Brokers Make You BROKE-ER

I’ve said it before and I’ll say it again: Brokers Make You Broke-Er.  Simply put: they don’t add value to justify their fees.  But not only that – they actual do more harm in a transaction than good.  I’ve seen it first hand.

They’re Not Lawyers.  But They Try To Be

They didn’t go to university for 7 years like lawyers (or dentists do).  They didn’t article.  They don’t have professional liability insurance for giving legal advice.  So they shouldn’t be drafting IMPORTANT legal documents that impact a dentist’s rights or promotes their interests.  But time and again, we’ve seen these real estate salespeople get involved in trying to “prepare” Letters of Intent, Agreements of Purchase and Sale, Associate Agreements, and even employment agreements.  And guess what?  Do you think their documents are deficient?  Hell Yes!  They’re so bad (either drafted incompletely or not taking into consideration nuances) that it’s hard to think a judge could interpret / enforce certain provisions.   They SHOULD NOT put on a lawyer hat and attempt to be doing what we do for a living.

Case in point: every employment agreement I’ve ever seen a real estate salesperson give ‘for free’ (but not really ‘for free’) to a dentist to help them put staff on contract ARE easy to disregard.  Why?  Because they don’t comply with the ever-changing employment law cases that keep coming out.  They’re just boilerplate documents that ‘have worked in the past, so why not now’?  I’ll tell you why?  Because the contracts aren’t drafted properly and may not be entered into properly, which means they’re not worth the paper they’re written on and can be easily thrown out – thereby leaving the dentist holding a GIANT bag of nothing.

Another example of why real estate salespeople shouldn’t be part of the equation: they can’t resolve legal problems like lawyers.  What do they know about incorporating you, rolling over your practice to your corporation, purifying it, and otherwise making sure it qualifies for the Lifetime Capital Gains Exemption?  What’s that?  Not much you say?  And you’d be correct.  They don’t know these things because they’re not trained to know, don’t have the requisite tax knowledge.  So how can they help you prepare years out from actually selling?  They can’t!

A final example: lease problems.  Do you want a non-lawyer reviewing your long / complex lease and giving you advice on how to approach your landlord to make sure that nasty lease clauses don’t impact your purchase price?  What if you have a demo clause or relocation clause?  Will they know what to do BEFORE putting your practice on the market?  What about assignment provisions?  What if you have to disclose X, Y, and Z to the landlord on assignment but then the Landlord still has the right to terminate (we see this a lot)?  What about those real nasty clauses that keep you personally on the hook EVEN AFTER you sell?  Do you really want a non-lawyer to be advocating your rights and interests to your landlord to fix these things?  We try to fix leases BEFORE we ever go to the market when selling a practice… Why?  Because as lawyers, it’s our job to complete the deal, not just list a practice with ‘issues’ and then hope the buyer / their lawyer can fix them.  We like to control the process to speed it up (from historically 6-12 months with a broker to 3-6 months with us).   And by reviewing your employment situation, lease, and corporation WELL BEFORE we sell, we help ensure a quick transition process and that you don’t take a hit on the purchase price.

Look: you wouldn’t want your plumber doing your root canal, would you?  My advice: by-pass the Broker and go straight to the lawyers (DMC).

What About Their Appraisals?

I’ve torn apart so many of their so-called ‘valuations’ or ‘appraisals’ that basically my dentist clients won’t buy from a brokered practice anymore.  Why?  Where do I begin.

How about today… I took a look at an appraisal for a client and noted that the calculation of goodwill was just not good enough: an “active patient” was defined as anyone who attended the office for the past 2 years.  Great.  But how does that help a buyer who wants to know how many have come in the last 12 months? How many come for just hygiene alone?  How many have a pattern of coming quite regularly?  Now, to be honest, not all appraisals are terrible when they come to valuing goodwill or guestimating an active patient.  But I can tell you, quite honestly, that when Matt Bladowski’s team at Dental Strategy does a goodwill analysis, it’s bang on.  It gives you proper definitions, different ways to look at it, and various metrics so that you can fully appreciate the value of the goodwill.  Unfortunately, Matt’s appraisals are one of a kind.

Another big problem with appraisals prepared by real estate salespeople is that it’s a boilerplate template that doesn’t factor in nuances of the practice, the demographics of the patients or area, or the history or opportunities for prospective buyers.  Again, this is where Matt’s appraisals shine: his comprehensive valuations are as much a marketing document (showing opportunities for buyers) as they are a collection of relevant information about the practice (e.g. financials, team, patients, lease, etc.).

Can You Say Conflict of Interest?

What do you call it when a real estate salesperson appraises a practice and earns a 10% commission on the sale of that same practice?  A Conflict of Interest!  That’s right.  Why?  Because for a real estate broker to recoup their marketing investment, they need the practice to sell as quickly as possible – and perhaps not even to the right buyer or at the right price / terms.  Does DMC have a conflict of interest?  Nope.  Why not?  Because we charge fixed fees, based on the work that needs to be done and the value of our services, not based on the ultimate price.  Importantly, we also don’t prepare the appraisals: these are done INDEPENDENTLY by Matt Bladowski’s team at Dental Strategy. We care about getting a good price for our clients, but that’s not so much up to us as it is up to the market (real buyers with real $$$).  We do the marketing the same (I’d say better) as the brokers, dipping into the pool of buyers who are out there.  We see them at trade shows and our open houses.  They are our clients too.  We may have helped them with an associate agreement or incorporated them or helped them put an offer on a practice.  But when we represent a Seller, we ONLY work for that seller and we direct the buyer to use another dental lawyer.  This way, again, we’re not conflicted.

What’s Been Happening Recently

Brokers have taken a big hit recently.  They’re just not getting the listings.  That’s the combination of a few things.  One, I’d like to think it’s because of our business model (one stop shop to prepare, market and sell practices) and the amazing results we’ve achieved (high prices, low costs, etc.).  Second, I think it’s because DSOs (dental services organizations) don’t like dealing with brokers because they know they don’t add value to the transaction and tend to over-appraise practices.  Third, there’s more competition for brokers other than DSOs.  We’ve seen dentists try to partner up with consultants, realtors and lawyers to form some kind of transition firm.  That’s gotta be putting pressure on the brokers as well.   So all this adds up to brokers just not getting as many listings as they have in the past.  And most of the new listings I’ve been seeing by brokers have been for smaller practices outside the Greater Toronto Area.  It’s only going to be harder and harder for their 10% commission + lack of value business model (an appraisal + an open house???) to be sustainable.

Conclusion

For these reasons, I will never get involved in representing a Seller or a Buyer Dentist who wants to sell their practice through a real estate salesperson.  It’s not worth the headache for me.

Dentists have come to recognize that brokers aren’t necessary to selling their practice.  They see the DMC model (one stop shop for preparing, marketing and selling practices) as the NEW and IMPROVED approach.  We’ve saved dentists over $6.3-million in commissions (based on them not having to pay a whopping 10% of their practice’s worth to a Broker) by advertising the sale of dental practices and running open houses on our website, www.DentalPlace.ca.