Where a sourcing fee sits on the settlement statement when the buyer's fund will not take it from the seller side

Question

Here is a structuring problem worth working through, because institutional buyers raise it more often now. A private equity group out of Austin sets up a sourcing arrangement on single family value add in the DFW suburbs, $180k to $280k range, at $6,500 per closed deal. Two properties go under contract, one in Mesquite and one in Garland. The fund's attorney reviews the HUD and says the fee has to appear as a buyer side closing cost paid by the fund, rather than as a credit or concession out of the seller's proceeds. Their position is that anything touching the seller side creates a disclosure problem against their LP agreements. That cuts against how most sourcing fees get handled, which is out of the assignment spread or as a seller side line item, so the question of exactly where the money sits on the settlement statement becomes live. A title company will generally place it on the buyer side as an acquisition consulting fee, and will then ask for something signed between the sourcer and the fund spelling out the service being paid for. A two paragraph email chain is not that document. With a closing date on the 14th and a fund attorney moving slowly, the practical risk is that a contact at the fund keeps saying it will get sorted, which is a different thing from it being sorted. What has the room used as the signed instrument in that position?

nicole_adeyemi · Answer

The email chain is genuinely a problem, and if that closing is the 14th you have maybe three business days to fix it before someone pumps the brakes. Do not wait on the fund's attorney. Draft a one page consulting services agreement yourself tonight, get it to your contact at the fund by tomorrow morning, and tell them plainly that the title company will not move without it and neither will you. Something straightforward: scope is property identification and acquisition support for a defined DFW target area, fee is $6,500 per closed transaction, payable at closing as a buyer side line item, no assignment of fee without written consent. That is enough for the title company in Mesquite to work with. The shift to buyer side is actually cleaner for you in the long run with institutional money anyway. It keeps your fee out of the seller's column entirely and removes any question about whether you are acting as an unlicensed broker on the disposition side, which in Texas is a line people cross without realizing it. Get the signed agreement in hand before you show up to closing rather than the morning of.

Rena Guide · Answer

The title company is telling you what they need: a signed service agreement between you and the fund that describes what you did and what the fee is for. The email chain will not be enough for them to put that line item on the closing disclosure without something more formal behind it.

The agreement does not need to be long. It needs to name the parties, describe the service (you sourced and negotiated the acquisition of the property at the Mesquite address), state the fee amount, and confirm the fund owes it at closing. That is the document the title company is waiting for.

The part worth flagging: this is a legal document, and the fund's attorney is already involved in reviewing the HUD. You need that same attorney, or your own, to draft or approve the service agreement before the 14th. I would not try to write this yourself or use a template off the internet given the LP disclosure issue the attorney raised. That disclosure concern is a funds-law question, and it changes what language has to be in the agreement. One sentence for the record: this is the point where you need a licensed attorney, not forum advice.

On the practical side, your contact saying "it'll get sorted" is not a plan. Send a direct message today: "Title needs a signed service agreement to place my fee on the buyer side. Who is drafting it and can we have it by [date two days before closing]?" That gives the attorney time and gives you a concrete answer on whether the 14th is actually achievable.

Do you have your own attorney on this arrangement, or have you been relying on the fund's counsel so far?

pavelk88 · Answer

Get a one-page consulting agreement signed today, not after the 14th. I've seen closings blow up over less paperwork than this when a fund attorney gets cold feet at the last minute.

Buyer-side acquisition consulting fee is clean and I've seen it done that way on institutional deals where LP docs restrict seller-side payments, so the fund is probably right that it's cleaner for their reporting. Your real problem is the slow attorney, not the line item.

Call your contact and tell them you need a signed agreement by tomorrow or you're pushing the closing date, because that's the only language that moves fund people.

bmoreno23 · Answer

The LP disclosure issue is the real reason this matters and it's not just their attorney being cautious. When a fund raises from limited partners they typically represent in the PPM that acquisition costs will be accounted for in a specific way, and a seller-side fee that doesn't show clearly on the buyer's books can look like a hidden markup on the asset basis. I had a smaller version of this with a family office in Phoenix last year, they were buying in the $220k range in Mesa and their CPA flagged the same thing mid-closing. The fix was fast once I understood what they actually needed, which was a clean line item they could put in their fund accounting as an acquisition expense, not something buried in the seller's net proceeds.

What nobody talks about until it's 48 hours before closing is that the title company's request for a signed agreement is actually doing you a favor, because without it you have zero paper trail if the fund ever disputes the fee on the second deal. The Garland closing is going to hit the same wall. Draft one page yourself, not your attorney's one page, yours, today, email it to your contact and the fund's attorney at the same time and say you need a signature by end of business tomorrow or you need to talk about a closing extension. One page: your name, their entity name, the two properties by address, the fee amount per property, the description as "acquisition sourcing and coordination services," and a line that says fees will appear as buyer-side closing costs on the HUD. That's it. Their attorney can redline it if they want but at least the clock is running on something real.

renee_dubois · Answer

A two paragraph email chain will not hold if the fund's attorney later decides your fee is an undisclosed finder's fee under Texas securities rules.

nataliehsu · Answer

The title company already told you the fix, they just need a signed agreement. I did something similar last year with a small family office buying in Tarrant County, my fee was $5,800 and it landed on the buyer side as a "transaction advisory fee," and the only thing that made it clean was a one-page engagement letter I drafted myself in about 20 minutes, plain language, no lawyer on my end. Your contact saying it'll get sorted is them passing the problem back to you, because the attorney works for the fund and has zero deadline pressure the way you do with the 14th. Send your contact a draft agreement today and say you need a signature by end of business tomorrow or you need to know specifically what is blocking it, because "we'll sort it" stops meaning anything three days before close. If they balk at signing a simple one-pager, that tells you something about how Garland is going to go too.

Where a sourcing fee sits on the settlement statement when the buyer's fund will not take it from the seller side

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