How To Negotiate A Commercial Mortgage Broker's Commission
Real estate that is used for business purposes can be purchased by availing a commercial mortgage loan. The borrower uses the services of a broker who strives to find a suitable commercial mortgage loan program for the former. However, inexperienced brokers, who are not equipped with a commercial broker fee agreement, may find themselves in the situation of having to sue the borrower for unpaid brokerage. This may happen due to a number of reasons. For instance, the borrower may try and shop around for other commercial mortgage brokers are forced to have a commercial broker fee agreement is because most lenders (read small banks) are not broker friendly. They rarely pay a referral fee to the broker and expect the latter to earn a fee outside of escrow.
Commercial Mortgage Broker Fee Agreement
A commercial broker fee agreement contains details regarding proposed financing, compensation that is due to the broker and the fee charged by the lender. It also contains the non-circumvention clause that prevents the borrower from circumventing the broker and applying directly to the lender who has accepted the broker's loan application for the same. Provision for the arbitration of disputes and other borrower covenants constitute an important part of the commercial broker fee agreement. The borrower is informed of the broker's limitation with respect to procuring a credit history, marketability of the mortgage title and the authenticity of the documents handed over to the broker by the borrower. The broker is entitled to verify the borrower's credit score, credit history, business income, assets and other documents as deemed necessary.
The commercial mortgage broker fee agreement outlines the compensation, that is due to the broker, for helping the borrower procure a commercial mortgage loan for the property under consideration. The broker is entitled to a processing fee that is non-refundable, irrespective of whether the proposed transaction is completed. The fee is payable to the broker once the lender agrees to finance the property in accordance with the terms laid down by the borrower.
The broker is also entitled to a commission, that is calculated as a percentage of the commercial mortgage lending.
Although, the broker is allowed to work with other co-brokers and share the commission as deemed appropriate, the borrower cannot evade brokerage by working with a co-broker or with the lender who has accepted the broker's loan application. The borrower is not allowed to fill out another loan application or withdraw the original loan application without prior consent of the broker for a period of 36 months from the date of the agreement. Else, the broker is entitled to the full amount of commission regardless of whether the borrower actually procures the loan.
It is evident that a commercial broker fee agreement needs to be detailed and plug all the loopholes that may allow the borrower to evade brokerage. It would be prudent to consult an attorney who is knowledgeable about commercial mortgage transactions for further details.