OPEN LISTINGS - A FORMULA FOR DISASTER!

If I had a dollar for every time a restaurant owner has asked me to do an open listing, I'd be a millionaire!. Not really!

For those who may not know the difference here is a short definition of each:

OPEN LISTING: a non-exclusive agreement - meaning the owner can sign a listing with any broker at the same time and not be responsible for the commission unless that broker brings the buyer to the table.  So the owner can sell it and not pay a commission at all. 

EXCLUSIVE RIGHT-TO-SELL LISTING: an exclusive agreement - meaning the broker collects a commission no matter who sells it the broker is protected in terms of collecting the commission.  

Open listing sounds great, right?  Well think again and answer these questions.  Does the open listing broker have an incentive to do his deep research investing time and money into the owner's business to properly prepare it for market?  Or does the exclusive right broker, who is guaranteed to collect a commission if the business sells, more apt to invest the time and money into the project?  Which agreement, open or exclusive, places more risk of litigation on the shoulder's of the business owner? Which agreement tends to push the broker to work the listing aggressively without worries about collecting a commission?

After listing and selling thousands of restaurants I've seen my share of bad brokering, and every time it involves an owner who got involved with an open listing broker. 

The exclusive broker should take his time to review your business, asking the right questions, getting the right documents, analyzing the financials, reading the lease and franchise agreements, preparing a valuation, knowing the strength and weaknesses of your business. Then once the broker has finished his or her research, only then does he or she prepare the marketing package and advertisement. An open listing broker literally throws the listing on advertising websites and waits to see what sticks. 

Often open listing brokers screw-up the business' profile to real buyers because they don't prepare the business properly. They go to mass market it and the existing pool of buyers will see the business and clearly get the wrong impression due to bad marketing. Unfortunately, once the owner realizes this, the open listing broker has hurt the business' profile when the exclusive broker goes to market. Those buyers who saw it before, aren't coming back to see it again. This is a tragedy because it kills value. 

The irony of this whole situation is that the owner originally got into the open listing because he wanted to save money on the commission in the event he sold it and ends-up killing the value of his business. 

Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry.  Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer.  Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world.  There he participated in more than $11.5 billion of merger and acquisition transactions.  He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University.  Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.