As published in Scotsman Guide's Commercial Edition, May 2008.
When my wife and I put our house up for sale and interviewed real estate agents, none would engage us without an exclusive, six-month listing contract. We knew that is the industry norm, so we signed on with the chosen agent.
Then I thought about it: How is it that a residential real estate agent can demand an exclusive listing, but a mortgage broker who invests significant unpaid time and effort upfront into a commercial loan does not get an exclusive agreement?
Often, the answer is because the mortgage broker fails to ask for it.
Although fee agreements, as these listings are commonly known, are not the norm in the mortgage industry, many veteran commercial mortgage brokers make it a practice to engage their borrowers with such agreements. They outline how brokers will be paid and for what period of time they will have the mortgage listing.
Fee agreements provide a level of comfort for everyone in the lending chain. You, too, can ask borrowers for this kind of agreement.
What to do
You can't just sit down and ask borrowers to sign such a document upfront without understanding the deal. This would meet certain rejection if you haven't yet built any level of trust.
Your first objective is to learn why the borrowers want you to look at their deal. Are they shopping the best rate? Were they referred to you? Or have they been turned down elsewhere and are now seeking a nontraditional avenue?
If they are shopping the best rate, and they have a straightforward and strong deal, getting a fee agreement may be difficult.
Often, however, borrowers approach you because of a hurdle that has prevented approval or more-favorable terms elsewhere. These deals lend themselves well to listing agreements. They also take the most time, so it makes sense to get an agreement in place.
Next, ask the borrowers to send you basic due-diligence items upfront. These include property photos, rent roll and financials. This can give you a quick feel for whether the deal has potential to get funded through any of your resources. Of course, you must also understand your lenders' programs thoroughly.
Then set up a meeting with the borrowers to learn as much as you can about the deal. Ask them to prioritize what they want in the loan. For instance, are they seeking to maximize cash flow, to get funds quickly or to limit prepayment penalties? Like a doctor, you are probing for as much relevant information as possible during this meeting to understand the borrowers' motivations.
If you determine you can help the borrowers with the deal, then spell out the terms of the loan in your fee agreement. Inform the borrowers that you will earn your fee when you achieve a lender commitment that matches their preferred terms.
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