In the world of automotive dealership transactions, finding the right broker can make all the difference for sellers. However, not all brokerage practices are created equal, and it's important for sellers to be aware of the potential drawbacks of working with dual agency agreement firms.
In this blog, we'll explore the disadvantages sellers can face when engaging with dual agency firms and why it's essential to avoid such arrangements in dealership transactions.
What Is Dual Agency?
In the context of auto dealership acquisition and disposition, the term "dual agency" is used to describe a situation where a single broker or intermediary represents both the buyer and the seller in the transaction.
It’s crucial for dealership sellers to understand the potential implications of a dual agency agreement to ensure their interests are appropriately safeguarded.
4 Dual Agency Agreement Disadvantages for Sellers
1. Conflicted Loyalties
One of the primary disadvantages of dual agency agreements for sellers is the inherent conflict of interest. In a dual-agency scenario, the broker represents both the seller and the buyer. This dual role creates conflicting loyalties, as the broker is tasked with simultaneously securing the best outcome for both parties.
Sellers deserve representation that is singularly focused on their interests. Dual agency agreements dilute this focus and can result in sellers not receiving the required dedicated advocacy.
The dual agency firms will frequently say they represent “the deal.” That is a euphemism for representing “themselves.”
2. Limited Buyer Pool
Another significant disadvantage for sellers is the potential limitation of the buyer pool. Many buyers will not engage with dual agency firms due to concerns about conflicts of interest and a lack of transparency.
This disciplined acquisition approach, which is consistent with buyers who don’t work with dual agency brokers, can significantly reduce the number of potential buyers interested in a seller's dealership. Plus, it limits the quality of buyers to the pool.
By avoiding dual agency agreements, sellers can ensure their dealership is exposed to a broader and more diverse pool of potential buyers, increasing the chances of receiving competitive offers.
3. Risk of Confidentiality Leak
With dual agency agreements, the seller has a greater risk of word of their deal getting on the street.
Dual agency firms frequently lack a complete unbiased pool of buyers. As a result, they tend to have a higher frequency of taking deals to buyers who may not be the right fit. When this happens, there is significantly more risk of those buyers talking about the deal.
4. Mistrust and Transparency
Trust is essential in any business transaction, including dealership sales. However, dual agency agreements can erode trust between sellers and brokers. Sellers may question whether the broker is truly acting in their best interests, leading to concerns about transparency and the transaction's fairness.
Sellers should have confidence in their broker's actions and decisions. Sellers can maintain trust and transparency throughout the transaction by steering clear of dual agency agreements.
A dual agency firm will steer buyers who are paying additional fees to the deal without letting the seller know to whom the deal is not shown or who may have steered off the deal. Car dealers know better than anyone that salesmen always work the pay plan.
In the realm of dealership transactions, selecting the right broker is a critical decision for sellers. Understanding the potential disadvantages of dual agency agreements is essential in protecting sellers' interests.
Dual agency agreements can lead to conflicted loyalties, limit the buyer pool, and erode trust and transparency. Sellers deserve dedicated representation that prioritizes their needs and objectives.
When selling your dealership, choose a brokerage firm that puts your interests first and avoids the pitfalls of dual agency agreements.
Ozog Consulting Group is committed to providing unwavering advocacy for sellers, ensuring dealership transactions are conducted with the highest level of integrity and transparency. Your success is our top priority, and we will never compromise your interests through dual agency agreements.