Cents on the dollar is a buyer’s price shown as a share of what you are owed. An offer of 90 cents on the dollar means the buyer pays 90% of the note’s balance. The figure is only as clear as the balance behind it, so ask which dollar the buyer is counting.
Which dollar is being counted
One offer can be described in several ways, depending on what it is divided by. Here is a $115,000 offer on a note with about $129,400 of principal still owed and 168 payments of $1,140 left.
| Measured against | Base | Cents on the dollar |
|---|---|---|
| Balance still owed | About $129,400 | About 89 |
| Total of all payments left | $191,520 | About 60 |
| Original loan amount | Higher than today’s balance | Lower than 89 |
Illustrative example. Every row uses the same note and the same $115,000 price, which reflects an 8% buyer yield on a 6% note. It is one note and says nothing about market averages.
Row one is the meaning a note buyer has in mind: price against the unpaid principal balance, the part of the loan not yet repaid. The second row sets a check today against payments spread over 14 years, a large part of which is interest for years that have not happened yet. A holder who thinks in terms of the payment total will feel robbed by a price that is in fact close to the balance, and the buyer who quoted it has said nothing false. When anyone quotes you cents on the dollar, ask what balance they divided by and the date that balance was taken.
The arithmetic
Divide the price by the balance and multiply by 100. On the note above, $115,000 divided by $129,400 is 0.889, or about 89 cents on the dollar. The remaining 11 cents is the discount on the note, the gap between what you are owed and what you are paid: $14,400 here, which is 11.1% of the balance.
Cents on the dollar and the discount are therefore one fact stated from opposite ends, and knowing either gives you the other.
Why it is a weak way to compare notes
Cents on the dollar reports the result of a pricing and says nothing about how the buyer got there. Buyers price the payments and the risk, and what a note is worth turns on both, so two notes with the same balance can fairly sell at very different figures. A note paying a low rate has to be bought at a deeper discount before the buyer reaches their yield, which is the return they need on their money. A long remaining term does the same, because each distant payment is worth less today. Working the other way, a long on-time record and real equity in the property lower the risk and support a higher price.
This is why a neighbor’s story about what their note sold for tells you little about yours. The yield the buyer used travels better from one note to another, because note buyers calculate a price from a yield and the payments left, and the cents figure is only what falls out at the end. A figure for your own note has to come from its own payments, rate and property, which is what we ask for when you send us the details of your note.
Partials break the measure
In a partial purchase you sell a set number of payments and keep the rest of the note. The buyer is no longer buying the balance, so dividing the price by it produces a number with no meaning. On the same illustrative note, selling the next 60 payments raises $56,200. That is 43% of the balance, yet you still own a note that comes back to you with about $94,950 owed on it.
For a partial, set the cash you receive against the payments you give up (60 payments of $1,140 come to $68,400) and against what returns to you later.
Turning a quote back into dollars
Multiply the cents by the balance the buyer used to get the price in dollars, then subtract that price from your own balance to see the discount. Ask for the yield behind the price as well. If the buyer’s balance differs from yours, settle that before anything else, because a cents figure worked from the wrong balance describes a different note.
Related questions
Is cents on the dollar the same as the discount?
They are two views of one fact. If a buyer pays 89 cents for each dollar of balance, the discount is the other 11 cents. Knowing either figure gives you the other.
Can I compare my offer with what someone else got for their note?
Only loosely. Their note had its own rate, term, payer and property, and each of those changes the price. The yield a buyer used is a better figure to compare than the cents on the dollar.
Why does my offer look so low against the total of my payments?
Because the payment total includes years of interest that has not been earned yet. Buyers measure the price against the principal still owed, which is a smaller figure. Make sure you and the buyer are using the same base.