One of the first things a new commercial real estate loan broker learns is that daisychains seldom close. A daisychain, in the language of commercial real estate loans, is when one mortgage broker takes a commercial real estate loan to another mortgage broker, who will sometimes take the loan to another mortgage broker, and so on.
Sometimes the deal will finally arrive at the right lender, but by then so many brokerage fees will be packed onto the deal that the borrower will refuse to accept the commercial real estate loan offered by the bank. Broker A wants a one point fee, Broker B wants two points, and Broker C wants three points. When added to the one-point loan fee charged by the bank, the borrower is looking at a total loan fee of seven points on an "A" quality deal!
As a result, many banks and other commercial real estate lenders will limit brokers to one or two points on deals of less than than $1 million and to just one point on deals over $1 million.
But wait a minute? Why should that stupid 'ole bank care how much the mortgage broker is charging? It's none of their business, right? Isn't the bank interfering with the contract between the mortgage broker and his client?
The reason why a great many, if not most, banks will limit the size of the fee charged by a commercial real estate loan broker is because it takes a ton of work to process a commercial real estate loan. No bank wants to devote 30 working hours on a commercial real estate loan application, only to have the deal blow up at the last minute because some rookie mortgage broker(s) packed the deal.
So what is a reasonable mortgage brokerage commission on a commercial real estate loan? On deals of less than $500,000 a mortgage brokerage fee of two or three points is reasonable, if the borrower will pay it. One and a half to two points on deals between $500,000 and $1 million is fair. One point is the customary fee for commercial real estate loan brokers on deals from $1 million to $10 million, and a half-point to three-quarters of a point is customary on commercial deals larger than ten million dollars.
If you are a new mortgage broker working on a very large commercial real estate loan, and you need to bring in a more experienced mortgage broker to help you place the deal, you would be wise to agree with the other broker in the daisychain to just split a one-point loan fee between the two of you.
However, you can easily place almost any commercial real estate loan, regardless of size, with a direct lender using C-Loans.com.
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