By Saam Lowni, MD of Merryoaks
In a large development transaction, if you break down the numbers, it can look disproportionate at first glance.
A developer might generate ten million pounds in profit on a successful project. A lender might make three million in interest and fees. And the broker might earn three hundred thousand on the same scheme. On paper, it can appear as though the broker is the smallest cog in the machine, collecting a large sum of money to many, but notably a fractional payment relative to the overall deal.
The perception that a broker is “overpaid” is understandable, but it grossly misses the point.
As I have discussed before, every project stands on three core pillars. The deal itself, meaning the land or building. The knowledge and expertise to add value. And the capital required to acquire and execute the plan. Remove any one of those pillars and the structure collapses.
If a broker can solve pillar three for you, capital, then the fee is not an expense, it is leverage. It is a relatively small percentage of something that would not happen at all without that piece of the puzzle being secured properly.
A good broker brings more than a lender list. A good broker understands the process, anticipates underwriting friction, prepares for valuation nuances, and mitigates risk long before it becomes visible. A good broker knows which lender will view a scheme favourably and which will stall it for months. They protect momentum which is imperative as we know that time kills all deals.
Does it run smoothly 100% of the time. Rarely. That is reality. There is no straight line to success in life, property or business. There are no guarantees beyond death and taxes. Where there is reward, there is risk. Where there are various stakeholders in the process the journey will not be as smooth as we would like it to be.
All that being said, I have enormous respect for the developers we work with. The level of financial exposure and operational responsibility they carry is significant. I have been in that driving seat myself on numerous occasions. It can be intense. Without the developer, there is no project. No value created. No income for anyone else in the value chain. The detail orientation, resilience, and decision making required on seven and eight figure projects is not for the faint hearted and developers that operate at this level should be given a medal along with their hard-earned profits.
Equally, lenders deploy capital and take calculated risk. Brokers structure, negotiate, and align the moving parts. Everyone in the value chain solves a problem and is compensated accordingly. It is a team effort.
I often refer to what I call anatomy theory. The human body only works when all parts function together. You cannot remove one organ and expect the rest to compensate without consequence or failure in performance. Property development is the same. The land, the capital, the knowledge, the legal structure, the valuation, the finance, the build, the exit they all matter.
Let me leave you with a story…
Around a hundred years ago, a naval vessel had an engine fault that nobody could fix. An engineer was called in. He spent a few minutes inspecting the engine, took out his hammer, tapped a few precise points, and the engine roared back to life.
The captain was delighted, until he received the bill for one hundred pounds, which was a significant sum at the time. Outraged, he demanded an itemised invoice.
The engineer replied with:
£1 for the hammer.
£99 for knowing where to tap.
That is what many fail to appreciate. Knowing where to tap can appear simple from the outside. It rarely is. It comes from years and years of experience, training and dedication to solving a problem.
I have seen this repeatedly, even back in my estate agency days. When a property sold or let quickly/smoothly, some sellers questioned whether the fee was justified because it looked so easy. The answer was always yes. It looked easy because experience, preparation, and understanding were applied at the right moment.
The same applies in a property finance brokerage. Contacts, negotiations, lender appetite, structuring, anticipating pitfalls, these are not visible line items on a spreadsheet, but they are often the difference between completion and collapse.
So when you look at the numbers in a project and see a broker earning a fraction of the overall pie, remember the bigger goal. Remember the team. Remember the engineer. Remember the hammer.
Sometimes, the real value lies in knowing exactly where to tap.
If you're working on a project and are in need of funding solutions, please get in touch.
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