Property Development Finance - Is A Broker Really Necessary? By Chris Clarke At Isnare.com Ezine Articles

Anybody looking for property development funding is quite at liberty to negotiate directly with any lender they choose. Although there are a few lenders who will only deal with applications through brokers, there probably are not enough to make a huge difference.

To be realistic however, it is worth questioning whether most borrowers have the time to keep abreast of all the regulations, changes, offers, restrictions and opportunities that inhabit the world of property finance.

Building up a network of property development lenders and contacts is a full time job for a broker and not many developers, builders or business people have time to keep their finger on the pulse of this ever changing market place. It is likely that anybody not making use of the services of a commercial finance broker is quite likely to be depriving themselves of a significant advantage
But perhaps the real issue is the question of broker fees. A broker has specialist knowledge, experience and contacts for your benefit and if you could access these without having to pay a fee you probably would not hesitate. Maybe the real question is “Do I have to pay a broker fee?”

Well, take a moment to consider how a broker gets paid. A broker is usually paid a procreation fee (proc fee) by the lending company supplying the funds for the project. This fee would probably be sufficient to cover costs in most cases. However there are times when negotiations become excessively complex and time consuming that it becomes necessary to charge a separate fee. As with any business, the decision on whether or not to try to charge a fee rests with the broker, and will be dictated by their overheads and desired profit margins.

A broker’s experience enables them to know where a particular project will 'fit', and may also help them to find a solution that is better than the 'obvious' one the client was expecting. There have been plenty of instances where a broker is able to put together a cheaper deal than the client could have, thus saving money even if a fee was charged.

The broker's avowed aims should be always to provide the borrower/client with the deal best suited to his circumstances and requirements. This may not indeed be the cheapest headline rate, but rather a more appropriate deal for their circumstances. Another serious issue is managing a client’s expectations. In other words the client may not appreciate how much difference it can make to a deal if there are past credit problems, arrears or a lack of experience.

So the value of paying a broker fee has to be carefully assessed. Whether one is charged or not it is vital to clarify early on just how much the fee is going to be. Fees can be a fixed rate, a percentage or a variable fee according to time spent etc.

To summarise, although it is entirely the borrower's prerogative as to whether or not to use a broker, not to do so could well limit the choices of funding available and even the quality of the deal that is struck. However, if a broker is appointed it is essential to the client/broker relationship that terms are established at the outset and any agreement about fees is totally transparent. If negotiations become difficult or prolonged and the broker feels the need to charge a fee the client should always be clearly advised beforehand of the broker's intention.

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