A note buyer pays for your note with their own or their backers’ money. A note broker takes your note to buyers and is paid for arranging the sale. A note investor is a buyer who holds notes for income, and one firm can be all of these on different deals.
The words get used loosely, sometimes by the same company on the same web page. Sorting them out is worth a few minutes, since who you are dealing with decides how many prices you will see, whose money is behind the offer and whose interests it serves.
The roles compared
| Note broker | Note buyer | Note investor | |
|---|---|---|---|
| Whose money pays for the note | Someone else’s | Their own, their lender’s or their investors’ | Their own, for example savings or a retirement account |
| What they want from the deal | A completed sale | A note at a price that gives them their return | Steady income from the payments |
| How they are paid | A fee or a spread at closing | The yield, or a profit on resale | The yield over the life of the note |
| How long they are involved | Until closing | Until they resell the note or it pays off | As long as they hold the note, which can be until it pays off |
| Who carries the risk afterwards | Not the broker | The buyer, while they hold it | The investor |
| How many prices you see | Several, if they shop it | One | One |
The note broker
A broker is an intermediary who gathers the facts on your note, presents it to buyers, brings you the offers and manages the sale to closing. The purchase money comes from someone else.
What a broker adds is reach. Buyers differ in what they want and what they will pay, and a broker who knows several can put their numbers next to each other. Against that, a broker is another party to be paid, and one who sends your note to a single buyer gives you the cost of a broker without the benefit.
A broker’s interest lies in the sale closing. A careful one weighs that against your interest in the price, while a careless one steers you toward whichever offer closes easiest. The difference shows in what a note broker does between the first call and the closing.
The note buyer
A buyer writes the check. The funds may be their own, borrowed or raised from investors, but the decision to pay and the price are theirs, so the person quoting is the person deciding and nobody stands in the middle.
The cost of that directness is that you hear one opinion. A buyer prices to their own required return, their own preferences and their own cost of money. If your note is not quite what they like, the price reflects it, and you cannot tell whether another buyer would have liked it better.
A buyer’s interest is plain enough: the less they pay, the more they earn, because a lower price means a higher yield from the same payments. That is the nature of buying anything and there is nothing dishonest in it, but it does mean a single buyer’s offer tells you what that buyer wants to pay, which may or may not be what the note is worth.
The note investor
An investor is a buyer with a particular purpose, which is to hold the note and collect the payments as income. Private individuals are among them, and some buy through a self-directed retirement account, which has rules of its own that the account custodian and a tax adviser must confirm.
As a seller you may never meet the investor, who can be the last link in the line, buying from a larger buyer or through a broker. What an investor cares about is whatever keeps payments arriving: the payer’s record, the equity in the property (its value above what is owed against it) and the quality of the paperwork. The guide for note investors is written for them.
The line between buyer and investor is thin, since every investor is a buyer on the day they purchase. In everyday use, buyer tends to mean a firm that purchases regularly and may resell, and investor means whoever ends up holding the note.
Where the roles blur
The table of roles in the note basics guide keeps broker, buyer and investor on separate rows, and real firms do not. A firm may buy the notes that fit its own money and pass the rest to other buyers for a fee. A broker with some capital may keep the occasional note for their own account. A firm may buy your note and sell it on to an investor soon afterwards, earning the difference.
The mixture to watch for is the broker presenting as a buyer: a website says “we buy notes” and every quote is in fact relayed from somebody else. Brokering is a fair trade, but brokering without saying so hides the second price that sits behind the one you were quoted.
We are a mixture ourselves. We buy some notes and broker the rest to other buyers, we say which is happening on each note, and the pricing worksheet shows what we earn either way. If you send us your note to price, ask at the outset which it would be.
Why it matters to your price
Here is an example with made-up round figures. Three buyers look at the same note and would pay $84,000, $88,000 and $91,000. Offers differ from buyer to buyer because each wants a different yield and likes that kind of note to a different degree. Call only the first and $84,000 is the offer, with nothing to tell you that it sits $7,000 below the best of the three. A broker who takes the note to all three starts from $91,000, and the broker’s pay then comes out of the deal.
The useful question, then, is how many buyers have priced the note and what each party in the deal is earning. A direct buyer who shows their yield and a broker who shows their pay are both giving you what you need to judge the number.
Questions that show who you are dealing with
- Will you be the one who owns my note after closing?
- If not, who will, and what are they paying?
- What yield is this price based on?
- What do you earn on this deal?
- Have other buyers seen it, and what did they offer?
The answers place the person in one of the roles within a minute, and they show how open the rest of the deal is likely to be.
Which one should you work with?
If you already know a buyer you trust and your note is the plain kind they like, going direct is reasonable. Ask for the yield and get a second opinion anyway. If your note has something unusual about it, or you hold one offer and cannot judge it, a broker who shops it is the better fit. Either way, work out who you are dealing with before any documents leave your hands.
Then put the questions above to them, and ask for the second and fourth answers in dollars. A reply you cannot follow is a reason to ask again, and no reason to accept the number that came with it.
Related questions
Is it better to sell to a direct buyer or through a broker?
Neither is better by definition. A direct buyer gives you one price with nobody in the middle. A broker who shops the note gives you several prices and is paid from the deal. What matters is seeing more than one price and knowing what each party earns.
How can I tell if a company that says it buys notes is really a broker?
Ask whether the company will own your note after closing and whose funds will pay for it. A buyer can answer immediately. If the answer is vague, or the quote depends on someone else's approval, you are probably dealing with a broker.
Can a note investor buy directly from a note holder?
Yes. An individual investor can buy directly from a holder, or through a broker or a larger buyer who has already checked the file. A holder selling directly to an individual should still use a title or escrow company for the closing.