Restaurant Real Estate Advisors

  • Home
  • About
  • Buy
  • Sell
  • Lease
  • Blog
  • Store
  • Contact Us
Home » How Do You Chose the Right Restaurant Broker

June 2, 2020 by Mark Chase 13 Comments

How Do You Chose the Right Restaurant Broker


Hiring the right restaurant broker can be one of the smartest decisions you make.

An experienced restaurant broker can save you thousands of dollars and ensure you avoid making mistakes that can be fatal to your success.

Restaurant properties are unique.

Even if you are buying an existing restaurant, a good restaurant broker who understands lease agreements and the numerous health department, sanitation, and building department regulations can help you avoid costly upgrades to your restaurant.

 

A good restaurant broker should provide the following:

1)    Access to all properties for sale and for lease.

Most brokers are either business brokers selling existing businesses or commercial brokers leasing property.

Find a restaurant broker that focuses on restaurant properties and has access to both restaurants for sale and commercial properties for lease.

2)    Thorough knowledge of Lease Clauses:

You will be living with the terms of your lease for 5-10 years on average.

Your lease will determine if you can extend your lease, sell your business, and how long you will remain liable if things don’t go as planned.

3)    Permitting and Construction Knowledge:

Many first time restaurateurs run into problems because they were not aware of the many permitting requirements to open a restaurant.

Make sure your restaurant broker is knowledgeable about grease interceptors, health department permits, and parking codes.

4)    Connections:

A knowledgeable restaurant broker knows architects, attorneys, expediters, and contractors who specialize in restaurants.

 

Getting the Most from Your Restaurant Broker

There are a few key goals you should keep in mind when working with a restaurant broker:

1)    You want to see all opportunities that meet your requirement

2)    You want the restaurant broker to negotiate in your best interest

3)    You want the restaurant broker to feel fairly compensated and motivated

4)    You want the ability to cancel the agreement if you’re not satisfied

 

Should You Work With One Restaurant Broker or Many?

This answer is counter-intuitive. You would think working with many agents would provide access to more properties.

The opposite is actually true.

An experienced restaurant broker won’t spend the time needed to work with you on a non-exclusive basis due to the high risk of not receiving compensation if you purchase a business or lease space through a competing agent.

Would your accountant agree to prepare your tax return if four other accountants were also working on your tax return, but only the first one to finish would get paid?

This method also produces a race to “sell” you a property quickly rather than invest the time to find the right property. (And probably a poorly prepared tax return using the example above)

 

Exclusive Representation

An experienced and qualified restaurant broker only works on an exclusive basis. An exclusive agreement states the broker will work on your behalf and you agree to only work with the agent for a specific period of time.

You receive the attention needed and the broker has assurance he will be compensated for his time if you complete a transaction.

 

Problem with Commissions

Since most restaurant brokers work on a contingency basis, they do not receive any compensation if you do not lease a property or purchase an existing restaurant.

They are also compensated based on the total lease amount or sale price.

This can create an issue.

If your requirement is too small you won’t find a qualified person to help.

From the broker’s perspective, it takes the same amount of time to lease a property in Beverly Hills as it does in a low-income area, where rents may be much lower.

If you’re looking for a short-term lease or to purchase a very low priced restaurant the commission may not justify the time involved.

 

There is a Solution—Minimum Fee

A minimum fee ensures you get the guidance needed and the amount of the sale price or lease amount does not impact your access to available properties.

Example:

Let’s say you are prepared to pay $100,000 to purchase an existing restaurant with a monthly rent of $5,000 or build a new restaurant with rent equal to $5,000 per month with a 5-year lease.

The commission to your broker would range between $5,000 and $12,000.

If your broker was able to find you an existing business for sale for $10,000 with a below-market lease of $2,000 per month, you would receive a great deal and save $90,000.

Unfortunately, the broker is actually penalized for finding you a great deal.

The commission for a $10,000 business sale is only $500 for the same amount of work as a sale for $100,000.

You don’t want to risk missing these opportunities (below market rent and attractive sales price).

A minimum fee guarantees the restaurant broker is compensated fairly and you receive the best deal possible.

Assuming the minimum fee was $10,000, in the example above you would be purchasing a below-market lease for $20,000. Far less than the $100,000 you were prepared to pay.

The best solution to ensuring you receive access to all available properties and to ensure your restaurant broker negotiates a lease that’s in your best interest is to agree on a minimum or flat fee.

Typically, the agreement states a minimum fee. If the total commission does not cover the fee, you will pay the difference.

For example:

Minimum Fee = $10,000

Commission paid by Landlord= $8,500

Total Fee paid by Client = $1,500

 

Term of Agreement

If you are unhappy with your broker you should not be locked into a long-term agreement. Make sure you have the right to cancel the agreement.

You will need to agree the broker is entitled to compensation for properties they show you for a certain period of time after canceling the agreement, but you will be free to negotiate or work with anyone else going forward.

This is usually not an issue since you would have already negotiated for the properties shown by the broker if you had been interested in the first place.

If you follow the suggestions above working with a restaurant real estate broker should save you both time and money leasing or buying your next restaurant.

 

Want to avoid common mistakes and open your restaurant fast at the best price?

8 Hidden Dangers in Restaurant Lease Agreements

Do you have questions about opening a new restaurant? I’m here to help and happy to answer your questions.

Just click here to submit your questions.

Cheers!

Mark Chase

Restaurant Real Estate Advisors

Filed Under: Blog

Comments

  1. Babu chowdary says

    July 27, 2015 at 12:05 PM

    I am selling good conditioned restaueent

    Reply
    • Mark Chase says

      July 27, 2015 at 12:31 PM

      Where is it located?

      Reply
  2. Christie says

    August 23, 2018 at 9:42 AM

    I am selling a Restaurant business on Rainey st. in Austin. I want to blast it nationwide. Is it better to go with a commercial broker in Austin or someone from NYC or L.A.?

    Reply
    • Mark Chase says

      August 23, 2018 at 9:58 AM

      I expect your buyer would be local. Your restaurant should be visible to anyone looking in Austin from out of state. If you specifically want to target buyers out of state your broker will need access to database of operators out of state and needs to be willing to contact them. I would interview local brokers first and ask them how they will market the restaurant. Also, out of state brokers will probably need to partner with local broker if they are not licensed in Texas. Best..Mark

      Reply
  3. David says

    December 26, 2018 at 4:59 PM

    I’m sell my restaurant/ smoothie shop at zip code 77433
    Contact me at : lahubllc@gmail.com

    Reply
  4. Millie Hue says

    January 16, 2019 at 8:43 PM

    I like that you pointed out that hiring only one broker will assure us that the property will be sold properly without anything at risk. I will definitely hire one because of that to ensure that we sell it at the right price. We just need to sell the commercial property of my parents because we are living in another state, and we can’t manage it anymore due to other commitments as well.

    Reply
  5. Roger Duck says

    May 16, 2019 at 7:36 AM

    Have you done any work in Austin Texas?

    Reply
  6. Tej Prasad Nepal says

    September 11, 2019 at 8:41 PM

    I’m selling my reastaurent business

    Reply
  7. Bin says

    October 27, 2019 at 4:35 PM

    Currently selling our restaurant buffet. Great location. Visible to the highway and in front of Walmart.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Search

8 Hidden Dangers in Restaurant Lease Agreements

Recent Posts

  • Restaurants for Lease-The Ultimate Guide to Leasing a Restaurant
  • Restaurant for Sale-The Sellers Guide to Making the Sale
  • Rent for Restaurant-How to Determine the Right Rent for a Restaurant
  • How to Buy a Restaurant: The Definitive Guide
  • The Ultimate Loopnet.com Tutorial for Restaurateurs

Company Profile

 

About Restaurant Real Estate Advisors

Contact Us

Recent Posts

  • Restaurants for Lease-The Ultimate Guide to Leasing a Restaurant
  • Restaurant for Sale-The Sellers Guide to Making the Sale
  • Rent for Restaurant-How to Determine the Right Rent for a Restaurant
  • How to Buy a Restaurant: The Definitive Guide
  • The Ultimate Loopnet.com Tutorial for Restaurateurs
  • Options to Extend Your Lease ( 6 Little Known Factors Can Kill Your Restaurant)

Search

  • Home
  • About
  • Buy
  • Sell
  • Lease
  • Blog
  • Store
  • Contact Us

© 2021 Restaurant Real Estate Advisors