I Want to Sell my Note – What is it Worth?

The best way for me to get you the most accurate quote on your note is to have these documents in front of me:

  • the note (must have – no note, no quote)
  • the deed or mortgage (very helpful)
  • escrow instructions and/or escrow closing statement (very helpful)
  • payor’s SS#’s (and credit report, if you have it)

If you’re a note broker, click here.

Other documents to be assembling:

  • 12 months’ payment history (bank statements, canceled checks, etc.)
  • insurance policy showing you as Loss Payee or Add’l Insured
  • lender’s title policy (if you don’t have one, you’ll need to buy it before selling your note, just like in real estate transactions)

Be thinking about how much cash you really need. Are you open to selling a part of your note? You will often have greater success with a “partial.” The discount will generally be smaller, and there are more buyers for your note. You can get some cash up front, but then still have payments coming to you down the road. Just something to think about.

“What I really appreciate is that you taught us that we could sell part of our real estate note. No one else gave us as many options as you did. You helped us get the money we needed without giving up too big of a discount. When I want to sell more of this note, you’re the first person I’ll call. Thanks a million.” Dennis H.

The discount required depends on many different factors. YOU ultimately determined the value and marketability of your note when you created it. That’s why it’s so important to consult with a note professional BEFORE you close the deal!

There is no ‘standard discount.’  The discount you will have to take when you sell your note depends on multiple factors: type and location of property, amount of protective equity, priority of the note (is it a 1st or a 2nd?), cost of dealing with a potential foreclosure, payment history, credit and financial strength of the payor, trends in the local real estate market where the security is located, trends in the national economy, yahdah, yahdah, yahdah . . .

Sellers who carry back paper (and the agents, escrow, title, attorneys and CPA’s who advise them) often do not understand the secondary trust deed market. If there are lethal weaknesses in your note, or in the way your transaction was set up, then you probably won’t have the option of selling your note at all.  Just hang on and hope the buyer keeps making those payments!

If you’re interested in learning more about how the market decides the value of your note, keep reading!


The fair market value of a mortgage, trust deed or land contract is determined by the present value approach. Present value is defined as the sum of all future benefits accruing to the holder when such benefits are discounted to the present by an appropriate discount rate. A discount, if applicable, is determined by the market using the following factors:

DEGREE OF SAFETY: This is the certainty with which the return from investment is expected. Present value increases or decreases according to the safety factors. The higher the perceived risk, the higher the yield required, and the deeper the discount expected. Protective equity, credit score of Payor, seasoning and payment history combine to create the level of safety, and therefore yield requirements, on any given note.

Protective equity: The cash down payment made at the time of purchase represents the hard equity most important in determining the safety of a note. The less protective equity available, the less valuable the note is. A potential note buyer will always get an appraisal to establish the fair market value of the collateral securing the note; however, it is important to remember that equity provided through appreciation is significant, but it is not as important as hard equity.

Credit score: If this note were sold and due diligence uncovered a credit score below 620-650, there would be a deeper discount required, as the note would represent more risk to the investor.

Seasoning: A note is considered seasoned when at least 12 payments have been received. A well-seasoned note is more valuable than a “green” note.

Payment history: Payment history addresses how timely payments have been. A history of late payments would decrease the value of the note.

Balloon: Notes with balloon payments are considered riskier than fully amortizing notes unless there is a clear and obvious exit strategy. The availability of affordable conventional financing is crucial.  In the market we have today, a good balance between the risk of a balloon, and the ‘time value of money’ issue, is to create a balloon that is due 10-12 years out.

TIME VALUE OF MONEY: In general, the longer it takes to collect all the payments on a note, the deeper the discount will be. Money to be received sooner is more valuable than money to be received in the future. Money flying For example, based on a yield requirement of 10%, $1,000,000 to be received in 5 years is worth $607,788.59 today. That same $1,000,000 is only worth $136,461.51 in terms of today’s dollars if it will not be received for 20 years. You know that when you were a kid, you could go to the movies for under $1, but now, that $1 won’t even buy you popcorn to eat while you’re watching. This inflationary aspect is greatly intensified by the Fed’s recent determination to print as much money as it takes to ward off recession.

INTEREST RATE: Present values increase and decrease inversely proportional to interest rates. The higher interest rates are in general, the lower the fair market value of the note, as the investor needs to obtain a higher yield by paying less up front for a given cash flow. When interest rates are low, the note can generally be sold for more. In the current climate, even though interest rates are low, there is a credit crisis facing the economy, and investors need a higher return to consider the purchase of a note. This equates to deeper discounts. Additionally, a note with a high interest rate is more valuable (would require a smaller discount) than a note with a low interest rate.

LIQUIDITY: This factor is the ability to liquidate an investment rapidly with a minimum loss of principal. Trust deeds are not highly liquid by nature, and a note seller always has to take some discount on principal when selling. In general, a willing buyer would not consider the fair market value to be equal to the principal balance due. Even under the best circumstances, an investor will need at least a small discount to cover closing costs should the note pay off sooner than anticipated.

MANAGEABILITY: This factor is the extent to which the investment requires attention and management over time. A note buyer must get a higher return on a trust deed investment than he could get with corporate bonds or a certificate of deposit. He needs to be compensated for the work and oversight required to acquire and effectively manage the cash flow, including the potential time and cost of foreclosure. The more complex the note (and the collateral securing the note), the higher the yield required by the investor, which translates into a lower market value.

Another consideration is the position of the note. A first deed of trust is safer, and less management intensive, than a second deed of trust. Junior liens are less valuable, as they represent substantially greater risk. If the Payor defaults, a junior lien holder will have to make payments on any senior liens while they wait for the foreclosure sale date.

LEGAL IMPLICATIONS: The note and deed of trust must be drafted properly for a potential note seller to get full market value for the note. Improperly drafted documents, incorrect note calculations, or weak enforcement provisions, will adversely affect the value of the note.

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