The Good, Bad, and Ugly Note Sellers

Note Sellers Good Bad UglyWhen dealing with a mortgage note seller, what is the most important element of the negotiation process?

The amount of the discount?
How long it takes to fund?
The reputation / credibility of your company?

At the end of the day, it is none of the items listed above.

Sure, some people will say “price” but the fact of the matter is the value of the note (your bid) is a much smaller piece of the puzzle than people realize.

First off, everyone wants 100 cents on the dollar…or more.

How much note holders expect to receive for the sale of payments can be divided into three types of people.

The Good…

People who know they will need to take “some sort” of discount.

These people have a $100,000 note and figure they are going to need to sell at 10-20% less than face value.

The Bad…

People who think they should easily get 100 cents on the dollar because the face rate of the note is 10%.

They tell you that, “10% is a great return right now.”

The fact of the matter is that 100 cents on the dollar does not take into account any cost associated with the actual note purchase (appraisal, title, closing, overhead, etc.) or any ITV adjustments for high risk factors.

The Ugly…

People who think they should get MORE than the amount due on the note.

These time-value-of-money-challenged people take all the payments, add them up, and say, “Look how much you are getting.”

They take 360 payments and times it by the monthly amount of $877.57 and come up with $315,925.20 – even though the current balance on the note is $100,000.

So, how do you deal with each of them?

The first (the good) is easy. They are already expecting some sort of discount.

The second (the bad) is also pretty easy. A simple explanation of cost to close makes sense to them.

The third (the ugly) usually takes a bit more work. They are not wrong; just do not typically understand interest and time. Asking them to answer, “But what if the buyer of the property paid you off today…how much would they owe you?” – obviously you can’t pay MORE than they owe for the note.

But I digress…

My point of this article was that it DIDN’T have to do with price.

The bulk of my conversation with sellers has always been about why they were selling.

“It is a great note, why would you want to sell it?” always prompted some pretty revealing thoughts on why they were selling.

No one is calling for money.

They are calling because the need to sell the note to fill a need.

They are not going to sell the note to get cash only to roll around on the bed with it. They need it for something…now.

It could be something fun like buying a boat, going on a vacation, or sending a kid to school (not sure that qualifies as “fun” but go with it).

Or, it could be something painful. Taxes are due. Medical bills are piling up. Someone lost a job.

When you can answer WHY they are selling…and talk about that goal, you are one step closer to getting a deal…regardless of what type of seller they are.

Here is one of my best “discount” answers I used for years.

Seller: “Wow, that’s a much bigger discount than I thought it would be.”

Me: “Yes, I can understand why you feel that way. Unfortunately, the fair market value of your note is XXX. [Pause] But let me ask you this… Is it worth it to take the XXX percent discount and finally be able to XXXX?”

Of course there are a variety of ways you can use my response but in each version it is always about their end goal…not the amount of money the note is worth.


  1. Thanks for clarifying that point. We should focus on their need for selling the note. By keeping their need in front of the conversation helps to arrive at closing the deal sooner. We are increasing their urgency to sell avoiding wasted time explaining the price.

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