A commercial mortgage broker gets paid the fee set in a signed agreement, owed when the event that agreement names occurs, such as the loan funding or a lender's commitment. The agreement also states how the fee is calculated and who pays it (you, the lender or both). Northern Ridge Capital, for example, is paid a 1% origination fee at closing. Sign the agreement before the broker sends your file to any lender, so nothing about the fee gets decided after lenders have seen your deal.
Key points
- Read what earns the fee before the percentage. A fee earned at funding means no broker fee is owed if the loan never closes; a separate retainer or third-party deposits are another matter. One earned at commitment can come due even if the loan never closes.
- The federal broker-pay rules written for home loans cover consumer loans secured by a dwelling. Those limits don't apply to business-purpose credit, so your contract and state law set the terms.
- Hypothetical example: on interest-only debt held for five years, a 1% fee you pay is covered by interest savings alone only if the brokered rate is at least 0.20 percentage points below your best direct quote, undiscounted and before tax, all else equal.
When does a commercial mortgage broker get paid?
When the event named in the fee agreement happens, and the agreement can set when the fee is earned apart from when it is due. If the agreement makes the fee both earned and payable when the loan funds, you pay it at closing, and a loan that dies in underwriting owes no broker fee. A retainer or expense reimbursement you agreed to separately may still be payable. If the fee is earned when a lender issues a commitment on the terms you asked for, you can owe it even if you walk away before closing. Accept that version only with your required terms (loan amount, rate ceiling, term, recourse) written into the agreement.
Florida, for one, restricts money a loan broker takes before closing. Florida's loan broker law says no loan broker shall "assess or collect an advance fee from a borrower to provide services as a loan broker," and an advance fee there means consideration assessed or collected "prior to the closing of a loan." That law excludes mortgage brokers, real estate brokers, attorneys and others only where the person is "licensed by and subject to regulation or supervision of any agency of the United States or this state" and acting within that license, so whether it covers a given broker depends on how the broker is licensed.
If a broker asks for a retainer, get in writing whether it is credited against the fee at closing and refunded if no loan closes on your terms. Deposits for an appraisal, environmental report or lender's counsel pay for third-party work, not the broker. For each, ask who collects it, who receives it, and what happens to any unused amount.
Who pays a commercial mortgage broker, you or the lender?
Either one can. Our guide to how a commercial mortgage broker works notes that on some deals the fee is paid by the lender rather than the borrower.
| Who pays | Where you should see it | What to ask in writing |
|---|---|---|
| You | A broker fee line on the closing statement, paid from loan proceeds or your own cash | Is this your only pay on this loan? |
| The lender | A separate line or lender document, if it is disclosed at all | How much is the lender paying you, in dollars, and would its quote change without that payment? |
| Both | Part on the closing statement, part from the lender | What is your total pay from all sources? |
Do federal mortgage broker pay rules apply to a commercial loan?
The federal limits on broker pay written for home loans don't. The home-loan limits on a broker being paid by both borrower and lender, or being paid more for a higher rate, sit in Regulation Z's loan originator compensation section. That section applies to "closed-end consumer credit transactions secured by a dwelling." Because Regulation Z exempts "an extension of credit primarily for a business, commercial or agricultural purpose," those compensation limits don't reach a business-purpose loan. Regulation X, the federal settlement-procedures rule that bans kickbacks and unearned fees, exempts business-purpose loans using that same definition, so that ban doesn't reach a business-purpose loan either.
The exemption turns on the purpose of the credit. If you live in part of the property or borrow partly for personal reasons, have your attorney confirm the loan is business-purpose.
Licensing is set state by state, and requirements differ. Arizona, for example, says a "person who brokers only commercial mortgage loans shall obtain either a mortgage broker license or a commercial mortgage broker license." Ask whether the state where your property sits requires a broker license. If it does, ask for the license number and check it on that state regulator's website.
What should a commercial mortgage broker fee agreement say?
Check these six terms before you look at the percentage:
- The base. Ask for the agreement to state that the percentage applies to the loan amount that funds, not the amount requested.
- The trigger. State whether the fee is earned at funding or at commitment, and the date it must be paid. If at commitment, write in your required terms and the amount the fee is calculated on if the loan never funds or funds at a different amount.
- Total pay. State that the agreed fee is the broker's only pay on the loan, or list any lender-paid amount in dollars.
- Money before closing. List any retainer and state whether it is credited at closing and whether it is refundable.
- Exclusivity and tail. How long the broker holds the exclusive right to place the loan, how either side ends it, and how long afterward a fee is still owed if you close with a lender it introduced. Attach the list of lenders that saw your file so the tail covers named lenders only.
- Carve-outs. Your current lender, and any lender you were already talking to, named and either excluded or included at a fee you agree to.
Is a 1% commercial mortgage broker fee worth it?
Measure it against what the broker's quote saves over the years you expect to keep the loan. For interest-only debt with the same amount and terms on both quotes, the break-even rate gap (percentage points a year) equals the fee as a percent of the loan, divided by those years.
Hypothetical example, with round illustrative figures that are not market data: you refinance into a $12,000,000 interest-only loan and expect to hold it five years. Both quotes are identical except the rate (same $12,000,000 funded, interest-only, same lender fees and charges), and the rate gap lasts all five years. You pay the broker a 1% fee, which is $120,000. Taken from loan proceeds, it leaves $11,880,000 before the old payoff, lender fees and reserves. Paid in cash, proceeds stay whole and the $120,000 comes from your account. Either way you pay interest on the full $12,000,000.
- Break-even gap: 1% divided by five years is 0.20 percentage points a year.
- At exactly that gap: you save $24,000 a year, or $120,000 over five years.
- At a 0.25-point gap: you save $30,000 a year and break even at the end of year four.
- If you exit early: sell or refinance after three years at a 0.20-point gap and you've saved $72,000 against a $120,000 fee.
To decide, total the interest savings over the years you expect to hold the loan and compare that total with the fee you pay. Then weigh any differences between the two quotes in proceeds, recourse and prepayment costs, since a quote can win on those rather than on rate.
These figures are before tax and undiscounted; discounting the savings pushes break-even later. If either loan amortizes, compare the actual payment schedules and prepayment costs. Our post on a commercial mortgage broker vs a direct lender covers when each route fits a bridge loan.
How does Northern Ridge Capital get paid?
Northern Ridge Capital is a broker, not a lender. It places commercial real estate loans of $5 million to $30 million with third-party lenders and is paid a 1% origination fee at closing. To prepare your loan for lender review, gather the documents in our checklist of commercial property loan requirements. An early quote from a lender is indicative only. Approval comes after the lender underwrites those documents, and the terms can change in that process.
FAQ
Does a commercial mortgage broker get paid if the loan doesn't close?
Not if the agreement makes the fee earned and payable only when the loan funds, unless the agreement adds a nonrefundable retainer or makes the fee due when you turn down a commitment that met your stated terms. Appraisal and other third-party costs may still be yours.
Can a commercial mortgage broker be paid by both the borrower and the lender?
The federal limit on dual pay covers consumer loans secured by a dwelling, not business-purpose loans. On a commercial loan, your agreement and state law decide it, so use the questions in the table above.
Is the broker's fee the same as the lender's origination fee?
No. The lender's fee goes to the lender, the broker's to the broker, and both can appear on one closing statement. Northern Ridge Capital calls its own fee an origination fee, so check that each line names who is paid.
Is a commercial mortgage broker fee negotiable?
As general guidance for any broker's agreement, the terms to raise before you sign are the base the fee applies to (ask for the funded amount), the trigger, the length of the tail and the carve-outs. Northern Ridge Capital's own fee is a stated 1% origination fee at closing.