Commonality of “dual agency”
You may hear the term “dual agency” when you engage a business broker to sell your business in California. The broker usually starts with the representation of the seller, but with proper disclosure and consent, based on the principle of fair dealing, the same broker can, and usually does, represent both the seller and the buyer in one transaction. This is referred to as “dual agency”. Although these relationships start with the broker’s responsibility to the seller, the broker has a legal responsibility of “fair dealing” with the buyer and obligation to disclose material information to both parties. Essentially, the seller engages a Broker’s representation but the interested buyer becomes a client through the process too.
A California State Requirement
California requires disclosure of dual agency to buyer and seller in a business transaction. Parties have the right to refuse dual agency representation, but they can also accept it upon written consent. There is a legal, ethical, and moral obligation for the broker to deal fairly and honestly with all parties and reveal all material information that are known to the broker.
There are pros and cons of dual agency but with a broker who has integrity and honesty, dual agency does have some obvious benefits. This is why the practice is still welcomed by many sellers and buyers.
The key to a successful sale of business is good communication. If the communication is poor, then the result will be poor. When communication takes place with too many parties, it tends to break down. The benefit of dual agency is that one broker is the pivot of all communication between the buyer, seller, landlord, lender, attorneys, CPAs and more. If there is a misunderstanding, as the broker has been involved in all communications, he or she could identify the problem easily, and the problem could be caught early and resolved quickly.
A Broker’s Responsibility
As certified business broker, our responsibility is to disclose everything material to a deal so a motivated buyer and a motivated seller can have full knowledge of all relevant facts about the deal, thus can make an informed decision of the transaction. The bottom line is that all material facts have to be disclosed, regardless of whom it benefits and whom it detriments. Also very importantly, we always advise our buyer and seller to obtain professional legal and accounting advice in addition to the broker service.
Dual agency may not work in every situation, but with proper handling and an ethical broker, it is an effective and efficient process. Sunbelt Business Advisors, located in the heart of Silicon Valley, has been serving the Greater Bay Area for over 20 years. We have certified and experienced business brokers who can help you achieve your financial goals from the exiting strategy of your business. Call us when you are ready to sell!
Helen Liu is the Principal Broker and President with Sunbelt Business Advisors for the San Jose CA Greater Bay Area. She can be reached at (408) 436-1900, or at [email protected]. Or connect with Helen on LinkedIn.
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