Fees – Are brokers worth the money?

Mark Jones from Omega Commercial Solutions speaks to BA about fees. 

One area I am sure is commonly queried with all commercial mortgage brokers is that of fees; why the client pays them at all, whether we are happy for these to be disclosed by a lender, when they are payable, whether they can be reduced, how much is shared with an introducer…I won’t list them all as we’ll be here until Christmas but will look at some of these queries on an individual basis:

Justifying a Fee in the first place

The commodity we provide as a company is Service. The client is paying for our expertise and knowledge to find and where possible negotiate to get them the best deal we can to meet their requirements. Sometimes this can mean the difference between finding a funding solution or not, and in other cases can come down to pricing or gearing. The key here to justifying broker fees is adding value.

We recently completed on a facility where the client had been offered funding by their existing bank, however the offer was for 70% rather than the required 80%. Broadly all mainstream lenders’ policy dictated 70% as the maximum available in this business sector, however armed with the business plan and forecast, we were able to persuade the Lender to go outside of policy based on the strength of the Client and meet the 80% requirement.
Additionally we were also able to secure a lower margin for the client than they had agreed independently, a difference of 3% per annum on a 25-year term, meaning that the Fee payable to us was covered multiple times within the first year alone.

Fee Disclosure – we have always thought it of the upmost importance that clients are aware from the outset of fees they are likely to pay, consequently our fees are brightly highlighted in our agreement to ensure full clarity in both the level of fees and when they become payable.
Until we have sight and/or knowledge of all necessary information it is not always 100% possible to guarantee the lender best placed to meet the client’s requirements, and therefore we cannot always confirm at the outset the exact level of procuration fee we stand to receive on a case. We have however always been an advocate of full transparency and are therefore happy for this to be disclosed.

As already stated, the key, whenever fees are discussed is to ensure that you deliver a service which warrants your fees, and that whether you are a broker operating individually or part of a larger company, you add value to that application. This doesn’t just apply from the Client’s perspective; whilst we work on behalf of the client, it is important to ensure that client and Lender time is not wasted by brokers submitting applications which contain only half the necessary information or even to a lender who is not appropriate to that deal. The goal for any broker, which we are told is true of Omega, that lenders know when they receive a deal from us it has already gone through the first stage of underwriting (i.e. the broker) will meet their lending criteria and hasn’t also been submitted to another three lenders.

One further thing it is important to remember is that the service doesn’t end at application – as everyone knows, the minefield of obstacles which can prevent a deal from completing needs to be carefully navigated, and we need to ensure we work with clients and lenders to overcome these obstacles.

I guess the long answer to the question raised is, we need to make sure that the service we offer warrants and justifies fees charged, including both the terms provided to clients and also the quality of that service in securing funding.

The short answer – yes, the good ones are worth it.

 

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