Selling auto repair shops could be the opportunity you’re looking for.
The short version: business brokers are paid a commission when a deal closes, typically 10% to 12% of the sale price against the 6% a real estate agent is used to. The work is harder than selling property and the deals take longer. Specializing in one industry is what makes it manageable, and auto repair is a good one right now.
If you are a real estate professional exploring business broker opportunities, you probably have two questions. Is there money in it? The answer is yes. And how hard is it? The answer to that question is that it’s hard. Business brokering is not easy. If it was easy everybody would be doing it. It’s not easy but it is rewarding.
How Do Business Brokers Get Paid?
The first concept at play here is that selling a business is harder than selling property. A business has moving parts. Employees. Customers. Equipment. Revenue that goes up and down. A lead tech who may or may not stay after the sale. Think about it this way: a piece of property does not get upset and storm off.
Business brokers are paid on commission when the deal closes.
Typical business broker commission rates
As a reference point, a typical real estate commission is 6%. And starting from 6%, if you compare how hard it is to sell a business as compared to real estate, we would say that selling a business is three times as hard. That’s impossible to pin down exactly, but RPM has sold many businesses and many pieces of property, and it is way more than twice as hard.
So with that as a backdrop, it makes sense that the commission on a business sale, if the deal is three times as hard, would be about 18%. That statement is true but 18% is a hard sale to a business owner. They won’t pay that. So as a compromise and as a nod to the increased difficulty, most business brokers charge 10% to 12%. And for a real estate agent used to seeing 6%, that’s a real step up. Some brokers will make a concession on the percentage when the property is included in the sale along with the business. RPM usually does.
You Usually Work the Whole Deal
In real estate, co-brokering is mostly standard. In business brokerage, it’s much less common. Selling a business is personal. The seller has spent years building that business, and emotions play a big part. The broker usually needs to be talking to both the buyer and the seller. If you can’t read one of the parties, the deal gets difficult. RPM tries really hard to not co-broker. It’s not because we’re trying to hang on to a commission. We don’t co-broker because it doesn’t serve the buyer or the seller as well. The practical result for the broker is that you’re usually working the whole deal.
Why Now? Shop Owners Are Retiring
Baby boomers are retiring. Not someday. Right now. And plenty of shop owners who are a touch younger, in their late 50s, are thinking about it too. But it’s not just age. These owners know that it’s a new world, and SEO and web marketing just aren’t their forte. Hiring is the big one. It used to be you could put HIRING on the marquee outside the shop and a tech would walk in. That doesn’t work anymore. It’s common for shop owners to tell us that if they could just master this new way of hiring, they would stick it out a little longer. But it’s just too much. So they sell.
Why Auto Repair?
Specializing in any industry lets a broker master the nuances of a deal in that industry. Auto repair has something extra going for it right now. Private equity firms are buying shops. That’s a whole other group of buyers out there. And even when private equity dries up, it won’t matter; there will always be shop owners who need to retire.
The Nuances Only a Specialist Catches
Environmental
Environmental issues can always play a factor. But it’s really a wild card when the lender is involved because they choose the environmental company. That company has no stake in the deal other than protecting itself. If it fails a property on a Phase I and mandates a Phase II, even when the property should have passed, it pays no penalty. And almost any shop has something they can point to.
It’s kinda like football. If a ref decides he wants to call holding, he can call holding on almost any play. And the phrase they hide behind? “Out of an abundance of caution.” No one is suggesting a property should pass if it really needs a Phase II. Least of all RPM. But a specialist sees this coming and plans for it.
Warranty
Who handles the warranty when the new owner takes over? A broker who doesn’t specialize could miss it. The broker usually drafts the LOI, and the attorney often doesn’t get involved until the APA stage. So if the broker forgot the warranty, the deal could close without it ever being addressed. Even if the attorney catches it, it adds a lot of stress to the deal because the buyer thinks cars fixed before closing that come back after closing are still the seller’s obligation. The seller says, “He’s buying the business. The warranty is part of the business. So he gets the warranty.” A specialist settles it in the LOI and it’s never an issue.
There are many nuances to an auto repair deal. Environmental and warranty are just two.
What RPM Offers a New Broker
RPM Shop Sales has sold close to 100 shops, and we pass that experience on.
A new broker trains under an experienced broker who assists with everything related to the deal. The first three deals are the most difficult, so the training broker walks through those deals with the new broker. They work side by side. On the next three, the trainer broker is still there but takes a step back. And Bryan is always there. A broker can be five years in and still run into a situation he needs to talk through with Bryan.
RPM has a set plan for opening a new market. How to identify the shops. How to make initial contact. How to follow up with shop owners. And how to get our name out there. You’re not starting from a blank page.
Is This the Right Opportunity for You?
Business brokerage isn’t for everyone. It’s a hard gig. But the opportunity is real. RPM Shop Sales is expanding, and we’re interested in talking with real estate professionals who want to build a business brokerage career specializing in auto repair. We’re licensed in Texas, Oklahoma, Arizona, and Florida. We’ll be licensed in California real soon. So we’re especially interested in those markets. But really anywhere in the US.
If you’re good with numbers, and you’re good with people, and you’re exploring business broker opportunities, take a look at our careers page or give us a call. It’s a cool job.
Frequently Asked Questions
How do business brokers get paid? On commission, when the deal closes. Most business brokers charge 10% to 12% of the sale price, against the 6% that is standard in real estate.
Why is the commission higher than real estate? Because a business is harder to sell than a piece of property. Employees, customers, equipment and revenue that moves are all things that can derail a deal, and the broker usually works both sides of it rather than co-brokering.
Do I need a real estate license to be a business broker? [BRYAN TO ANSWER — RPM works with licensed real estate professionals and holds licenses in Texas, Oklahoma, Arizona and Florida, but the requirement for a broker joining RPM should be stated plainly here. It is the first question a candidate has and the one most likely to stop them reading.]
Can I do this alongside my real estate business? [BRYAN TO ANSWER — a real question from the audience this article is written for, and nobody else on page one answers it.]
What makes auto repair different from other business brokerage? Two things in particular: environmental reports that can fail a property the lender’s own consultant chose to scrutinize, and the warranty on work done before closing. A specialist handles both in the LOI. A generalist often finds out about them late.
