Commercial mortgage brokers are constantly asking themselves if they should ask their clients for an exclusive relationship or go the "easier route" and secure a non exclusive fee agreement.
What's the difference? What's the pros and con's of both? That's the point of this brief article.
An exclusive relationship within the commercial mortgage field can be thought of as a listing agreement within the real estate brokerage side of the business.
Or more specifically the exclusive agreement should be thought of as a tenant representation agreement for those that are familiar with that agreement.
Essentially the exclusive agreement states that the borrower agrees to work with the mortgage broker on an exclusive basis with shopping for lenders, negotiating term sheets and coordinating the processing and closing of the loan (among other legal issues I'm not qualified to discuss).
The commercial mortgage broker is handling the whole transaction on behalf of the borrower and typically is looking out for the borrower interests.
A non exclusive agreement still covers a lot of the same issues but gives the borrower the right to work with other lenders/ brokers.
So there's no guarantee that you'll win the deal and or get paid.
The main advantage for the commercial mortgage broker to get an exclusive is that the borrower has committed to working with the broker, and at the end of the deal the broker will get paid.
For those reading this article that have worked on deals for months with borrowers and to find out they lost it because of 10 basis points or slightly lower fees know how bad this can sting.
Most exclusive fee agreements cover a lot more than the exclusivity issue; retainers, expenses covered, minimum fees are some of the more important issues.
For example having a borrower send you a thousand dollar retainer and a signed exclusive agreement says a lot; that he's on board and going to work with you.
There are disadvantages though of going for an exclusive agreement.
The obvious is that many borrowers simply will not want to sign off on this.
It can be a hard sell.
They'll want you to "get them quotes" or "see what you can offer" first.
Basically the borrower will want to keep total control and will only want to work with you if you can produce the best deal.
So you stand to lose working on the deal if they don't agree.
You may know that perfect bank for the deal and or just want to work on it with the hopes of building a solid relationship along the way.
Also, YOU may not want to work on the deal on an exclusive basis.
Believe me when I tell you that if your borrower agrees to a 5 page agreement and sends you a $1000 retainer, that they will want to get their money's worth and are not going away.
If they deal is weak and you find you can't get it done, you'll have to invest a lot more time into the deal than wanted and or break off the relationship and risk tarnishing your reputation.
So, unfortunately there's no simple answer if you should go for an exclusive commercial mortgage broker fee agreement or not.
But you should get you borrower to sign something that says you're working with him and that you'll get paid at close.
What's the difference? What's the pros and con's of both? That's the point of this brief article.
An exclusive relationship within the commercial mortgage field can be thought of as a listing agreement within the real estate brokerage side of the business.
Or more specifically the exclusive agreement should be thought of as a tenant representation agreement for those that are familiar with that agreement.
Essentially the exclusive agreement states that the borrower agrees to work with the mortgage broker on an exclusive basis with shopping for lenders, negotiating term sheets and coordinating the processing and closing of the loan (among other legal issues I'm not qualified to discuss).
The commercial mortgage broker is handling the whole transaction on behalf of the borrower and typically is looking out for the borrower interests.
A non exclusive agreement still covers a lot of the same issues but gives the borrower the right to work with other lenders/ brokers.
So there's no guarantee that you'll win the deal and or get paid.
The main advantage for the commercial mortgage broker to get an exclusive is that the borrower has committed to working with the broker, and at the end of the deal the broker will get paid.
For those reading this article that have worked on deals for months with borrowers and to find out they lost it because of 10 basis points or slightly lower fees know how bad this can sting.
Most exclusive fee agreements cover a lot more than the exclusivity issue; retainers, expenses covered, minimum fees are some of the more important issues.
For example having a borrower send you a thousand dollar retainer and a signed exclusive agreement says a lot; that he's on board and going to work with you.
There are disadvantages though of going for an exclusive agreement.
The obvious is that many borrowers simply will not want to sign off on this.
It can be a hard sell.
They'll want you to "get them quotes" or "see what you can offer" first.
Basically the borrower will want to keep total control and will only want to work with you if you can produce the best deal.
So you stand to lose working on the deal if they don't agree.
You may know that perfect bank for the deal and or just want to work on it with the hopes of building a solid relationship along the way.
Also, YOU may not want to work on the deal on an exclusive basis.
Believe me when I tell you that if your borrower agrees to a 5 page agreement and sends you a $1000 retainer, that they will want to get their money's worth and are not going away.
If they deal is weak and you find you can't get it done, you'll have to invest a lot more time into the deal than wanted and or break off the relationship and risk tarnishing your reputation.
So, unfortunately there's no simple answer if you should go for an exclusive commercial mortgage broker fee agreement or not.
But you should get you borrower to sign something that says you're working with him and that you'll get paid at close.