A lowball offer prices your note at a higher return than its risk calls for, or hides costs that shrink what you are paid. The price by itself will not show you which kind of offer you hold, so ask how the number was built and set a second offer beside it.
Every note sells for less than its balance, which means a figure below what you are owed proves nothing either way. What matters is how far below, and whether the buyer can give a reason that is true of your note.
Where a low price comes from
The discount is the gap between the balance your payer still owes and the price a buyer pays you. The yield is the yearly return the buyer earns on that price if every payment arrives on schedule. A buyer who asks for a higher yield has to pay a lower price to get it, so a bigger yield means a bigger discount for you.
A fair offer uses a yield that fits the risk in your note. A lowball uses a higher one and relies on you never asking what it was. There is a second route to the same result: a reasonable headline price, followed by costs, holdbacks or conditions that pull the money you receive well under it.
When a low price is an honest one
Check the offer against your own note before deciding it is unfair, because buyers have sound reasons to pay less for some notes. A payer who has paid late is more likely to stop paying. A new note has little seasoning, which is the count of payments already made, so the buyer has a short record to judge. Thin equity, where the balance sits close to what the property would sell for, leaves the buyer less to recover in a default.
Lien position, the order in which claims on the property are paid, works the same way: a note that is second in line carries more risk than a first. A low interest rate on the note forces a buyer who needs a set yield to pay less to reach it. Gaps in the paperwork, such as a missing original, an unrecorded document or no payment records, cost money to repair, and the buyer will take that cost off the price.
If the buyer points to one of these and it is true of your note, the price may be right even though it disappoints you. How far each one should move the number is the subject of what a fair discount looks like, so you can test the buyer’s reason as well as the buyer’s price.
Signs that deserve a question
| What you see | What it may mean | What to ask |
|---|---|---|
| A price with no explanation | The buyer would prefer you did not check it | What yield did you price this at, and why that figure? |
| A reason that does not match your note | A standard script in place of a review of your file | Which fact about my note produced that? |
| Only a full-sale price, on a long note | The far payments are being bought cheaply | What would you pay for the next 60 payments only? |
| A deadline of a day or two | The buyer does not want it compared | What changes about my note by Friday? |
| Costs that appear after you agree | The net is lower than the offer | What exact amount reaches my account? |
| Silence on what the buyer or broker earns | A wide margin sits between you and the end buyer | Who funds this, and what do you keep? |
Any one of these can have an innocent explanation, and the question in the last column is how you find out. An offer that shows several of them and answers none of the questions is one to set aside.
Headline price and net price
Here is a made-up example with round figures. Your note has a $90,000 balance. Buyer A offers $81,000, which is a $9,000 discount, or 10% of the balance. Buyer B offers $80,000. On the headline, A is ahead by $1,000.
Now ask each of them what reaches your account. Buyer A takes $2,500 off for title work, a valuation and servicing setup, so you receive $78,500. Buyer B covers those costs and wires the full $80,000. B is the better offer by $1,500, and the only way to learn that is to ask both buyers for the net figure.
Example only, with invented figures. It is no guide to what your note would sell for or what a sale costs.
Checking an offer yourself
- Ask for the yield in writing. The buyer who priced your note has this number, and a refusal to share it tells you something about the offer.
- Ask for the worksheet. It should show the balance, the payments being bought, the yield, the price and every cost taken off, and each line is easier to question once you know how buyers calculate a price.
- Ask what a partial would pay. A partial is the sale of a set number of payments, after which the rest of the note comes back to you. Some buyers do not offer them and some notes do not suit one. Where both allow it, the quote shows what the nearer payments are worth without the far ones.
- Get the net figure. Ask what amount is wired to you at closing after title work, recording, servicing setup and anything else, and compare offers on that figure alone.
- Get a second offer. Two buyers pricing the same file independently will show you quickly whether the first number was reasonable. If you have nobody else to ask, send us the note details together with the offer you hold, and we will tell you plainly if the existing offer looks fair.
The offer that is too high
An offer that beats every other by a wide margin deserves as much suspicion as a low one. A buyer can quote high to win your signature and then cut the price late in the process, once you have stopped talking to anyone else and have made plans for the money.
Prices also change for real reasons. The title search may find another lien, or the property may be valued lower than you stated. What separates a legitimate reduction from a tactic is whether the buyer can name the specific new fact behind an offer that drops before closing.
If the buyer will not explain the number
Arguing about the price gets you nowhere, because you have nothing to argue with until you see the yield and the worksheet. Ask for both. A buyer who supplies them has given you something to test against a second offer, and if the price holds up you have your answer even if you decide to keep the note.
A buyer who refuses has left you one way to check, which is to have someone else price the same file. When the second price arrives, compare the two offers on the net figure and on the payments each one buys, and count the refusal against the first. Nothing in the process of selling a note requires you to accept a number before you understand how it was reached.
Related questions
Is an offer below my note's balance always a lowball?
No. Every note sells for less than its balance, because the buyer needs a return on the money they pay. An offer is a lowball only if the discount is bigger than the risk in your note justifies, or if costs and conditions pull the money you receive well below the stated price.
Can I ask a note buyer what yield they used?
Yes, and you should. The yield is the yearly return the buyer needs, and it is the number that sets your price. A buyer who priced your note knows it. If they will not share it, treat that as information about the offer.
What should I do if I already accepted a low offer?
Read the purchase agreement to see how and when you can withdraw, since the terms differ from one buyer to the next. If the wording is unclear, ask an attorney before you take any step. Nothing stops you asking the buyer to explain the price in the meantime.