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In some cases, borrowers are already working with a few lenders. In this case, add an addendum to the agreement stating that these sources are not included in the agreement.
Benefits and other options
What happens when, despite your efforts, you cannot get an exclusive agreement? If you think you could get the deal even if the borrowers shop it, you may still want to engage in a nonexclusive listing agreement.
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While this is not as good as having exclusivity, you will still learn the borrowers' priorities by performing standard due-diligence. This alone can put you ahead of your competition.
Further, consider the fact that you may have to approach a traditional bank or private lender that charges an origination fee. If you already have a fee agreement in place with your borrowers, regardless of exclusivity, you will protect your fee when the loan closes or when a commitment is received.
Fee agreements should be more than just contracts; they should be sales tools that make the borrowers more inclined to work with you. Essentially, they should spell out borrower hot buttons such as prepayment penalties, loan terms, use of funds and loan amounts.
By requiring your borrowers to commit their goals to you in writing, you gain more control of the transaction -- not only because you have a signed agreement but also because you learn more information about them.
This insight on your borrowers should cut down on your workload. By knowing your borrowers' desires, you can find the right loan structure and lender for their scenario. It may also result in the lender giving your deal a more serious look because it sees that you are in control and that you are driving the process.
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There are fewer lenders paying yield-spread premiums today than before. Of those that remain, many have cut down on the premiums they will pay. With this trend expected to continue for the foreseeable future, it makes sense to start engaging your borrowers with fee agreements.
In so doing, you can position yourself as a highly professional practitioner who does not accept every deal. In addition, you can avoid disputes with your borrowers by laying all of the cards on the table upfront. Overall, it's a good business practice to be clear on your position from the onset in terms of how much you will earn and on how and when you will be paid for placing the loan.
By selling your value to the borrowers and committing them to working with you, you will spend less time on deals with slim odds of closing and more time on understanding the deals you do get.
Mark A. Roberts is a regional director of originations for Hometown Commercial Capital.
Hometown originates commercial real estate loans through an approved network of banks and commercial brokers nationwide. Reach Roberts at (650) 931-8962 or email@example.com.
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