Buyers look at the same note and reach different prices because each one needs a different return, judges the risk differently and wants different kinds of notes. A spread between offers is normal, which is why a single offer tells you so little about what your note is worth.
There is no public price list for private notes. Nobody posts a daily quote for a seller-financed mortgage the way a stock exchange posts share prices, so each buyer builds their own view of what a note is worth from their own inputs.
Every price starts with one buyer’s yield
Yield is the yearly return a buyer earns on what they pay for your note. The buyer picks the yield they need and works backward to the price that produces it, so the more return they need, the less they pay.
Take the note from our pricing guide: $1,140 a month for 168 more months, with about $129,400 owed. A buyer who needs 8% pays $115,000 for it. One who needs more than 8% pays less for the same payments, and one content with less pays more, with nothing about the note having changed.
Illustrative example. A real buyer’s yield depends on the payer’s record, the equity in the property and the lien position.
The arithmetic is in how note buyers calculate a price. The rest of this page is about why two buyers would pick different yields for the same file.
Where a buyer’s money comes from
Some buyers use their own savings or a retirement account. Some borrow on a credit line. Some raise money from investors who expect a set return, and some are buying for a larger company that will take the note off their hands at an agreed price.
Each source has a cost. A buyer who pays their own investors a fixed return must earn more than that on every note, or they lose money. A buyer using their own cash only has to beat what that cash would earn elsewhere. The two can look at the same file, agree on every fact in it, and still arrive at different prices.
What each buyer wants to own
Buyers specialize. One only buys first liens on houses. Another likes land. Another will take a note where the payer is behind, because they know how to work those out. Some avoid certain states because of how long it can take there to recover a property after a default, and some have a minimum or a maximum size.
A note that fits a buyer’s target gets their best price. A note at the edge of it gets a cautious price, or a quote that is really a polite no, so a low offer may only mean you reached the wrong buyer for your kind of note.
How each buyer reads the risk
Hand the same facts to a second buyer and they will be weighed differently.
- The payer. One buyer puts most weight on the credit score. Another cares more about a long record of on-time payments and treats a middling score as old news.
- The property. Each buyer estimates the property’s value separately. A buyer who thinks the house is worth less sees a thinner cushion and prices for it.
- The paperwork. One buyer will fund with a sworn statement in place of a lost note. Another will not fund at all.
- The terms. A balloon payment, an interest-only period or a long remaining term will bother some buyers more than others.
None of them is necessarily wrong, since each is making a bet with their own money.
How many hands the note passes through
The person who quotes you may not be the person whose money buys the note. A direct buyer funds the purchase themselves. A broker finds a buyer and is paid for doing so, and sometimes one broker passes the note to another, who passes it to the buyer.
Everyone in that chain is paid out of the gap between what the end buyer pays and what you receive. A longer chain can mean a lower number for you. It can also mean a higher one, if the broker reached a buyer who wanted your note more than the direct buyer you called. Either way, ask each party whether you are dealing with a note buyer or a note broker, who else is paid from the deal and how much. If you have us price your note, that figure is printed on the worksheet with each offer, beside the balance used, the yield and the discount.
How firm each quote is
A first quote is based on what you said about the note. Nobody has read the documents, checked the title or valued the property. One buyer may quote conservatively and expect to hold that number, while another may quote high to win your signature, knowing the review that follows gives them room to lower it.
Until both have completed their review, you are comparing an estimate with an estimate. Ask each buyer what would cause their number to change and what they have already checked. Nobody can honestly promise that a quote will hold before the file has been reviewed, and that includes us. What you can find out is which quotes were built on more information.
Offers that are not for the same thing
| What differs | What to ask |
|---|---|
| What is being bought | Is this for every remaining payment, or a set number of them? |
| Costs | Is this the amount I receive, or are title, recording or legal costs taken out of it? |
| Balance used | What balance and how many remaining payments did you price? |
| Yield | What yield does this price give you? |
| Conditions | What has to be true for this price to stand? |
| Who funds | Is this your money, or are you placing the note with someone else? |
A full-sale offer and a partial offer cannot be ranked on the size of the check. On the illustrative note above, $115,000 for all 168 payments and $56,200 for the next 60 are both priced at the same 8% yield, and the second is smaller because you keep the other 108 payments. To compare offers on your note, put them on the same basis before you rank them.
What the spread means for you
If every buyer priced notes alike, it would not matter whom you called. Because they do not, the buyer you happen to reach first has a large effect on what you are paid. That part is chance, and asking more than one buyer takes it out. There is a limit to how many offers are worth getting on your note, since each one means another copy of the file sent out and another set of answers to chase.
A few cautions go with the advice.
- The highest first quote is not always the highest check, so weigh how firm it is.
- An offer far below the others may come from a buyer who does not want this kind of note. One far above them calls for a question about what was assumed.
- If all the offers are lower than you hoped, they are telling you something about the note. Keeping it, or selling only part of it, may be the better choice.
Building your own comparison
Draw up a sheet with one column for each offer and one row for each question in the table above, and fill it in as the answers come back. Blank cells are useful too, because they show you which buyer has not yet said what they priced or what could change it.
When the sheet is full, read down each column before you read across the rows. A high price sitting above three open conditions is a weaker offer than its top line suggests, and a lower one with every row answered may be the number that reaches your account.
Related questions
Is the highest offer on my note always the best one?
No. A first quote made before anyone has read the documents can change. Compare how much each buyer has already checked, what conditions are attached, and whether the figure is what you receive after costs.
Should I tell a buyer I am getting other offers?
Yes. There is nothing to hide, and a buyer who knows they are competing has a reason to sharpen their price. A buyer who objects to you comparing offers is telling you something about how they work.
Does a broker's offer have to be lower than a direct buyer's?
Not necessarily. A broker is paid out of the deal, but a broker who reaches a buyer that wants your kind of note can still bring you more than a direct buyer who does not. Ask to see what the broker earns.