Exclusivity, or the Race to the Bottom
05 Nov 2015 - Simon Palmer - Brokerage

I often get asked by clients, “What are the benefits of engaging one practice sales broker exclusively?  Wouldn’t a competitive process yield the best results?”. The best way to answer this would be to use a dental practice analogy:

Imagine if the owner of a dental practice had two dentists each spend a day doing treatments, and told them that only the highest grossing one would get paid.

The owner of the practice may think that this is a way to maximise their dentists to do the highest volume of work, and they may be right. But…

Would this lead to the best results for the patients?

Would this lead to the best results for your team?

Would this lead to the best results for you, the practice owner?

If the two dentists had the option that day of doing a crown for you in your practice, or a crown for another practice, in whose practice do you think they would prioritise their time?

The incentive scheme could lead to a high volume of work, but if so, it will most probably be of the lowest possible acceptable standard. There is a good chance that it would lead to fighting over patient allocation, stress, backbiting and sabotage in the practice, a high volume of re-dos, poor patient satisfaction, poor retention, a poor re-appointment rate, and a poor reputation for the practice overall.

This analogy illustrates quite well why engaging multiple sales brokers is not a good idea for your real estate or dental practice. Brokers, like contractor dentists, get paid on commission and usually only on contingency – if they don’t sell the practice, they don’t get paid.

Under normal, exclusive circumstances, this should mean that your interests are aligned, as the broker is incentivised to get you the best possible price and terms.

Having a non-exclusive agreement to sell real estate or a business, however, makes the campaign about speed, rather than quality. Speed to get the practice to market (whether it is ready or not), speed to get an acceptable offer, rather than the best offer, and speed to get the vendor to accept. The broker is happy to take a lower offer from a buyer if he thinks that the vendor will accept it, because he would rather get paid a lower commission than none at all. It becomes what is called “a race to the bottom”. That is, a race to get to the minimum possible price and terms that will be acceptable to the vendor.

The best results in any endeavour involving a lot of different parties come from alignment - everyone rowing in the same direction, to get the same outcome. Non-exclusive brokerage engagements lead to misalignment. When parties are pulling in different directions, corners are often cut and there is very little chance that anyone comes out on top.


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