Good Faith Deposit / Beware of Broker Trust Accounts

By Hoke - Last updated: Friday, January 3, 2014 - Save & Share - Leave a Comment

A Good Faith deposit is often required to accompany the offer. The amount is typically 10% to 20% of the sale price. Because it is impossible to really really know if the sellers claims are valid without solid verification, most reputable business brokers will hold the Good Faith Deposit uncashed until Due Diligence is successfully completed and escrow is opened via buyer and seller signed approval as specified in the Offer Agreement. The Good Faith Deposit is usually made out to the escrow company and not to a Broker Trust account or Seller. We strongly recommend that the buyer not provide a Good Faith Deposit made out to a Broker’s Trust Account or seller unless there is a fully understood reason to do so. Although this is method is legal, we have seen buyers lose their deposit to unscrupulous brokers or sellers. Here is what happens. When the buyer finds problems during due diligence and decides not to purchase the business, the unscrupulous broker may find a reason, some technicality why the buyer defaulted and keeps the deposit. Once the deposit is lost to a legal default it is difficult to contest in court. In this manner it is possible for the unscrupulous broker to make multiple commissions without ever selling the business. Most reputable business brokers including Select Business Brokers do not maintain a Broker Trust Account because it is not necessary.



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Posted in 1. HOW TO SELL A BUSINESS, Business Brokers, Buyers Beware!, Dealing with Business Brokers, Due Diligence, Due Diligence, HOW TO BUY A BUSINESS • • Top Of Page

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