Note Brokering 101: The Core Concepts and the Math

Note brokering comes down to one skill: understanding how a private note turns into a price, and explaining that price honestly to both sides. If you can follow a single deal from the seller’s first question to the buyer’s wire, you have the fundamentals. This post walks through that one deal, with the terms and the math you need along the way.

For the role itself, who you work for and what you do day to day, read what a note broker does. Here we stay on the concepts.

The three parties in every deal

• The note holder (seller). The person who is owed the money. Often they sold a house or land and agreed to be paid monthly.
• The payer. The borrower who makes the monthly payments. The payer does not change their payment when the note is sold; they just pay a new party.
• The buyer. An investor or company that pays cash today in exchange for the right to collect the payments.

The broker sits between the seller and the buyer. You are not the lender and, in a pure brokering role, you are not the buyer either. The guide on note broker, note buyer and note investor explains where those lines sit.

The vocabulary you will use every day

You will say these words on almost every call. Know them well enough to explain each one in a sentence.

The full list lives in the note glossary.

Why a note sells for less than its balance

New brokers often meet this question from an upset seller: “They owe me $80,000. Why is the offer lower?”

The honest answer is that a buyer is paying cash today for money that arrives slowly over years, with some risk that it stops. To make that worthwhile, the buyer needs a return higher than the note’s own interest rate. The only way to raise their return is to pay less up front. That gap is the discount.

It is not a trick and it is not always huge. The size depends on the rate, the term, the payment history, the equity in the property and the paperwork.

One deal, start to finish

Here is a typical illustrative example. The numbers are round and simplified.

The note

• Unpaid balance: $80,000
• Interest rate: 8%
• Payments left: 120, at about $971 a month
• First lien on a single-family home worth about $140,000
• Two years of on-time payments

The pricing

A buyer prices the note by working out what that stream of $971 payments is worth today at the yield they want. That figure is called the present value.

Each point of yield moves the price by roughly $3,000 on this note. That is why getting more than one bid matters. The guide on how note buyers calculate a price, yield and discount goes through the method step by step.

The checks

At an 11% yield the buyer pays about $70,460 against a $140,000 home, so the ITV is about 50%. That is a comfortable cushion. The buyer will still confirm the payment history, the recorded mortgage or deed of trust, title, insurance and property taxes before they fund.

The broker’s part

The broker gathers the documents, sends a clean file to buyers who fit the note, lays the offers side by side for the seller, and keeps the deal moving through closing. The broker is paid when the sale closes, either by a fee or by a spread between what the buyer pays and what the seller receives. Either way, it should be disclosed. See how note brokers are paid.

Say the broker earns $1,500 on this deal. On a $70,460 price, the seller should know that figure exists and whether it comes out of their proceeds. Hiding it is how brokers lose trust and, in some states, break the rules.

What drives the price up or down

Most of the price comes from a short list of factors. You do not need to master all of them on day one, but you should know which way each one pushes.

• Payment history: longer and cleaner raises the price.
• Equity: a bigger down payment and lower ITV raise it.
• Interest rate: a higher note rate raises it.
• Remaining term: shorter usually raises it.
• Lien position: first lien is worth more than second.
• Paperwork: complete, recorded documents raise it; gaps lower it or stall the deal.
• Payer credit: stronger credit helps, though payment history often matters more.

Common beginner mistakes

• Quoting a number before seeing documents. A price built on what the seller remembers can drop sharply once the file arrives.
• Sending every note to one buyer. You lose the comparison that protects the seller.
• Skipping the partial conversation. Some sellers only need part of the cash. A partial purchase can mean a smaller discount.
• Not checking the rules. Licensing and fee rules vary by state.

Bottom line

The fundamentals of note brokering are a short vocabulary, a single pricing method, and the discipline to explain both plainly. Learn to walk a seller from balance to yield to price, show where your fee sits, and get the file in front of more than one buyer. Everything else in the business builds on that.