Commercial Mortgage Brokers; are They Worth the Points They Charge?

When a commercial real estate investor needs a mortgage he might be tempted to submit his application directly to a lender rather than pay a commercial mortgage broker to source the loan. The potential advantage of going direct is, of course, the borrower can avoid paying the broker a commission. But there are some good reasons to use a good broker.

Lenders Give Brokers Preferential Treatment

Established commercial mortgage finance professionals can easily receive 100 financing requests a month. While a single borrower might submit a few applications a year to any given lender, a single broker has the potential to submit several dozen applications in the same year. Lenders will give deference to powerful brokers because a good broker is a much better client to them than a good borrower is.

Brokers Know How to Package a Deal

Commercial mortgage brokers are professionals. They know exactly what lenders need to see in-order for them to make a decision. Lenders are busy; they don’t appreciate loan packages that have too much or too little information. The best brokers give lenders the right information in the right format. Successful brokers have experience writing executive summaries that get the attention of funding sources and they know how to present an application for the best chance of approval.

Brokers Know Who’s Closing Deals (And Who’s Not)

Keeping in mind that intermediaries, like brokers and agents, don’t get paid anything unless a loan closes, it follows that brokers monitor the various lending policies of banks and other institutions. They know which lenders are funding loans and which ones are not, and they won’t waste time submitting a deal to a lender they know won’t close it. Further they know the specific property type each lender prefers or specializes in. Brokers submit hotel loans to specialty hospitality lenders and apartment house loans to firms that are proficient in the multi-family niche. Many lenders won’t even consider gas stations or dry cleaners, some won’t do restaurant loans. Some lenders hate small balance loans other lenders love small loans. It really pays to know just where to apply, tremendous amounts of time, money and emotional energy can be saved.

 Brokers Vouch for the Borrower

It takes significant amounts of time for a loan agent to review a deal, collect information, prepare an application, submit the package to lenders and then do the necessary follow up. Busy commercial mortgage brokers simply don’t have time to accept and originate every loan request that comes across their desk. They understand that weak deals will be rejected and time spent on them will have been wasted. When a lender receives an application from a trusted broker they realize that the deal has already been scrutinized by a pro. When a good broker takes your loan to a bank he is, in effect, vouching for you, he’s already screened your credit worthiness and crunched the numbers. Lenders look at brokered loans as having the implied endorsement of the broker, if the broker is well respected that can be a powerful influence.

 Brokers Provide an Advisory Role

 Like any professional providing business services, a commercial mortgage broker wants repeat business and wants client referrals. They have every incentive to, not just find you a loan, but find you the best rates and terms from a lender that will treat you with respect. The best loan agents are really trusted advisors, advocating for you and advising you so you’ll get the best possible loan for your building or project. If they are successful and you become a satisfied customer, you are likely to return to them for your next loan or refer them to your friends.

Brokers Advocate for Their Clients

To be successful in the high stakes world of commercial real estate finance mortgage brokers do more than just submit loan applications, they sell deals to lenders. They emphasize a file’s strong points and downplay its weak points. They talk up the borrower and highlight past successes. They can give well reasoned, professional answers to the lenders objections. The broker sits on the same side of the table as the borrower and is an authoritative advocate for his client.

In Short; Commercial Mortgage Brokers can add Significant Value

The true professional in commercial real estate finance is an expert who has valuable relationship with quality funding sources that include banks, Wall Street investment houses, insurance companies and private lenders. They know the right place to send the loan. The broker speaks the same language as the lender and has a great depth of industry knowledge. Good brokers catch mistakes before lenders see them and clean up potential messes that could, otherwise, kill a loan. Billions of dollars worth of commercial real estate loans are brokered each year. Some of the most sophisticated investors and developers in the world routinely retain brokers to secure financing for them, even on deals measuring in the hundreds of millions. In simple terms; commercial mortgage brokers add value to a deal because they increase the chances of actually getting it closed. That’s worth a point or two.