Are Business Brokers licensed ?


There is probably no other question that causes as much controversy as this one!

There is no one fast answer of 'yes' or 'no'. The answer depends upon which state or country the business or Business Broker is in. Some laws apply only if the Business Broker actually sets foot in the state to sell the franchise or business. Some laws fall under Federal Consumer Protection laws; Fair Housing Laws; anti-discrimination laws; handicapped laws; American Disabilities Act and Agency laws both local and Federal to name a few.

Let me explain my opinions below and you may draw your own conclusions.

Most people ask "Is a Business Broker required to have a real estate license?" It depends on what the Business Broker is selling and which state you are asking about. There are at least 20 states (and DC) that require a 'real estate' license to sell a business, business opportunity or franchise. Of the other states, if you are selling only assets of the business including personal property, fixtures and goodwill, you may not need a real estate license. You may not discuss, handle, transfer or assist in any lease arrangements of the business. You may not be involved in the exchange of the business.

To quote one state that does not require a license to sell businesses, "A real estate license would be required if the sale, exchange or leasing of real estate is part of the transaction. A real estate license would not be required to sell personal property both intangible and tangible of the business."

There is only one state that does not require a real estate license to sell businesses and permits the involvement of the business broker with the lease arrangements. For all other states, if the lease is part of the value of the business or incidental to the sale, they consider the Business Broker to fall under their State Real Estate Division. Another opinion is that if the term "month-to-month tenancy" is used in the listing or sale of a business, there is no lease and the Business Broker is not operating under the real estate licensure laws.

One state that does not require a real estate license for a Business Broker did say "If the lease for the property will be transferred from the seller to the buyer, then the business broker must have a real estate license. If the buyer will be signing a new lease and the business broker will be compensated for procuring a new tenant, then the business broker must have a real estate license."

Another state does not say you have to be licensed to sell businesses. Only that the brokerage fee may be in jeopardy and it does not rule out criminal or civil penalties on the broker should they find there is any attributable fee to real estate! (lease) If mention of the lease is made on the listing agreement, marketing brochure or offer to purchase, it may be considered 'real estate.' Who is going to buy a business without knowing the terms of the lease? Most of my buyers make the purchase subject to the transfer of the lease!

To further confuse the issue, one state's Department of Real Estate will tell you that you do not need a real estate license to sell a business. However, the courts have ruled that in order to collect a commission on the sale of a business, you had better have a license. There are several states with legislation on the books concerning the licensing of business brokerage as will as disclosure.

Only one state recognizes "finders" whereby the finder merely introduces the parties. They do not negotiate nor do they go beyond a mere introduction.

If that isn't enough to worry about then there is Willful Misrepresentation; Negligent Misrepresentation; Willful Omission; Negligent Omission; Professional Liability and Personal Liability. A real estate licensee is required to know about hazardous waste, zoning, new tax rulings and state regulations. Do you think any of those items might affect the value of the business you are selling or thinking of buying?

If the state you are seeking to do business in, is one of those that does not have a written ruling, contact the Real Estate Division/Commission of that state/commonwealth and ask for an answer in writing. Then ask for an answer in writing from the Attorney General's office. This way you are covered should a question arise later.

One more caveat... January 1, 2000 the new "American Disabilities Act" requirements are alleged to go into affect. This will affect all businesses open to the public. It is expected to open many a can of worms in the next few years when a business owner sells a business he/she purchased recently and was not told of this. As 'state real estate licensed business brokers' we have been disclosing this and advising buyers/sellers of the consequences. Most new construction had been building to this code for the last 3-5 years. "When a person holds them self out to the public to be a professional, he has a personal liability to know all the present, pending and future changes to the code and related laws..." At least that's the way the Judge explained it.

Decide for yourself should you be using a licensed professional regulated by a state agency or one that just decided one day to advise people on investing in businesses...

If legal, accounting or tax advice is desired, consult the appropriate professional.

Bizology - the study of business for sale

email to : info [at] bizology [dot] com
Chambersburg, PA 17201-1712
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