How Does a Note Broker Earn a Fee?

A note broker earns a fee when a note sale closes. The fee takes the form of a spread, which is the gap between what the buyer pays and what the seller receives, or of a set amount the buyer pays the broker for bringing the deal. If nothing closes, the broker earns nothing.

Where the money comes from

Whatever the fee is called, it has one source. A buyer decides what a note is worth to them, which is the most they can pay and still earn the yield they need. Everything the buyer pays out, to the seller, to the broker and in closing costs, has to fit inside that figure.

A fee “paid by the buyer” is therefore still money that could otherwise have gone to the seller. A fee can be worth its cost all the same, because a broker who brings competing buyers can raise the price by more than the fee takes away. The point is only that a seller should be told what the fee is.

Spread and referral fee compared

	Spread	Referral or finder’s fee
How it is set	The broker agrees one price with the buyer and a lower price with the seller	The buyer agrees to pay the broker a flat sum or a percentage for the introduction
Who writes the check	It comes out of the buyer’s funds at closing	The buyer pays it, at or after closing
The broker’s part in the deal	Works it from first call to funding	Hands the lead over and steps back
What the seller sees	Only the net price, unless the broker discloses the spread	The buyer’s offer, with the fee already allowed for

Where the broker only makes the introduction, the payment is a finder’s fee on the note, and the right-hand column applies.

When the fee is earned

A broker does the work first and is paid last. A sale can fail late for reasons outside anyone’s control: a title problem, a payment record that does not hold up, a property worth less than expected, or a seller who decides to keep the note. In each case the broker’s fee is zero.

Because the fee comes out of the closing, there is nothing for a seller to pay beforehand, and a request for a fee or deposit before closing is a warning sign.

What decides the size of the fee

We do not quote typical fees, because there is no reliable figure and they move from deal to deal. What moves them is easier to describe.

The size of the note matters wherever a fee is set as a share of the price, since the same share is more dollars on a larger note. The work a note needs matters too: missing documents, an unclear payment record or an unusual property all take more time. So does the length of the chain, since a note that passes through two or three middlemen pays each of them, and the seller’s price carries all of it. Competition pulls the other way, because a seller holding offers from several sources leaves less room for a wide spread.

The conflict to be aware of

With a hidden spread, the broker earns more by paying the seller less. Disclosure is the answer to that pull, whichever of the ways note brokers are paid is in use. When the seller can see the buyer’s price, the fee and the net figure on one page, the fee can be judged like any other cost.

Our own offers are set out that way, on a worksheet showing the balance, the buyer’s yield, the discount and our fee. When we are buying the note ourselves and not brokering it, we tell you. Each term on that worksheet has a plain definition in the learning center.

What to ask about the fee

Put these to any broker, and to us when you ask for a price on your note.

Are you buying my note or placing it with someone else?
What is the end buyer paying?
What do you earn, in dollars?
Which closing costs come out of my price, and which does the buyer pay?

The last of these is there because the broker’s fee is only one of the fees and costs when you sell a note. They all come out of the same price, so a small fee with heavy closing costs can leave you with less than a larger fee and light ones. Compare offers on the amount that reaches you.