This article, written by a commercial mortgage broker, describes his standards for choosing the clients he wants to work with. It offers potential commercial borrowers some insight into how to relate to mortgage brokers.
Mortgage Brokers – The Difference between Mediocrity and Excellence
By Jeff Rauth
Of course there’s a lot that goes into being a successful commercial mortgage broker like marketing, contacts, sales skills, technical knowledge of the industry, market knowledge, bank contacts, proper administration set up, etc so I’m not trying to over simplify the issue; but in general why are there commercial mortgage brokers that make seven figures incomes and many that can’t break $100,000 per year?
The most important component to this, I believe, is the quality of the deals that the commercial
mortgage broker DECIDES to work on. For many this may seem a little contrary to their fundamental “sales” outlook that operate under a more reactive basis and work on any or all loans that cross their desk. Perhaps they’re not that busy and work on weaker loan requests. But successful commercial mortgage brokers are empowered.
Excellent commercial mortgage brokers are extremely careful and selective on which borrowers and which deals they will work on. If they don’t like the deal they won’t work on it. If they don’t think they will get multiple transaction out of the borrower they’ll be less interested in working with that borrower. If they feel a borrower is just shopping them they walk or convince the borrower to take them seriously. Again, for whatever reason, they will pass on the loan request and invest their time into deals that are not only doable but will serve their long term goals.
One component to this is being excellent at screening loan requests. What’s happening here is the commercial mortgage broker is trying to determine, before they put a lot of time into the deal, if they can close it and how competitive they will be with their existing contacts. Think of it like trying to predict the future. Of course if the commercial mortgage broker doesn’t think they can close it, or won’t be that competitive, they won’t work on it. Again this is all about protecting their time. Is it a fundable deal? They know, without having to put weeks into shopping banks, where to place the loan. They determine within a half hour if they like the deal or to walk from it. They know how to review borrower’s tax returns and financials as this is what underwriting is going to look at when they consider the loan request. Questions like: What’s the Net Operating Income? Can we hit the required Debt Coverage Ratio’s? How are the business trends, etc? Have to be answered satisfactorily. We see many newer commercial mortgage brokers that submit loan requests that have no chance of closing because the cash flow is underwater. If the broker knew how to review tax returns they wouldn’t have bothered to work on the file from the beginning! (We wrote a training manual on how to prescreen
commercial mortgages, available on our website)
Can I get multiple deals from this borrower and are the loans fat? The ideal client is one that
purchases or refinances multiple loan per year and will have some loyalty. Will they sign my exclusive broker fee agreement? Rather than spending your time prospecting, you’re submitting packages and negotiating deals. Rather than sending mailers to commercial real estate brokers, you’re reviewing term sheets and scheduling closings.
Again there’s a lot that goes into being an excellent commercial mortgage broker but one of the biggest factors is how the broker chooses to spend his time and which deals he chooses to work on, or to run from.
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