Dumb Question: Broker Commissions

[GoodScout]

Chalk this up to "we don't buy or sell inns every day," but what is typical inn broker's compensation for selling a B&B or inn?

I know what traditional real estate agents earn.

Thanks.

 

[TheBeachHouse]

Just joining in for the notifications. I wouldn’t have thought to ask, I’d think it was the same, but, now that you mention it, I’m interested to hear.

 

[Morticia]

You can negotiate the commission! Around here (New England) they want 6%.

 

[FHI2426]

We are shopping our place to brokers, at the ALP show last week I asked what is the commission if I were to give an exclusive listing... it ranges 4.5 to 5%, they do want some amount (non refundable!) up front... we are offering buyer agent co pay for more than 1/2 of that so hopefully we got their attention....

 

[GoodScout]

We are shopping our place to brokers, at the ALP show last week I asked what is the commission if I were to give an exclusive listing... it ranges 4.5 to 5%, they do want some amount (non refundable!) up front... we are offering buyer agent co pay for more than 1/2 of that so hopefully we got their attention....

Yeah, I spoke to the broker that wanted upfront money. He didn't initially mention that in our first conversation, so I was a little put aback by that. Not sure I understand what you're saying on the buyer agent.
I don't understand how an "exclusive listing" would work. I assume all of these agreements are "exclusive" to one listing agent, just as in traditional real estate.

 

[FHI2426]

Yeah, I spoke to the broker that wanted upfront money. He didn't initially mention that in our first conversation, so I was a little put aback by that. Not sure I understand what you're saying on the buyer agent.
I don't understand how an "exclusive listing" would work. I assume all of these agreements are "exclusive" to one listing agent, just as in traditional real estate.

Good questions - The upfront $ is for "marketing assessment" to determine the value - uhh I can run the numbers myself and I know the standard valuation methods and also for marketing.... and the exclusive listing is for all other B&B brokers, sort of like multiple list in a residential market... however there is no multiple list system nationally for B&B's so you are at mercy of their marketing program to reach any and all B&B buyers in the country which of course none of them can do that... we have seen though where a national B&B broker will let a seller also list with a local RE agent

Many have areas of strength regionally (NE, Mid-Atlantic, FLA, NC/SC/GA)... we are not desperate to sell but absolutely will sell to any legitimate buyer ... worst case is we make a lot of $$ in what looks to be another strong year for small hospitality ... I don't see the point at this point of going to the altar with one person, I'd rather play the field at this point ... let's see.... for everyone out there, this is our listing: Flag House Inn - Annapolis, MD Inn for Sale

 

[scottcrumpton]

Chalk this up to "we don't buy or sell inns every day," but what is typical inn broker's compensation for selling a B&B or inn?

All compensation for brokering is negotiated. Compensation may be a Commission computed as a percentage of the amount of consideration in a transaction (such as a percentage of the sale price), a Flat Fee, a Fee for Service, or an Hourly Rate. The compensation is negotiated and specified in either a listing or buyer representation agreement. Any attempt to impose uniform rates of compensation is a clear violation of state and federal antitrust laws which is why it's always negotiated

Generally, the inn broker's compensation runs between 4% & 6% depending on the price of the inn. The commission percentage is generally higher for lower-priced properties to compensate for the lower overall commission.

By contrast, if you go with a generic business broker they'll likely use something like the Double-Lehman Scale where they make 10% of the first million, 8% of the second, etc. If you go with a standard real estate agent they won't begin to understand how to value a business nor present it to potential buyers.

While I can't speak for all inn brokers, I can share with you what I've been learning about the industry now that we've formed White Stone Brokers with Eliot Dalton.

When a broker takes on a listing they perform an MA&V (Marketing Assessment & Valuation) to help determine the value of the property, FF&E, and business. The property is inspected, measured, and inventoried, the competition is reviewed, the local area is toured, and all the books are completely gone through. This is a massive undertaking involving multiple people and at least ten days of work. To accomplish this, there are non-refundable fees charged to compensate the broker for their work, time, and travel. There are also fees charged that are credited back after the sale. This prevents people from listing with a broker, breaking contract, and then taking all of the broker's work to another broker.

Can you do much of the above yourself? Of course. You can also learn to repair your own engine, fight your own legal cases, and fly your own jet but it will take years of training to begin to match the mastery of a seasoned mechanic, attorney, pilot, and in this case -- business broker and consultant. Compounding the issue is that you'll be asking a buyer to trust numbers you came up with yourself and you have a hard sell.

As the old saying goes, your mileage will vary ;-)

I hope that answers some of your questions.

Scott Crumpton, CEO
White Stone Marketing and White Stone Brokers