Look - we screen our sellers (and sorta-screen buyers) but it's not even close to due diligence. We do that to protect our marketplace and listings from being overrun with crappy websites. The things that come down to taste/preference we let through, but things that are clearly and obviously a no-go for us (and our buyers) we deny and don't allow them to sell with us.
Not sure what your point was here. Would you rather they not do any screening? Just blowing off steam?
Thomas (9 February 2015)
Unfortunately Flippa have often demonstrated an enthusiasm to misrepresent away as long as they're making a percentage of the sale price. That, I believe, is the issue here. When a company is quite happy with the conflict of interest acting on behalf of buyer, seller, due diligence provider and candle stick maker, and is generating profit from all sides, why on earth anyone trusts them to handle more than one side of the transaction is beyond me.
That bad rep does seem to be spilling over to brokers and this may be a bit unfair. However, I have seen brokers help sellers fake stuff. What's the difference between a broker who puts lipstick on a pig and one who teams up with a seller to swindle buyers? I can't seem to find a clear place to draw this line. Having to do DD against shady sellers becomes all the more complicated (and risky) when the seller has an experienced broker helping them.
It's unfortunate if that bad rep ever spills over to alternate marketplaces especially when those marketplaces are just marketplaces and not sell-side advisers.
- If a deal goes south (deliberate misrepresentation or not) the broker will get sued along with the seller. That's expensive, deliberate or not.
- Selling crap is not a sustainable business. It's a small industry, people talk.
- Buyers are getting smarter. Businesses with major due diligence issues will not sell and that's expensive to a broker with real overheads (my company & EF for example).
- Brokers want buyers/sellers who are clients for life. It's not scalable to be finding new clients all of the time.
- In a small industry (especially online where people talk), every bad deal is a potential company killer reputation wise.
Arguably, a broker (who generally rely on referrals) almost has more at stake on the legitimacy of a particular deal than a buyer/seller. If I miss something stupid/"deliberately" misrepresent a deal that could cost me my company and my whole team their jobs. Not all brokers are one-man bands operating out of their parents basement.
Flippa is different - they have the scale (from the existing entity of Sitepoint) so a few pissed off buyers/sellers won't kill their business. They also rely on quantity vs. quality - it's a whole different ballgame building a business selling ~$100k sites vs. Flippa's average of low $XXXX.
Last edited by Thomas; 9 February 2015 at 4:35 pm.
I mentioned about them representing both buyer and seller. They've now got their own escrow too.
Or rather they're going ahead and doing escrow ...with no mention of segregated funds, registering as an escrow company or any nonsense like that.
My bet is that the cash will all go into a common pot meaning that at any given time they'll have a large chunk of buyer funds sitting in their bank account, creating liquidity and providing an easy source of quick finance for any ongoing working capital (as illegal as that may be for proper escrow companies). But as they're charging no fees to buyer or seller I can see lots of players taking up this option instead of using the alternative of escrow.com.
As Thomas wrote it's vitally important for an established broker to do a good due diligence to make sure the stats are legitimate, as reputation is nearly everything in this type of business. However we can't provide any guarantees, so it's up to you, the buyer.
I also usually try to explain the buyers potential risks and issues with the site they are buying, so they can better understand what they are paying for, and do their own independent analysis.
I most recently worked with Deal Flow again-but as a buyer. Originally when Deal Flow was being established I was quite excited at the prospect of having a broker review the sites. Call me silly but having another set of eyes-especially on fippa-was comforting. This past week I reviewed one and inquired. The broker could not tell me much about the site or his review. I had specific questions regarding suspect backlinks-his answer was to set up a con call with myself, him and the seller. The con call did not go well. After some technical difficulty (it happens) I was able to talk to the seller with the broker listening. The problem is I could not understand the seller!! He was from Romania and the connection to the broker's skype was very poor. I had several questions that I have no idea what the answers were. The broker also could not interpret them to me. I wish he would have just let me chat to the seller through skype without his watchful eye. I concluded the call requesting access to google analytics and answers to some other questions. The broker stated he would give me access but another offer would be coming in. I received an email saying I had access and he would like to present my offer with the other offer. I have a feeling the other offer was low and he wanted a mini bidding war. This is fine, but I: 1. Did not have my questions answered 2. Did not expect to be rushed because he did not want to present the offer before mine. In my experience with this particular broker is that he added little value to the sale. I also am not confident that this particular broker knew much about the site so he did not raise my confidence in the site. The sad thing is I think it is a good site and wish I could just speak to the seller, although I could not hear him he seemed to be an honest and straightforward seller.
I have worked with other brokers from Deal Flow in the past, however that was when it had first started and I assumed the lack of knowledge of the sites was due to the new program. Either way, due diligence is in order