The most common question among note sellers is also the one that most new note brokers hope never to hear.
Although I cover numerous ways and specific scripts for answering this question in the Finding Cash Flow Notes Training, I want to address it here from a 30,000-foot level.
When dealing with the note discount question, remember three important things…
1. “Discount” is not a bad word.
Hey, in a perfect world the seller would get 100 cents on the dollars, the note buyer would make a 15% return, and the note broker would make a couple thousand dollars for putting the two together.
But all is not “perfect.” The note was probably created because something was “less than perfect” in the first place.
Maybe it was the buyer’s credit or the condition of the property. Whatever the case, the note was probably not created under “ideal” conditions. The note broker’s job is to find a way to make it work and minimize the discount to the seller.
2. You don’t make the note buying rules.
Like I mentioned above, there are a whole lot of variables that go into the discount of a note being resold. It is important that you do not put yourself in an adversarial position with the note seller.
Even if you are buying the note with your own money, you need to be on the seller’s side. You are looking for a win-win scenario. As trite as that sounds, it really will get your more deals.
That is not to suggest you put more money on the table if they deal will not warrant it. Just create a deal that is fair for both parties and you can sleep well at night.
3. The note discount is not negotiable
Some people make some mistakes in thinking that this is a negotiable item – it really isn’t. The focus should be on the amount of money the seller will receive – not what they won’t get.
I like to refer to the offer as the “fair market value” of the note. In the end, people just want to be treated fairly – and that is just good business.
So the note discount does not need to be a taboo subject. It is the elephant in the room that should be addressed head one. The less you are shocked by it, the less the seller will be.