How to incentivize brokers in 100% or close to 100% seller financing deals?

September 14, 2023

by a searcher from Lousiana State University in Houston, TX, USA

I am reviewing a deal that won't get SBA support as the company has substantial net losses from a Tax Return perspective and did not report both revenue and cash expenses. I realize this is risky.

How can I incentivize the broker for a 90% + seller-financed deal? I would only put in 5-10% of the purchase price, which I'm not sure would even cover his fee, and then the owner gets zero cash at close. Not to mention, the owner probably has other advisors (lawyers, etc.) he will need to pay at closing.

Any suggestions or experiences folks can share?

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Reply by an intermediary
from Wesleyan University in Granville, OH, USA

This response is based on a bunch of assumptions that might not be applicable here, but in the spirit of trying to be helpful: broker contracts are typically written in terms of total consideration i.e. based on all of the instruments that go into the deal. If you're signing a seller's note for a certain value, that's part of the consideration and is included in the calculation of the success fee gets paid on that. If the broker doesn't have a contract in place then you can either go around them (sometimes this is justified, sometimes not - in any case, that's the broker's mistake) or negotiate anything that is mutually agreeable. Yes, the seller still also needs to pay people who advised on the deal. Theoretically, the type of financing doesn't impact that. Practically, there's little harm in attempting to negotiate advisor fees. It would annoy me, but I always have the option of sticking to terms of my current contract even if it kills the deal.

Reply by an intermediary
from University of Arizona in Denver, CO, USA

Brokers should get paid on 100% of the transaction value. If the business has all of problems you outlined you should look at another business. However, if a broker is dumb enough to engage a poor listing you might get them to accept almost anything because you are likely the only buyer they will see.

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