- Posted March 3, 2014 by
How to Negotiate with Your Loan Broker
In terms of minimizing your acquisition costs and properly using leverage, consider getting licensed in the states that you invest in. By being licensed, you can essentially co‑op your own deals with developers who offer 3 percent to 6 percent brokerage referral fees or commissions to investors that are licensed in the states in which they are buying. To clarify, the term “co‑op” means that developers cooperate with other brokers and/or real estate licensees and accordingly, pay a commission for the purchase of a property.
Now in a seller’s market, expect co‑op or commission fees to be anywhere from 1 percent to 3 percent. Or it could be that they may not exist at all since the developer may have the upper hand in the market and feels that they don’t have to offer a commission since they can sell their own product in an expeditious manner. However, in a buyer’s market, expect co‑op fees to be anywhere from 3 percent to 6 percent, maybe even 7 percent if the developer is exceptionally motivated. Once again, that’s a fee paid to investors or real estate licensees who are in fact licensed. From the developer’s perspective, this would be the same fee they would be paying to a regular real estate agent if they brought in a buyer, so why not extend the same courtesy to a licensed investor as well.
In conclusion and with an additional example on the effective use of leverage, using the $200,000
purchase scenario via 95 percent LTV non-owner occupied loan, let’s determine how those acquisition costs can be minimized to zero, based upon real estate licensure. For a $200,000 home with a 95 percent LTV, that means your loan would be $190,000, which will require $10,000 down. If you’re licensed, receiving a 3 percent to 6 percent fee from the developer, just as any real estate agent would receive, you could easily absorb the $10,000 down payment that you would have to otherwise pay in which to buy the property. With the expectation of having to pay $3,000 to $4,000 in closing costs, which the developer may already be picking up, given the typical incentives being provided to home buyers, the acquisition costs may be nominal or none at all.