Commercial Real Estate Brokers

You have decided to get a commercial real estate loan and you can’t decide how to get started. Should you go to your local bank, a nationally recognized bank or maybe an internet based Mortgage Company? Should I go to a direct lender or use a commercial real estate broker? It is important to know the difference between a direct lender and a mortgage broker.

First, let’s take a look at the characteristics of a direct lender. A direct lender, or bank, is the one who provides the money to the borrower. In exchange, the lender receives a note from the borrower as evidence of the borrower’s debt and obligation to repay the debt. The direct lender also gets a lien on the property. Each lending institution has its own specific loan programs and that is what they offer the investor. The person you, the investor, will deal with from the bank is called a “loan officer”. It is important to note that the loan officer is an employee of the bank. The loan officer is responsible for finding and selling to customers the loan programs of that specific bank. Loan officers usually take your application and they are almost always paid on commission from the loans they originate.

Commercial real estate brokers do not make loans. A mortgage broker is a service provider who offers the loan products of multiple lenders. A mortgage broker will counsel you on the loans available from a wide array of lending sources. They are responsible for just about every aspect of the loan process. They will compile and complete your application, order an appraisal and verify your employment. They will submit your application to one or several lenders based on your specific needs. And just like loan officers, commercial real estate brokers are typically paid commission when the loan is signed.

If you need a commercial real estate broker, the best way is for you to hire them as your exclusive representative. Most brokers have representation letters for you to sign and once they know you are committed to them, they will work hard for you. Many brokers will not do much more than a simple market survey for you without a signed letter. It is recommended that you sign a letter of representation. Once commercial real estate brokers have that letter from you, they know they are much more likely to get paid a commission and will work hard to complete the deal. It makes good business sense.

In the current economic lending climate, there is very little capital to be spread around. A few years ago, when lending was very open and available, a broker relationship was not critical. Over the years, good commercial real estate brokers have developed strong relationships with lenders. Now that lending is incredibly difficult, they have those referrals to buyers to help them finance their assets. Well-connected brokers can then contact various lenders they know to find acquisitions for buyers and make referrals. An experienced commercial real estate broker evaluates the deal and buyer, and from there he can sometimes make recommendations of lenders. Many times, they will make multiple recommendations and let the buyer contact the lenders and make up their own mind on which one to choose.

Unless you are an astute investor who is willing to contact hundreds of lenders and dedicate a lot of time to the task of evaluating different loan programs, you will do better dealing with a commercial real estate broker.