Today’s post is written by Michael Green, Senior Commercial Loan Originator with Counsel Mortgage Group, LLC.  Mike writes monthly on the commercial mortgage market.  Check back each month for his commentary.   

This may be a fairly timely question, given that the Fed has just begun its new interest rate downward cycle. With the perceived pent-up demand for lenders to ramp up loans, it may seem like it’s a borrower’s market.  We suggest that’s not the case.  Lenders perceive that pent-up demand on the borrower’s side also. It’s likely to be some of both.

If that’s the case, which party is better equipped to cut a more favorable deal for their side of the loan? 

So, is it worth paying a mortgage broker a fee to obtain a loan? 

This may seem like a loaded question, but let’s drill down & take a look. 

For perspective, the typical market range for Commercial Real Estate (CRE) mortgage brokerage fees/commissions range from 1% (maximum rate set by the SBA for their insured loans) to 5%.  The higher ranges may often include re-titled (mis-titled) as other fees or expenses in term sheets and closing docs. The size of the loan and the complexity should be considered when you enter the market.  Consider offsets … fees paid to the broker from the lender, and/or fees your broker may have to pay the lender on your behalf (splits). These should be spelled out in the broker’s agreement for services.

 If not a broker, then who? A major distinction between a broker and a lender is representation of the borrower … who represents them.  A broker doesn’t just find you a loan; they represent you in getting a loan.  A borrower dealing directly with the lender is representing themselves – the lender (bank or otherwise) doesn’t represent the borrower.  Conversely, a broker by agreement represents the borrower.  

Breadth of market – it’s a matter of choices.  A borrower dealing directly with the lender will only be offered those loan types (products) that the lender has to offer.  By comparison, a broker has the entire market of lenders to qualify for the best loan available. Money is mobile!  We deal with, and have relationships with, lenders across the country.  This is particularly notable if your type of loan is best suited for a community or regional lender, or perhaps private debt sources. These are normally not household name firms you’ll come across on Google searches.  

Exclusivity for the loan is a major factor for both parties.  The borrower may feel comfortable in an uncommitted relationship – if you find me a loan, I’ll pay you. The problem for both the broker and the borrower is that there is no commitment to the success of their collective efforts … efforts of convenience. For CRE, the complexity of loans, alternative types of loans, diversification of lender types, and inefficiency of pricing (historical data) makes assessing the market in current time a challenge. In the CRE lending arena, uncommitted efforts have been shown to have low probabilities of success. 

Seems like every borrower I’ve talked with has begun the conversation with the rate – what rate can I get?  As the loan progresses through underwriting, negotiation of terms and conditions, consideration of different types of loans (from different types of lenders), each rate offered is put into perspective. At decision time, more often than not the lowest rate is sacrificed for better terms and conditions. 

If you would like to consider a CRE mortgage loan broker, give us a call.