Commercial Mortgage Commission Agreement - Timing

When is the best time to ask your borrower to sign your commercial mortgage fee agreement?  There is some debate over this.    Though, all seem to agree that it should be before the borrower sees a  term sheets that you have collected.  This may seem a small detail, it’s one of those little ones that can have a big impact on your wallet.

If you’ve ever heard a borrower say, after reviewing a LOI you delivered, “oh, I know this Bank.  I’ve talked to them in the past.  Well, why do I need you?”  than you know what I’m talking about.  If you haven’t, than keep brokering commercial loans and you will. 

Some brokers advocate getting a commercial broker fee agreement signed while they are collecting documentation.  Others recommend getting the borrower moving first, start reviewing and qualifying the proposed deal, than when they are confident there is something to work on, asking for an agreement then.  Other will take it a step further, and only ask for the agreement to be signed  when they have been issued an LOI from a lender/bank.    

Which is best?  I don’t know and I guess it depends on the deal, the borrower and your style.  

Some commercial mortgage brokers act as a combination of a broker and an hourly consultant.  This is more of a traditional approach and will require additional steps and a more thorough sales process to get borrowers to agree.  Often commercial brokers that conduct business this way will only work on an exclusive basis and essentially demand that they will organize and conduct the whole shopping process and no matter what, will get paid.  This strategy does have its draw backs though, like being “stuck” on working on deals that turn out to have little chance of funding.  And, it can be a very difficult arrangement to sell to the borrower to give up that much control. 

The other strategies are really about getting the borrower “pregnant” first, i.e. getting them involved than “slipping” the agreement in at the appropriate time.  There’s some disagreement on the appropriate time within this as well.  For instance, do you present both the Letter of Intent from the lender and your fee agreement at the same time, i.e. present the overall deal at the same time?  Others would say that you are putting yourself in a vulnerable position and that you should get the borrower to agree to the fee agreement first, than after signature, present the LOI.  This strategy would probably be more fitting if there is a general state of distrust or just a beginning relationship.