Broker Fee Agreement?

Q: At what time in the transaction do I use it, and Why?

Over the last 2 weeks this has been an ongoing question from other brokers, or I have heard the horror stories of the fee agreement not being put in place. As the market in Commercial continues to grow and Brokers looking to expand their financing repertoire. They find themselves dealing more and more with savvy clients, and other brokers. Which a lot of times is a far cry from the residential world. With the Respa laws not in effect, and the Commercial learning curve so great Brokers are getting burnt on deals left and right. You must learn to protect yourself. But how, and at which Point?

One Common mistake of the Fee Agreement is discussing this to early in a transaction. If you have not given a borrower a Term Sheet/LOI then you are doing this step prematurely, especially if you have not collected all needed docs to run a true analysis of the deal. You will typically shoot yourself in the foot and take the borrower or brokers mind off of the loan and more on the fees of the loan. At the end of the day your competition now has leverage because you have the client focused on fees not the true #1 issue the actual loan. As the borrower talks to potential brokers/Lenders their first question is “what fee do you charge?” AVOID THIS MISTAKE and give the fee sheet at the opportune time.

TIMING IS EVERY THING: When a Lender gets you back a term sheet you need to copy down the important data. Rates, terms, features, address, loan amount and monthly payment to name a few. In this sort of list or table you will also have Lender Fees if any and your fees. Just like a GFE your fees are not singled out or become the object of the loan. Commercial Borrowers know they have to pay for service. You just have to approach them at the right time for this part of the transaction. You should have a blank Fee Agreement ready where you just fill in specifics of the loan. Once your Fee Agreement/Term Sheet is signed you immediately give them the Lenders copy and have that executed as well. You present the Lender back their form and many times they will ask for yours as well upon acceptance of the LOI/Term Sheet.

If you do not use a Fee Agreement or work with a broker that is, you have no insurance or contract for service to protect you. The borrower can continue their loan with the Lender at the Lender can be promising to pay you this or that. But once that loan closes the call backs may stop from your borrower. Or because you did not hammer out your worth when presenting the loan, the borrower pays you what can be negotiated after the fact, the moment, and climax of the loan. The newness, and your hard work has worn off in their minds.

Once this fee agreement is signed you are protected along with your NCND and should feel quite confident in scrutinizing your fee and the loan.

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