Bad Broker Behavior: Buying the listing

The Bad Broker Behavior series is intended to highlight some of the bad behaviors of some of the dental practice brokers in the US.  I do not suggest that all brokers behave this way, only that some do.  This series is offered to help dental practice sellers and buyers beware…

This story takes place in a town right next to yours… It was just last week.  Dr. Sally Seller was becoming anxious to sell her dental practice.  Sally has practiced for many years and built a very nice practice.  She has been wooed for years by the local broker, Bob Broker.  Last week, Bob stopped in to see Sally and dropped off some Post-It notes in the shape of a capital B (to remind Sally that he wanted her business when she sells her practice).

Sally has been reading up on valuation rules of thumb, and figures her practice is worth 60% of last year’s collections.  Of course she is really way off by using such a simplistic way to get a valuation.  Smiling, Bob asks what she thinks her practice is worth.  She figures $720,000 because she collected $1,200,000.00 last year.  Bob suspects the practice is really worth a bit less than that because of old equipment, delayed maintenance, and a rumor that Sally has been cutting her hours back and losing patients.

“Oh, Sally, I bet I could get $800,000 for your practice!” Bob excitedly tells her.  ”I have a buyer in mind right now, so you will need to sign a listing agreement today so I can get started.”  Sally starts dreaming about laying on a beach on some sun soaked island in the Pacific.  That has been happening more and more often lately.  If Bob can really sell my practice for my practice Sally thinks, I could start packing my bags a year earlier than I thought.  ”OK, where do I sign?”

The real problem will come in two weeks.  Bob will call Sally and tell her the bad news.  ”My buyer decided to look out of state, and as I looked over your reports, I see your practice is not really worth what we thought it might be in the beginning.”  Sally will be heartbroken, because she has already started shopping for new swimsuits.  Bob will suggest the practice is really worth maybe $700,000 because the market seems to be softening up, or another practice recently sold for less, or some other excuse.

See Sally fell for the old Buying The Listing trick.  Bob knew the practice would not sell for that $800,000 price, but he wanted to lock in a six month listing with Sally.  He will make a 10% commission on the final selling price, and he cares more about getting MOST of the original listing price.  By dropping the price, Bob only loses $10,000 in commissions, but stands to gain $70,000 at the lower price.

Sally feels trapped, she has mentally sold the practice already and feels she needs to take whatever price she can get.

Beware of Brokers buying your listing.