Now having a good commercial mortgage broker agreement in place with your borrower is more important than ever. As CMBS lenders like Lehman, Silver hill, etc have been taking the worst of it, we as commercial mortgage brokers are now forced to originate our commercial mortgages through traditional sources, i.e. regional or smaller banks.
These banks that for years saw their market share shrink are now in control. Many of them never bothered to increase their risk thresholds and or change their underwriting guidelines to stay competitive. They are now reaping the rewards of that prudence. Bottom line, they still have money to lend and many times their rates are considerable better than the rest of the market.
The challenge however for commercial brokers is that most of these smaller banks are not broker friendly. Or more accurately stated most of them are not set up to work with brokers like the CMBS lenders. For example it’s very rare that a smaller bank will pay rebate or ysp. Once in a while you may find a bank that will pay a .5% or 1% referral fee, but that’s it and it’s rare to find.
Rather many of these banks expect you to get paid on top of their 1% bank fee. Or worse many of them will want you to make your fee outside of close… When was the last time you chased a borrower for a $15,000 commission? If you don’t have it set up right from the beginning you will have a difficult time ever collecting. And besides collecting you will have a hell of a time competing on the deal.
So the point here, besides that this current market reality is not a lot of fun, is that if you think you’ll have to take your deals to a local banks, you’d better have your commercial mortgage broker fee agreement signed and in place before you bother to work on the deal.