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!

Is the Note Queen a note buyer, or a note broker?

The answer is: “both.” I occasionally buy notes for my own portfolio (just like I occasionally buy properties for my own portfolio), but frequently I function as a note broker, and I can do so in a couple of ways:

  • I can offer you a price for your note, OR
  • I can list your note, like a Realtor lists property

In real estate… there are people who want to sell their property FSBO and find their own buyer and do their own paperwork.  They take their chances getting into escrow with someone who might not be able to close, and they believe they are sophisticated enough to negotiate all aspects of the transaction, and keep themselves on top of all the paperwork and legalities.

Alternatively, there are people who want a real estate broker to help them package their home for sale, find the buyer that will pay the most for it, and guide and protect them every step of the way.

Statistics show that even paying a commission, most sellers net more by working with a broker, and the process is less stressful and cumbersome.

In the note world… people who have notes to sell can do it FSBO. They can do all the research and dig through the maze of institutional and private buyers that might make a bid on their note. They can post their note on an ebay-type service and take calls and emails from hoards of “buyers,” most of whom have very little experience, and are brokers disguised as buyers.

These FSBO note sellers take their chances getting under contract with someone who has the reputation for doing the ol’ bait-and-switch. (Get you under contract at a high price fully intending to reduce the offer after the due diligence process regardless of what they find.)

Or they’ll pull the plug entirely (not unlike banks just before close of escrow).

Here’s another gem from my 2009 interview, "Transitioning To REOS & NPNS From Traditional Note Business" with Clint Hinman, veteran of the note industry:

“There are still a lot of companies out there that will price deals, but, if you look at what they’ve acquired, if you could ever take a look into the books and see what they’re actually buying, you’ll find that they are pretending to still be a valid player in the industry. I won’t mention names but I could list at least 5 companies like that right now that still advertise in the newsletters, still show up at all the conventions, send out marketing pieces to all these brokers nationwide, and haven’t bought a single note this year.”

NQ: Why are they doing that, Clint?

“Because they’re waiting for the market to get better and they don’t want to lose their exposure in the meantime.”

It is true that the initial quote I give you for a note will have to be reduced if, during the due diligence process, I discover that you have intentionally or unintentionally misrepresented material facts, such as payor’s credit, value of property, etc., but the bait-and-switch people have a different agenda.

FSBO note sellers understand that they need to cover themselves in the area of recourse.  (Do you want to be on the hook for guaranteeing the note payments after you’ve sold it at a discount?)  Make sure you know how to read contracts if you’re going it alone.

Many find the note selling process foreign and overwhelming, and would rather pay someone they trust and enjoy working with a reasonable fee to help them understand the process, package their note, and find the buyer that will pay the most for it.

These sellers often net the same or more than when selling FSBO, and definitely find the process much more palatable.

[REALTORS, CPAS AND ATTORNEYS:  you have a fiduciary responsibility to your client, why would you refer your client to a note buyer that is buying for their own portfolio?  That might cost your client several thousand dollars.  It is far better for your professional reputation to refer a client with a note to sell to someone who will list their note to get them the highest possible price.  There are many types of private and institutional buyers out there, and if you haven’t been around the block for a while, you don’t know how to scare up the best price for a note, guaranteed, and you don’t want your note seller to inadvertently sell with recourse, either.]

When someone is selling a property, I educate them about their options and their ability to sell creatively and carry paper, thereby achieving their objectives more readily.

When someone is selling a note, I educate them about the different ways they can sell a note. They can sell part of the note, or all of it. They can sell a payment stream, or just the balloon. They can sell half of each payment to raise the cash they need now and still have some money coming in.

When Realtors refer buyers or sellers to one another, they pay each other referral fees, usually between 25-30%.  When a real estate professional refers a note to me that I end up listing and selling, then I pay referral fees exactly the same way.

If it turns out that you aren’t able to sell your note, or the discount is just too steep, you can hire me to help you explore other solutions to your problem.  Perhaps there are solutions you just haven’t thought of!


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.

Home 2Protective 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.

Planning handsMANAGEABILITY: 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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