In our last lesson, I told you to always get a signed fee agreement from your commercial mortgage borrower.
However, if you demand that your borrower sign your fee agreement at the very start of the application process, it is very likely that you will scare him away into the arms of one of your commercial mortgage brokerage competitors.
So how do you get your commercial mortgage borrower to sign your fee agreement?
The secret is to make your commercial mortgage borrower fetch you a lot of documents and to do a lot of work. Then, before you personally do a lot of work on the loan, you ask him to sign your fee agreement. At that point the borrower will be tired and reluctant to start the exhaustive process all over again with a competing broker or lender. He’ll sign your agreement.
For example, the processing of a commercial mortgage loan might go as follows. Please be sure to note that I usually don’t ask for the borrower to sign a fee agreement until day ten, after he has gathered more than 50 pages of documents.
- Day One: Ask for a Rent Roll / Schedule of Leases and last year’s Actual Operating Expenses. When they arrive, you should quickly scratch out a pro forma operating statement on a yellow legal pad and make sure the deal cash flows. Call the borrower and give him the encouraging news that his loan looks good.
- Day Two: Ask for color pictures of the property. When they arrive, glance at them quickly and then do some demographic research to make sure the property is not located in some ghetto. Assuming the area is okay, call the borrower with the encouraging news that his loan looks good.
- Day Three: Ask for an old financial statement and two years’ tax returns. Glance at the them quickly to make sure the borrower is making a little dough and that his net worth is at least as large as the loan amount. Call the borrower and give him the encouraging news that his loan looks good.
- Day Four: Ask for copies of all of the Leases.
- Day Seven: Ask for a financial statement and two years’ tax returns on the LLC that holds title to the property.
- Day Ten: Before you do any serious work on the file, tell your borrower that you are ready to submit his loan to your investor, but first you need him to first sign your “application.” When the application arrives, he discovers for the first time that you are actually asking him to sign your simple fee agreement. At that point in time, he certainly doesn’t want to start all over. In most cases, the borrower will sign. If he won’t sign, move on to your next deal. Please note that you personally have done very little work, other than to label a file folder, fill it with his documents, and scratch out a pro forma operating statement. It’s the borrower who has done all of the work.
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