Mortgage Daily

Published On: May 12, 2008
First Step in Commercial Mortgage OriginationFee agreements important step in commercial originations

May 12, 2008

By GEORGE BLACKBURNE

An important part of the commercial mortgage brokering process is the fee agreement.

Most experienced commercial mortgage brokers would agree that you should always get a signed fee agreement with your commercial borrower. But when do you ask him or her to sign it?

If the client is new and you ask for a signed fee agreement right away, you’ll probably be turned down.

Commercial borrowers want the freedom to keep shopping for a better deal, and unfortunately there’s a competing commercial mortgage broker on every corner. If you insist on a signed fee agreement right out of the starting gate, your commercial borrower will probably just walk down the street to another broker.

Instead, you should just be patient. Convince the prospect to send you a package.

It’s often true that the first broker to get the borrower’s tax returns usually wins the deal. These tax returns are usually too thick to easily make multiple copies.

Once you have the prospective borrower’s loan package, you should prepare a mini-package for potential commercial lenders. We’re not talking about a lot of work here — just an executive loan summary, some pictures, the pro forma operating statement, a lease schedule and a few years’ historical operating statements. You should be able to whip this up in less than an hour.

Armed with your mini-package, your various commercial lenders should be able to issue a verbal proposal. Be sure to tell your lender not to start work on a written term sheet until the borrower agrees to his terms by signing your fee agreement. Then take the best loan proposal and present it to the prospect.

If you get the green light to proceed, it is now time to explain you’ll need a signed fee agreement. If the customer refuses to sign it, you’re done. You’ve only lost about an hour on the phone and an hour preparing your mini-package. Just move on to your next deal.

Most commercial borrowers at this point, however, are anxious to move forward on their loan. They’ve invested a lot of time with you fetching various documents, and they certainly don’t want to start the whole process all over again. Therefore, most commercial borrowers at this point will readily sign your fee agreement.

Once it is signed, you can then ask your lender to prepare a written term sheet. Your lender will appreciate knowing that the borrower has just signed your fee agreement — an agreement that described the bank’s loan terms — so your lender is not wasting his time.

No matter what, however, always get a signed fee agreement. Just about every experienced commercial mortgage broker can tell you a horror story about the time he failed to get a signed agreement.

George Blackburne III is an attorney and the owner of commercial hard money lender Blackburne & Brown and commercial loan search portal C-Loans.com.

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