A note broker is paid out of the sale, when it closes. The money arrives as a fee from the buyer or as a spread between two prices, and in both cases it sits in the gap between what the buyer pays and what the note holder receives.
A holder may be told that a broker “costs nothing”. That is comfortable to hear and only partly true, since nobody works a sale for free. This page explains where a broker’s pay comes from, the forms it takes and how to find out what it is on your own deal.
Where the money comes from
A buyer decides the most they will pay for a note, and that ceiling is fixed by the return they need on their money and by how risky the note looks. Everyone paid for arranging the sale is paid out of the buyer’s money, because the deal has no other source of cash. A broker’s pay is therefore either inside the buyer’s price or added on top of it.
An example with round figures shows the effect. Suppose a buyer will pay $100,000 for a note and the broker’s pay is $4,000: the holder receives $96,000 before closing costs. Put a referrer into the deal at $1,000 and the holder receives $95,000. The figures are chosen to make the sums easy and say nothing about what any broker charges.
That arithmetic does not make a broker a bad deal. One who brings a second and a third buyer to a note can lift the holder’s price by more than the broker earns. The holder can only judge whether that happened with the figure in front of them.
The forms a broker’s pay takes
A fee from the buyer
The buyer quotes a price for the note and separately pays the broker for bringing it. One buyer may quote a “net to seller” figure with the broker’s fee already allowed for, while another quotes a gross price and leaves the broker to decide how much to keep. In both cases the holder sees a single number unless someone shows them the rest.
A spread
The broker contracts to buy the note from the holder at one price and to sell it to a buyer at a higher one. The two sales can be arranged to close together, in which case the broker’s own money is never used. The difference between the two prices is the spread, and it is the broker’s pay.
Of the arrangements described here, the spread is the one where the holder most needs the broker to say plainly how they are paid, because the holder’s contract is with the broker and names only the price the holder receives.
A referral or finder’s fee
Someone who introduces a holder to a broker or buyer, and does nothing further, may be paid a smaller sum for the introduction, known as a finder’s fee. Whether a person may be paid for a referral, and what they may do to earn it, can depend on state rules. Brokers who share a deal usually protect their pay with fee and non-circumvention agreements.
Side by side
| Fee from the buyer | Spread | Referral fee | |
|---|---|---|---|
| Who the holder contracts with | The buyer | The broker | The buyer or a broker |
| Who decides the amount | The buyer, or the buyer and broker together | The broker | Whoever pays it |
| What the broker does | Presents the note and manages the sale | Contracts for the note and resells it | Makes an introduction |
| How visible it is to the holder | Visible only if disclosed | Hidden unless the broker shows the buyer’s price | Visible only if disclosed |
When a broker is paid
At closing, from the proceeds, and only if the sale funds. That timing ties the broker’s interest to the holder’s, since a sale that fails pays the broker nothing.
Be careful with anyone who asks a note holder for money before closing. An application fee, a processing fee or an “appraisal deposit” payable to the broker is a warning sign. A note sale does have real third-party costs, such as title work and a property valuation, and those should be named, explained and paid to whoever does the work. Check any charge you are quoted against the usual fees and costs when you sell a note before you agree to it.
What decides the size of a broker’s pay
We do not publish typical figures. No reliable source for them exists and every deal differs, so what follows is a description of what pushes the number up or down.
The size of the note is one influence. The work on a small note is much the same as on a large one, so the same effort is a bigger share of a small deal. The condition of the file is another, because missing documents, a title problem or a payer who is behind all take time to sort out.
The number of people in the deal matters as well. If a referrer, a broker and a second broker all stand between the holder and the buyer, each is paid from the same gap. Competition works the other way: when several buyers bid, the price rises and an oversized cut is harder to hide. And pay that has to be shown to the holder is pay the broker must be able to defend.
When pay becomes a problem
Any broker paid out of the deal earns more when the holder accepts less, which is a conflict of interest whether the pay is a separate fee or built into the price. A fee built into the price is a normal arrangement. What protects the holder is a broker who says plainly how they are paid and confirms that the quoted price is the net amount the holder receives.
Competition does the rest. Two brokers may be taking the same note to the same buyer, so a holder who compares net prices from more than one source can see which route leaves them with more.
The warning signs are evasive answers about pay, fees that appear late in the process, and a price that changes at closing without a reason.
How we are paid
We broker some notes to other buyers and buy some ourselves. When we broker a note, our fee is paid on the buyer side and built into the offer price, so you see one net figure and no separate fee line. Either way, each offer comes with a pricing worksheet that shows the balance, the yield the price is based on and the discount, in the terms the mortgage note basics guide defines.
You will not hear from us that selling costs nothing. A sale always carries the discount, the closing costs and the pay of whoever arranged it. In our offers that pay sits inside the price, and the worksheet shows how the price was reached. If you want to see how one reads on a real offer, ask for a price on your note and compare it with any other offer you hold.
Questions to put to any broker
- Are you buying my note yourself, or taking it to another buyer?
- What is the buyer paying for it?
- How are you paid on this, and is the price you quoted the net amount I receive?
- Is anybody else being paid for this deal?
- Which costs come out of my proceeds, and who receives each one?
- Do I owe you anything if I decide not to sell?
A straight broker replies to the third question with a figure, and a speech where the figure should be is an answer of its own kind. Write the figure beside the buyer’s price and the costs, and what is left is your own proceeds, which is the number to compare from one offer to the next.
Related questions
Does the note holder pay the broker directly?
Not by writing a check, in the arrangements described here. The broker's pay comes from the buyer's money at closing, either as a fee or as the difference between two prices. It still affects what you receive, which is why you should ask to see it.
Is a spread legal?
Buying and reselling at a profit is an ordinary business practice. Whether a particular arrangement needs a license or a disclosure is a state-law question. If you are a broker, ask an attorney. If you are a holder, ask to see the buyer's price.
Should I pay an upfront fee to have my note sold?
Be very cautious. In a fair arrangement a broker's pay arrives only when a sale funds. Real third-party costs such as title work can arise, and they should be explained and paid to whoever does the work.