“COFFEE SHOP FRANCHISE OWNER HELD HOSTAGE FOR ONE YEAR BY HIS AGENT”
Imagine reading that headline in your local paper. You’d probably want to read every word in the article to see how something like this could happen in a free country! Well, it does. Right here in Vancouver. However, it’s not the kind of hostage situation with guns and bombs, but no less psychologically damaging and abusive.
What we’re talking about here is the fact that an agent can, by law, hold you hostage to the listing agreement you sign for a year (or whatever you happened to sign for).
Let us first state that this legal commitment is not necessarily a bad thing – in fact, it’s a good thing because sometimes sellers will abuse and use their agents and make them lose their justly deserved commission. In that case, of course, the contract is a good thing to have enforceable.
Let’s allow one of our members tell you a true story of what happened to him this week when working with an agent that his head office strongly encouraged him to work with. For anonymity, let’s call the head office company B and let’s call the agent M and the store owner A:
“I was approached by the leasing guy at B. He said that M has a buyer. B strongly recommended that I work with M because this buyer will help me get out of the business sooner. Also, B said they would drop the 7.5% transfer fee [that’s the money the owner has to pay to the franchise when he/she sells his/her store] AND M would not charge me a sales commission because he said this ‘was a favour to B’. Since B has more experience in the sale of franchises, I took their advice and decided to work with M even though I had my own agent. Another owner had even warned me that this guy held him hostage before but I didn’t believe it.
Next, M shows up at my shop with what looked to be a basically blank document that I’ve never seen [see image above]. I’ve never listed a business for sale before. He didn’t even explain it but just said “Sign here and this will be enough and then I’ll bring the offer.” There was no explanation of what was on the document, what the document meant, nor what an ‘exclusive listing’ meant to the person signing. I was about to learn the hard way.
A few days later , M shows up with an ‘offer’. I couldn’t believe my eyes. The ‘offer’ was for 25% of (or 75% less than) my asking price!! What? Are you joking, man? So I threw the offer back at him and told him I don’t want to sell it.
During this time, my friend was selling his coffee shop franchisee, too, in almost the same situation. In his situation, M brought an offer for 30% of what he wanted. He contacted M and said “I’d like to end this relationship” and to him, like to me, M said ‘we don’t have a relationship because there is no commission.” My friend still demanded the unconditional release documents and M replied “I’m a man of my word so I’ll send them if you want them.” My friend told me that he thought it was strange that he is sending release documents for a relationship that M said didn’t exist. When I called and ask for the documents he told me the same thing – there is no relationship.
I was happy now. I immediately approached my agent (M2) and asked him to list my store for sale. M2 happens to work in the same brokerage as M. As soon as M2 listed the store for sale, M approached his broker and asked him to pull the listing because he had a one year exclusive listing with me! What? No way. Is this happening? Yes. Apparently it was something I signed for that I didn’t read. M then called and left a voice mail for me saying “You have an exclusive listing agreement with me for one year and if you have any problems with that you can contact my broker.” At this point it got very interesting. I contacted M’s broker to complain. He replied “M has the only rights to sell B franchises in Vancouver.” I was shocked. What was he talking about? Did M convince his broker that he was the only one who could sell B franchises?
Immediately I contacted B and told them what was happening by email. I asked if they would prefer to deal with my lawyer or with this agent. They replied back shortly later that “We do not have any such exclusive relationship with M”. At that point M’s broker was contacted and educated about the truth and asked M to send the release documents. Finally! I’m free to list with whom I want.
That night I decided that I was going to work with M2 and started again to list with him. This time M’s broker asked him not to list through their brokerage. Now he’s trying to tell me which brokerage I can and cannot list with even though I do not have a valid listing agreement with anyone! Crazy. To this day I am still arguing back and forth about this. My friend had listed with six or seven different agents over the years and only one agent would not send the release documents – the B agent of choice: M
An exclusive listing is a cause of concern for the following reasons, we learned the hard way:
- You cannot reach out to the real estate board to get help so the agent operates to some extent ‘outside of the law’
- Your store does not get posted on the ICX.com (MLS for commercial) therefore loses lots of exposure
- You can’t work with another agent until this agent releases you
Here are some red flag comments that you should be aware of. They may be true but consider them a red flag until you see action:
- “I have buyers looking to buy a coffee shop franchise right now. Just sign.”
- “I market the store privately.” If you ask for details on this you may find out what that really means is “I only put your store on my personal web page and pray to the stars that a buyer finds it.”
- They do not go over in detail with you the initial listing agreement or give you sufficient time to read the details
Here are some red flag comments that may indicate you are about to get sucked into some kind of secret game:
- I’m not getting paid. I’m doing this as a favour
- The buyer that I had got sick, but don’t worry, we’ll find another one
- I’m a man of my word
Why would someone volunteer to put themselves at risk as an agent for free? Why did your ‘sure thing’ buyer disappear? Why are you telling me you are a man of your word? By doing a transaction together with integrity I will see that.
We hope this article will save many people many hassles.
As usual, don’t hesitate to contact the VCSFA as we are always ready and willing to help anyone.