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What is a fair price for my note?


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For most of you watching this video, this is the first and perhaps only, note that you have ever sold. You will want to understand what to expect when you sell your note. Today, we will talk about the elements of pricing, and the information that note buyers will be requesting from you.

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What is a fair price for my note?

  1. 1. For mostof youwatchingthisvideo,thisisthe firstandperhapsonly,note thatyouhave eversold. You will wanttounderstandwhatto expectwhenyousell yournote. Today,we will talkaboutthe elements of pricing,andthe informationthatnote buyerswillbe requestingfromyou.
  2. 2. 1. The firstitemthat affectsthe price of your note isthe type of property. All else beingequal,a house note will receive ahigherprice than a note on a commercial property,mobile home,or parcel of vacantland. Of course,regardlessof propertytype,the elementsbelow all playabig part too. 2. Second,the higherthe creditscore of the new ownerof the property,referredtoasthe payer, the more that you can expecttoreceive foryournote. Thisisbecause a higherscore and better credithistorysignifythatthe payerhasthe abilityandwillingnesstomake ontime payments. 3. Third,a higherdownpaymentfromthe payermeansthat theyhave more “skininthe game” and that there ismore of an equitybufferfor the buyerof the note. 4. Next,seasoningisrelatedtothe downpaymentreasons,asitshowsthatthe payer hasa history of makingtimelypayments. 5. Fifth,nicerlookinghousesorbuildingsingoodneighborhoodsmeanlessriskforthe note investoranda betterprice foryou,the note holder. 6. Otherthingsthat factorin to pricinga real estate note are havingproperlyprepareddocuments, a propertyvalue thatis at leastequal tothe salesprice,and,on commercial notes,apersonal guarantee fromthe payer. Next,let’sgooverthingsthateither makesitharderto sell yournote orthat will meana lowerprice offer.
  3. 3. 1. Small 2nd or 3rd liennotesbehindbig1st liensare difficultformostnote buyerstobuy. At Seascape Capital,we rarelybuyjuniorliens. We canbuy wrap-around noteswhere any1st lien notesare paid whenwe close withyouonthe note sale. 2. Mobile home noteswithoutlegallyattachedlandcarrymore risks,and veryfew note investors will evenlookatthese. 3. If the payerhas poorcredit,we may still be able tobuythe note but the amountofferedwill be much lowerthannormal. Inthissituation,apartial,where youonlysell some of the payments insteadof the full note,ismore feasible. 4. Obviously,housesandbuildingsinastate of disrepairare more risky. The poor upkeep demonstratesalackof effortonthe part of the ownerandmakesfor weakercollateral. 5. Raw landwithoutstructures,especiallyinrural areas,islessmarketablethanothernote types, so will receiveloweroffers. 6. Lastly,local,state,andfederal tax liensagainstthe payeror againstthe landcan cause title issuesandaffectthe lienstatusof the note. Nearlyall note sellerswanttoknowearlyonhow muchtheycan expectfortheirmortgage note ordeed of trustnote. There is noprecise formulaorquickanswer. 1. Most notesare valuedbymortgage note buyersat70 to 90 percentof the note balance. So,a note witha current balance of $100,000 will frequentlybe worthbetween70and 90 thousand dollars.
  4. 4. 2. A note on a greatpropertywithexcellentpayercreditandstrongequitymaygetevenmore than 90 percent. 3. On the otherhand,a note withsome of the challengesfromthe previousslide mightonlybe eligible foreitheralowerofferora partial. Worst case,note purchasingcompaniesmightnot be willingtobuythe note at all. In general,there are noabsolute pricingguidelines,asanyparticularnote buyermighthave adifferent risktolerance fromothers.  Call 2-3 differentnote buyers,andasklots of questionsof them, includingtheirbuyingcriteria, howlongthat theyhave beeninbusiness,andwhethertheyare licensedreal estate brokersin theirstate.
  5. 5. Here is a simplifiedexampleof whatcan change inhow mucha note buyercouldpayfor a note. In this example,the bigdifferencesare thatthe buyerof property#2 put ina smallerdownpaymentandhas much weakercredit. A note investorwillsee muchlessequityandmore riskin#2, so you can see that the offerprice is$18,000 lowerthanitis fornote #1. The note holderon#2 mightwantto consideronly sellingsome of the paymentsonapartial so thathe or she doesnotget hitwithsuch a bigdiscount.
  6. 6. At Seascape Capital,we knowthateverynote holderwantstogetthe best offerfortheirnote. We strive togive everypersonthe bestprice possible withthe leastamountof hassle. Call usif youhave questionsorcomplete the worksheetatthe addressshown. Thankyou.