Buying a Business: Disasters When You Don’t Have Your Own Agent

Should you allow a Dual Agent or Get your own buyer’s Agent? A Changing, More Aggressive Business Buying Market

Yesterday, I was reviewing a buyer’s signed escrow instructions.

He came to me after signing the escrow instructions and purchase contract, as his agent had said he should. His agent said he needed to hire someone to do the due diligence after he opened escrow. When I read the escrow instructions, I was shocked.

Read more to see how it turned out.

It turned out, (in layman’s terms) the escrow instructions stated that the buyer was agreeing that:

1.     All paperwork had already seen.
2.     What he has seen already was all that he was agreeing to be getting.
3.     The due diligence investigation time period had ended.
4.     Due diligence was approved because it was not disapproved, prior to signing this contract.
5.     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 escrow instructions I’ve seen in a long time.

The author of this purchase agreement and escrow instructions was a dual agent.  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 purchase contract which was signed prior to the opening of escrow allowed for two weeks of due diligence.  This is what the buyer understood.  The escrow instructions which normally mirror the purchase contract in this case they did not.  The buyer not reading the escrow instructions, assumed they were the same as the purchase contract.

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. For the sake of your own easy life later on, don’t sign what you haven’t thoroughly read.

Please, do yourself a favor

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.

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