Weighing an exclusive broker relationship against direct hard money lenders for a flip pipeline

Sign a per deal engagement, not a 24 month one. One property, one fee, expires in 90 days if it doesn't close. Do that twice. If he delivers something the direct lenders can't match, handing him deal three without a contract becomes an easy call, and if he doesn't, two points total is a cheap way to find out. Any broker who only works exclusively is telling you his value is in the lock rather than the placement.

You've been building the list for months. Six deals a year is 19,200 to him and an unknown number to the months you're not buying. Whichever path gets you closing sooner is probably the cheaper one.

The number missing from a comparison like this is what a single blown closing costs. If a lender re-trades at day 18 and the deal dies, that is earnest money plus inspection plus the deal itself. One saved deal a year covers a full point-per-deal fee. Estimating that probability is genuinely hard, which is why buying the information two deals at a time, rather than signing a 24 month exclusive up front, is usually the safer sequence.

A common pattern with exclusive broker engagements is a broker who is excellent on deal one and invisible by deal three. Deal one goes to a lender he has a real relationship with, and deals two and three go to whoever answers. Nothing in a standard engagement letter distinguishes between those two outcomes. If you sign anything, put a performance condition in it. Something like the exclusivity lapses if he fails to place a deal within 30 days of a complete file, twice. Whether that kind of condition is enforceable where you are is a question for a lawyer in your state, and the answer varies, but even an unenforceable clause changes how someone behaves.

Your 19,200 assumes he's on top of the lender points at their normal level. Is he? Ask whether the wholesale sheets he sees are net of his comp or gross. On a lot of wholesale product the lender's points to the broker are lower than their retail points, so a borrower can pay a broker fee and still land at the same total. If his one point sits on top of full retail pricing you're just paying more.

I hit exactly this ceiling at deal four. What broke it for me was not a broker, it was going to my two lenders and asking directly for the repeat tier early, based on committed volume rather than closed count. One said no. The other moved me to the five deal tier at three deals on the condition I gave them right of first look for a year. Cost me nothing and I kept the option to go elsewhere if they passed.

Try that before you pay anyone a point. Right of first look is a much smaller thing to give away than exclusivity.

Two things in your post are load bearing and neither is examined. First, six deals a year with two running at once and six to eight month cycles means you are booked solid with zero slack. Miss on timing twice and you are at four deals. The 19,200 a year of broker cost does shrink with that, since the fee is per deal. What does not shrink is your fixed overhead against fewer closings. Second, and this is the one that matters, you say average loan 320k at 90/100. Your equity per deal is roughly 10 percent of purchase plus closing plus a carry reserve. Call it 45 to 55k tied up per deal for eight months. Two at a time is 110k of your money outstanding continuously. Do you have that plus a reserve for the deal that goes long? If the honest answer is 130k, then equity is the constraint rather than broker access, and the lender who solves it is one who will go past 90 on purchase or allow a second position behind them. Ask the broker that specific question. It is a real differentiator between wholesale funds and retail hard money, and a much better test of whether his 20 lenders are useful than the rate is.

Did you ask him for two borrower references who've done four or more deals with him? I know it's obvious. People skip it.

On the document itself, since you asked what the narrower version would say, four clauses decide everything. Scope comes first. Name the property or a defined class of deals, and exclude anything you source financing for yourself. Otherwise a phrase like "all my investment financing" swallows the seller carry you negotiate directly next spring. Then the fee trigger and the tail. When is the fee earned, and does it survive past the term for lenders he introduced. A 12 month tail on 20 unnamed lenders is a wide net when you do not know the names. Termination should be either side, 30 days, in writing, with deals already in application carved out. And what happens on a dead deal. Is any part of the fee earned if the file reaches a term sheet and dies. Have a lawyer in your state look at whatever you end up with. The point of writing your own version first is that you find out fast whether he will negotiate at all, and that answer is most of what you want to know.

I've sat on the other side of the table, and the piece that'd make me sign is the facility. Per deal placement wouldn't do it. Revolving lines change your cycle math completely because you stop paying origination on every single project and you close faster, which at six deals a year is worth well more than 19k.

So I'd make the whole conversation about that. Tell him you'll do a per deal engagement now, and you'll sign the 24 month exclusive the day he brings you a signed term sheet on a facility. If he believes his own pitch that's an easy yes for him. If he goes quiet, cairn was right the first time.