Choose Your Battles Carefully - How to get the Best Results When
Negotiating with Lenders
So you've made the decision to acquire or refinance an apartment
complex or to convert an office building. Once you find yourself
in the thick of the financing process, inevitably you will be
faced with many tactical choices. You will need to prioritize
your wish list - to put out the biggest fires first. This need
to prioritize will come up again and again during the loan
process. Once you've gotten past the primary choices of lender,
the loan amount, the rate structure and the basic terms, there
are still many secondary points that will need to be dealt with
correctly. Remember that you are going to live with your new
loan and your new lender (and your prepayment penalty) for years
to come. The fact is; there are only so many winnable points in
any negotiation, so it's important to choose your battles, and
just as important to time your battles, carefully.
Time Leverage:
At Winter & Company, we are enthusiastic supporters of the "The
Earlier the Better", rule: Just like the concept of leverage
applies to financing real estate, it equally applies to the
proper and most effective use of time. As a borrower, you can
either leverage time to your advantage, or you can squander a
golden opportunity to optimally structure a transaction to your
advantage. Proper guidance with regard to timing is one way to
distinguish levels of competence in commercial mortgage brokers.
A good broker must be able to offer effective advice to help the
borrower achieve his goals. Sometimes all it takes is asking for
something at the right point in the loan application/closing
cycle, when it's still easy for the lender to alter course and
accommodate a borrower's deal point. There are many negotiating
points that are easily "winnable" when you're still at the
"dating" stage with your new lender, yet those same points can
become a nightmare to achieve if left until a day or two before
you close your new loan.
Get what you want by asking for it at the right time:
For example: Tax Escrows - In the beginning of the loan process,
you're still shopping and pondering different loan programs, and
the lenders are competing for your loan. Variables like whether
or not the lender will escrow for taxes, or whether an
actual/360 or a 30/360 calculation will be used when computing
your monthly/annual mortgage payment, are still, in many cases,
malleable. While a sculptor's clay is easy to work with and mold
at the beginning of a project, it's a whole other story once the
clay is dry. Changes become much more difficult to make as time
wears on. The loan process has similar time-critical elements:
The borrower needs to ask for things at the right time in order
to shape the deal to his or her liking, and therefore to win as
many battles as possible. A good broker with years of experience
will prompt the borrower early on for important feedback to
ensure a smooth and successful loan closing.
The mortgage broker plays a very important role during the
"dating" stage. Aside from more obvious things like bringing you
up to speed on the differences in process, reliability, timing
of rate lock, and the likelihood of a particular lender imposing
onerous conditions or making unwanted changes later on in the
process, a well-chosen mortgage broker knows the terrain. He has
been through this lender's process many times before, and
therefore knows what crucial information, if any, might be
omitted from a particular lender's offer letter, only to surface
later in the commitment letter or the loan documents. Stated
differently, the right mortgage broker is your Early Warning
System helping you to focus on asking the right questions early
enough in the process to get what you want from a lender, and if
satisfaction is not to be forthcoming from lender #1, then to
keep on searching for your best match.
Clearly, it is valuable to work with a mortgage advisor who has
gone all the way from conversation, to offer letter, to
commitment, to loan documents, to closing - many times with many
lenders. Avoid brokers whose lender pool is small. Some get
comfortable with 2 or 3 lenders to whom they bring most of their
business, and will try to get your loan to fit in with one of
their favorites. Efficient for them, however, not necessarily in
the borrower's best interest.
Once you've accepted an offer letter and paid a good-faith
deposit, if you haven't yet brought up points that are of key
importance at the earliest stages, these points will be much
more difficult (although not necessarily impossible) to change
later on in the process.
Most savvy borrowers have a team of trusted professionals
including their mortgage broker and their real estate attorney
to help them achieve the best results. It is critically
important for the borrower to set the tone, and to let those
professionals know, as early in the process as possible, which
key points are the absolute priorities - to identify which
battles simply must be won.