How do Brokers determine what rate to charge a client (eg, 1 point or 2 points). Can a Broker get by with charging 3 to 5 points per deal?

I would say it all depends on the deal. I am a hard money commercial lender, the deals I see are typically in the multi-million dollar range. The brokers who send me these deals usually only need to charge 1 point to make big commissions, however I have had several brokers charge as much as 4 points on the deals.

Since we are not subject to high cost laws, it only poses a problem when trying to explain to the borrower why they are losing so much of their loan proceeds. My company is pretty expensive to begin with and broker points are added on top of our points, so I would say as long as it doesn't kill the deal, brokers can charge as much as they feel their time is worth.

It really comes down to determining what is value and what is greed. My money is expensive not because we are greedy, but because we take on high risk loan scenarios, and because we are a private money lender, it costs us money to lend our money. When a broker sends me a $20 million deal and tells me he wants to charge 3 points I have to think they are being a little over zealous, since at 1 point many brokers are already earning more on that deal than they do all year or at least doubling their income for that year.

Hopefully this helps to answer your question...