When to Ask Your Commercial Borrower to Sign Your Fee Agreement

Most experienced commercial mortgage brokers would agree that you should always get a signed fee agreement with your commercial borrower.  But when do you ask him to sign it?

If the client is new and you ask him to sign a fee agreement right away, he’ll probably refuse.  Commercial borrowers want the freedom to keep shopping for a better deal, and unfortunately there’s a competing commercial mortgage broker on every corner.  If you try to force him to sign a fee agreement right out of the starting gate, your commercial borrower will probably just walk down the street to another broker.

Instead, you should just be patient.  Convince your commercial borrower to send you his package.  It’s often true that the first broker to get the borrower’s tax returns usually wins the deal.  These tax returns are usually too thick to easily make multiple copies.

Once you have the borrower’s loan package, you should prepare a mini-package for prospective commercial lenders.  We’re not talking about a lot of work here – just an Executive Loan Summary, some pictures, the pro forma operating statement, a lease schedule and a few years’ historical operating statements.  You should be able to whip this up in less than an hour.

Armed with your mini-package, your various commercial lenders should be able to issue a verbal proposal.  Be sure to tell your lender not to start work on a written term sheet until the borrower agrees to his terms by signing your fee agreement.  Then take the best loan proposal and present it to your commercial borrower.

If he wants to proceed, it is now time to explain to him that he must first sign your fee agreement.  If he refuses to sign it, you’re done.  You’ve only lost about an hour on the phone and an hour preparing your mini-package.  Just move on to your next deal.

Most commercial borrowers at this point, however, are anxious to move forward on their loan.  They’ve invested a lot of time with you fetching various documents, and they certainly don’t want to start the whole process all over again.  Therefore most commercial borrowers at this point will readily sign your fee agreement.

Once it is signed, you can then ask your lender to prepare a written term sheet.  Your lender will appreciate knowing that the borrower has just signed your fee agreement – an agreement that described the bank’s loan terms – so your lender is not wasting his time.

No matter what, however, always get a signed fee agreement.  Just about every experienced commercial mortgage broker can tell you a horror story about the time he failed to get a signed agreement. Ouch.