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.
For mostof youwatchingthisvideo,thisisthe firstandperhapsonly,note thatyouhave eversold. You
will wanttounderstandwhatto expectwhenyousell yournote. Today,we will talkaboutthe elements
of pricing,andthe informationthatnote buyerswillbe requestingfromyou.
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
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
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
1. Small 2nd
liensare difficultformostnote buyerstobuy. At
Seascape Capital,we rarelybuyjuniorliens. We canbuy wrap-around noteswhere any1st
notesare paid whenwe close withyouonthe note sale.
2. Mobile home noteswithoutlegallyattachedlandcarrymore risks,and veryfew note investors
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
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
Call 2-3 differentnote buyers,andasklots of questionsof them, includingtheirbuyingcriteria,
howlongthat theyhave beeninbusiness,andwhethertheyare licensedreal estate brokersin
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.
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.