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Selling for free doesn’t make commercial sense!

Posted on January 22, 2015 in Frank Taylor & Associates

It is well known that we all like something for free, in fact it recently ranked 2nd in a recent poll of our most favourite things!

However, like most things in life there are always exceptions. We all know that tomatoes are a fruit but would you add them to a fruit salad? And remember the old saying there is no such thing as a free lunch?

Another exception is selling your dental practice for free. Free doesn’t exist – someone is paying and it is important to understand who and why.

If you are selling your practice for free then the only other party who can be paying is the buyer. Therefore, the buyer has less to pay for your practice as they need to factor in a lump for the agent.

For example, if I have £800,000 to spend on a practice but the agent wants 4% (which is not uncommon) then I only have £768,000 to pay for your practice. Remember, I only have £800,000 to spend – there is no more money. The amounts can change and more money can be squeezed into a deal, but at some point the limit is reached and this principle will apply.

So, the buyer is now taking responsibility of paying the agent  a commission fee and the agent  who is acting under Law of Agency has a duty of care for the seller. Put another way, can there be a more blatant conflict of interest?

An alternative approach, using the same £800,000 example is you pay your agent fees yourself. In this scenario you receive the full £800,000 and pay the agency fee (typically 2.5%) and receive a net amount of £780,000.

You are financially better off by paying a fee, sounds crazy but it is true.

As a seller I can see the immediate appeal of selling for free, but it makes no commercial sense to take this route – it is more expensive and creates a divided loyalty for the agent between the buyer and seller which creates many complications.

 

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