilitators. They help their clients in various ways, from selling and buying dental practices and real estate to negotiating commercial leases between renters and property owners. All private practice dentists should get familiar with this type of professional since they can be useful along their career journey.
Licensed brokers are responsible for ensuring that a real estate or business deal complies with certain legal requirements that can vary from state to state. Brokers often have licensed sales professionals that directly interact with the client and are physically available for inspections, site visits and negotiations. Sometimes brokers engage in both services. For purposes of this article, we will refer to brokers and their sales teams as brokers. Typically, brokers receive commissions based on the size and value of the deal in exchange for their services. Accordingly, if a deal does not close, the broker does not get paid. This structure aligns the broker’s interests with the clients to ensure the best deal is obtained for both parties.
In this article, we’ll dive into what makes a great broker, and things to look out for when selecting a broker.
What Makes a Great Broker?
Great brokers are invaluable. The top-notch ones act as more than just facilitators; they are true entrepreneurs that can amplify their clients’ returns through brokering connections between interested buyers and sellers, extracting the best possible terms for each party involved, and ensuring a deal is officially closed – often with their remuneration tied to the success of the deal. On top of all this, these professionals also offer guidance and support, inspect properties, reach out to contacts, and even provide emotional aid!
What Makes a Less than Great Broker?
Weak brokers or operating without professional assistance can be problematic. Selecting a novice or lackluster broker can have lasting significant unintended consequences for a dentist. Without a responsive, knowledgeable professional team a lot can go wrong:
(i) Costs: Without solid professional support, a dentist can leave a significant amount of money on the table in a transaction. Purchase prices might be out-of-line with market or lease terms might be unfair to the leasing dentist.
(ii) Timing: Without a responsive and attentive broker, deals can languish in escrow for months, thus increasing opportunity costs, risks the deal will not close. In the context of a practice sale, if a deal takes too long to close and revenues drop due to the selling doctor’s failing health, the practice valuation will likely suffer.
(iii) Organization: Unorganized brokers that have incomplete information increase transition risks by failing to ask the right questions and ensure their clients are aware of critical deal terms and information. Bad, disorganized information is a red flag sometimes for fraud!
Responsive, organized and attentive brokers are invaluable and typically add more value than their commission; choose wisely!
Duration, commission structure and exclusivity are essential components of real estate broker agreements. If the transaction does not close during the term of the agreement, then the broker may not be entitled to commission from a closing that occurs thereafter. But the terms of each agreement differ, so it is important to review them with your broker. Given these terms are relatively straightforward, legal support is not necessary for review of broker agreements.
The breadth of representation holds immense significance for a multitude of reasons. Here are a few things to consider as you search for a broker:
(i) Scope: Does the contract apply to the sale of one practice location or several and does the contract provide for a commission upon the leasing of real estate? If the broker is hired for a practice sale, but not commercial leasing, the client may be responsible for researching and negotiating leasing deal terms on his or her behalf!
(ii) Scope: Does the contract provide that the broker represents one or more parties? Some brokers act as dual agents representing both the buyer and seller, which can lead to a conflict of interest – which is often permitted in several jurisdictions.
(iii) Duration: How long does the broker have your listing and under what conditions can the client terminate the contract?
(iv) Exclusivity: What happens if the client finds a buyer or counter-party? Does the broker get paid? Under what conditions, if any, can the client hire another broker to speed up the transaction?
Selecting the right broker
Selecting a great broker should not be a challenge. As the dental industry is relatively niche, you can learn about a broker’s reputation through referral sources such as attorneys, certified public accountants, lenders, and online reviews. Generally, interviewing two to three brokers should be sufficient to identify one who is responsive, attentive, organized, and has sufficient time to devote to your business endeavor. However, it may be worthwhile to address these concerns with an experienced professional.
More often than not, the best practice is to hire a good broker to facilitate a sale or transaction. They have professional experience and can help guide you through the process.If you’re debating working with a broker, reach out to experts in the field to see if they can provide insight on whether it’s worth your while.
Our experienced dental lawyers at Wood and Morgan can help. Wood and Morgan has represented over 8,000 dentists since 1980 and focuses its efforts on supporting the dental community with their business needs. Contact us today for guidance at 800-499-1474.