Closing small-balance commercial mortgages is a great way to expand your business and earn additional income, and setting your broker fee is an important part of the process. It’s important to understand how to go about setting the correct fee so that you can close plenty of commercial deals and earn a living.
Here’s what every small-balance commercial mortgage broker should be aware of:
Know your lender’s fee cap.
Before anything else, you should discuss the maximum fee you can charge per deal with each of the lenders you work with, including whether or not yield spread is available. Different lenders have different guidelines when it comes to broker fees, and it’s important to be aware of them before you submit a deal.
Understand the relevant factors of the deal.
Some deals are going to involve good borrowers with pristine commercial properties and great credit scores, and charging a high fee will mean losing business on this type of deal. However, other deals will be much more challenging to close, so a higher broker fee is acceptable. Your fee should reflect the difficulty of the loan scenario and the work you’re going to have to do to match the borrower with a commercial mortgage lender.
Know your competition.
It’s important to have an approximation of what other brokers in your industry are charging in order to stay relevant and competitive. You shouldn’t charge rock-bottom prices just to beat out other brokers, but you also need to make sure you’re not overcharging your borrowers.
Keep your client in mind.
At the end of the day, knowing your client’s situation is a crucial factor in setting your fee. If you have a great deal and the only thing keeping a borrower from doing business with you is your fee, consider reducing it slightly. However, it’s also important to know when to walk away from a borrower who isn’t interested in paying you for the true value of your effort.
At the end of the day, closing small-balance commercial mortgages is a business, and brokers need to make money. It’s important, though, to understand the factors that determine a reasonable broker fee. Taking into account your lender’s fee cap, the deal itself, your competition and your borrower will allow you to set the right fee for each deal.