Wonder whether you are receiving reliable pricing when submitting a qoute request worksheet to a note investor? Here’s how to know if it’s a firm offer or just a soft quote when going to sell a note.
A soft quote generally refers to an initial offer made by an investor without review of the payer’s credit. Credit plays a crucial role in pricing for both yield and investment to value (ITV) parameters. A quote without a credit review will likely be revised when credit is actually reviewed.
A soft quote is normally provided when only a Quote Request Worksheet is submitted without any supporting documentation. When there is no legal ability to pull credit and no indication of the payer’s credit status, the investor will normally assume the best. The quote will be “subject to review of credit – assumes good credit” or “assumes a credit score of 675 or higher.” This assumption will be incorrect and too high at least 80% of the time. That means there is a high likelihood the offer will go DOWN when credit is reviewed.
The best solution is to receive a firm quote by submitting sufficient documentation for the investor to pull and review credit on the payer. Each investor sets their individual criteria for the minimum documentation required to pull credit. Most will pull credit with either an authorization signed by the note holder or a copy of the note and mortgage. The copy of the Closing Statement is also useful.
A firm quote is still subject to the remainder of due diligence items but pricing should not change unless the property value comes in low or subsequent documentation does not support the information provided on the worksheet. A firm quote should indicate, “credit reviewed with pricing” and “subject to standard due diligence and underwriting review of documentation.”
Quotes are generally returned within 24-48 hours or the next business day. The quote should come back from the investor in writing via fax or e-mail and is normally good for 30 days. If the quote has not been formally accepted within 30 days, it might be subject to change in the event the investor’s pricing model or cost of funds have altered. Some investors will also require a new credit pull after a certain period of time (generally 60 days), which could also cause a pricing adjustment if credit has worsened resulting in a lower credit score.
By gathering accurate information and basic documentation upfront, note brokers and sellers can receive a firm offer. For more helpful tips on selling notes for top dollar pricing please visit the bookstore for Personal Profit Series: Notes – Your Complete Money Making System to Buying, Referring, Creating and Holding Real Estate Notes!
Nice article Tracy. While my market is different from investment and brokerage, you can trace a “firm” analogy to it. A soft quote is a relatively easy way to answer to client’s “demands” on pricing. This is often the case in custom web design, development, or Facebook apps for example, where it can vary a lot depending on client’s request, which can be aggravated if the client has feedback “along the way” of the project. By giving a soft quote you can imply that it may be around a certain ball park but also giving an idea of what the client can expect in termos of pricing.
Glad you enjoyed the article. I would agree that each industry has a quoting process that starts with an initial conversation to see if we are even in the same ball park before proceeding with a full proposal or due diligence. The caveat comes in being sure both sides understand the subject to or variance items along the way.