Beware of Broker Chains and Joker Brokers
Beware of broker chains and excessive broker fees. A “good” loan broker can get your loan funded quickly. (A broker is someone that takes your loan directly to the lender to get funded). A “good” loan broker is worth its weight in gold!
Any fee you pay to a “good” loan broker is money well spent. And why? Why not go directly to the lender? A good loan broker knows all the “real” lenders because the good broker has worked with all of the real lenders before. A good broker is going to submit your loan to multiple lenders simultaneously. And what does that do? That increases the chances that your loan is going to get funded!
Now what is a “bad” broker that you want to stay away from, and why are they bad? Let me tell you more. A “bad” broker, I like to call them “Joker Brokers.” A bad broker doesn’t know who the “real” lenders are. A bad broker is going to just take you to another broker, and then that broker is going to take you to another broker, and then that broker may or may not be connected to a “real” lender. So, before too long, that bad broker is going to get you involved in what’s called a “broker chain.”
Now what is a broker chain? You may or may not have heard this term before, but it’s exactly what I just described. You go to a bad broker and this broker doesn’t know who the real lenders are. They haven’t closed loans with any real lenders. They think that brokers, other brokers out there who are actually brokers, are the real lenders. So they’re taking your loan request to a broker, who then takes it to another broker, who then takes it to another broker, and that’s your “broker chain.” It’s a chain of brokers.
So what’s bad about that? Well guess what? You have to pay every, single one of those brokers a fee in that broker chain. And that’s why they’re bad. So if you find out that you’re in a broker chain? Fire those brokers and start over.
Paying Excessive Broker Fees
This brings me to my next topic which is paying excessive broker fees. Watch out for excessive broker fees. This is where I’m going to talk a little bit more about the “Joker Broker.” And why do I call them Joker Brokers? Because as a private money lender these brokers are pure comedy, they are just laughable. Let me give you an example.
I had a broker come to me to fund a deal. He sends me 15 different e-mails in a row about this loan request. And in the subject line of every, single email, there were the letters “FW:” (which means “forwarded”). The broker had forwarded those 15 e-mails directly from the borrower, and each one of those e-mails had infinite number of attachments. But guess what? In all that information the broker sent me, there wasn’t even a loan amount listed! I couldn’t even find the property address!
After hours of sifting through these 15 different e-mails, I went back to the broker and I said, “Yes, we’re interested in the loan, can you tell me a little bit more about this deal?” The Broker didn’t know anything about this loan! Nothing. He went blank! But the best part? Within a few minutes he emailed me yet again, and this time he sent me his “fee agreement.” I opened it up and I just about fell off of my chair. This is where the comedy comes in. This is where I say these joker brokers are just laughable.
Guess what it was? It was 5 loan points he wanted as a broker fee! 5% of the loan amount as a fee for forwarding me a bunch of e-mails from the borrower, and not knowing one snippet of information about the loan request! (It was a $3.5 MM loan amount with a fee agreement of 5 points, 5% of $3.5 MM is a $175,000!) He had done no work, he had just forwarded me all of those emails with attachments from the borrower directly. The broker didn’t even know the loan amount, or the property address, off the top of his head when I called to discuss the loan with him.
So I laughed in his face. And you know why? Because I don’t want to deal with a borrower that would sign such an agreement and pay a lazy broker like that an excessive fee. Why? Because it proves they’re stupid. And if you do the same thing when you’re out there looking for money, you’re probably going to get laughed out of the room just like he did. Let me give you another example of a joker broker.
These joker brokers send me e-mails and they’re attaching all of this sensitive information, private information, about the borrowers. And in these email attachments you’ve got social security cards, you’ve got driver’s licenses, you’ve got tax returns! This is sensitive information! Most asset-based lenders don’t even ask for that stuff until they’ve preliminarily approved the loan request, if at all. But these joker brokers, they’re sending this sensitive information to a private lender in the first e-mail, and guess what? Not even a loan amount listed! Not even a property address listed! Again, this is why I call them “Joker Brokers.”
If you’re looking for a loan, a “good” broker is worth its weight in gold. But a “bad” broker that creates “broker chains” and charges excessive fees is going to cost you time and a grip of money. And if you’re a borrower, and you’re out there looking for money, make sure you know what broker you’re dealing with, and determine pretty quickly, is this a “good” broker or “bad” broker?
And if you’re a broker that’s watching this, and you’ve taken offense because maybe you’re doing this kind of stuff? You might want to change your business model because it doesn’t work for private money lenders!
If you have any questions, complaints, or comments, please leave them in the comments section below. If you found this post useful, or you know someone looking for a loan that’s gotten themselves in this position with a broker, share this post with them!