Commercial Loans and Fun Blog

Reasonable Loan Fees in Commercial Mortgage Brokerage

Posted by George Blackburne on Thu, Apr 11, 2013

New commercial mortgage brokers often ask me, "George, what loan brokerage commission should I charge my commercial mortgage borrowers?"

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It's not fair for a commercial mortgage borrower or some court to say, "A reasonable fee is a commission equal to roughly $150 to $200 per hour times the number of working hours that the commercial loan is likely to take to close."  The reason why is because the closing rate for commercial real estate loans is far less than one in five.  For newer commercial loan brokers, the closing rate could be less than one in twenty.

A commercial mortgage broker has to make enough dough of the ocassional deal that closes to make up for the dozens of deals that don't close.   There is no law that says a real estate broker selling commercial property has to charge a 6% commission.  The reality is that every realty brokerage firm that tries to charge less than 6% goes out of business.

Commercial borrowers might argue, "The typical fee charged by commercial mortgage brokers is one point."  My response to that argument is this, "The typical commercial mortgage brokerage company fails within three years."  If there are 50 commercial mortgage brokerage companies on my mailing list in year one, by year three that list is usually down to just ten to twelve surviving brokers."

Nevertheless, here is my opinion of the market:

Loans under $500,000:  Bankable deals - 1 to 2 points, depending on the loan size.  Subprime deals - 2 to 3 points.

Loans from $501,000 to $1 million:  Bankable deals - 1 to 1.5 points, depending on the loan size.  Subprime deals - 2 points.

Loans from $1 million to $4.99 million:  Bankable deals - 1 point.  Subprime deals - 1 to 2 points.

Loans over $5 million:  Bankable deals - 0.50 to 1 point.  Subprime deals:  1 point

Construction loans are very difficult to close because 99% of developers who seek out a commercial mortgage broker for a construction loan do not have enough equity in the deal.  At a minimum, a broker should charge one extra point on construction loans.

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Topics: commercial loan fees