Paying Up Front Fees To Secure Financing
Should you pay upfront fees to secure financing for you real estate project? It is the 64 million dollar question. For developers it is hard to pay upfront not knowing if the broker will succeed in securing the financing. For the brokers it is often the only way that they can cover their overhead expenses. With ten deals a day to review but only 1 out of 100 getting all the way to financing it is important to have a regular income stream to cover the cost of deal analysis. So when should a developer agree to pay up-front application fees?
Here are 7 things to watch out for with up front fees:
- Is the fee a reasonable amount to allow the source to compete their due diligence or is it large enough that the broker can walk away satisfied even if the deal does not get funded?
- Can the fees be staged over a series of milestones – upon application, following site inspection, upon delivery of the lender term sheet?
- Following the signing of a NDA, will the broker disclose the name of the lender to allow the sponsor to do their own due-diligence before accepting the fee structure and loan proposal?
- Will the lenders accept the current appraisals or are they requesting that everything be redone?
- Has the broker got a solid track record that can be verified through references?
- Has the broker successfully funded deals over the prior 6 months to your request?
- Is there a clause that says that some of the fees are refundable if the term sheet is substantially different from the LOI?
If the answer to the above questions is yes then you may want to consider paying the fee if the lender has offered you a LOI that makes sense to your business model.
Good luck and good investing – The Equity Finder
Equity Interface is an online real estate investment service designed to connect developers and accredited investors. By offering unparalleled research tools and information, Equity Interface empowers members to discover mutually beneficial real estate opportunities. For more information, please visit www.equityinterface.com
I don’t mind paying an upfront fee if needed, but the trouble for me is finding the reputable lender in the first place. Do you have access to such sources???
Yes we have worked with reputable brokers who have long track records and have references to qualify their services.
Call us on 800-899-2877 for more information.