Selling a note costs you in two places. The discount is the large one, and it is built into the price. Transaction costs such as the title search, the valuation and recording are smaller, and buyers differ on who pays them. The figure that takes in both is your net: the amount you will actually receive.
Fees draw the eye because they are printed on a statement. The discount is printed nowhere, so it gets less attention than its size deserves. Below, both are laid out with what each one pays for and the question that brings it into the open.
Transaction costs
These are the costs of checking the note and transferring it. A given sale may involve only some of them.
| Cost | What it pays for | What to ask |
|---|---|---|
| Title search or update | A review of the county records for liens on the property | Who pays, and who pays if the sale does not close? |
| Title insurance | A policy protecting the buyer’s position as lien holder | Is it required on this sale? |
| Property valuation | An agent’s opinion of value or an appraisal | Which type, and can I see the result? |
| Credit report | A look at the payer’s credit | Is this charged to me? |
| Document preparation | Drafting the assignment and other transfer papers | Is there a charge, and how much? |
| Recording | The county’s charge to record the assignment | Who pays? |
| Closing or escrow agent | The neutral party who handles documents and funds | Is the charge split? |
| Notary and courier | Witnessing your signature and shipping the original note | Will a notary be sent to me? |
| Wire charge | Your bank’s or the sender’s charge for the transfer | Is it deducted from my proceeds? |
Practice varies. Some buyers pay all of these and allow for them in the price they offer, and others pass several to the seller as deductions at closing. Both are legitimate, but they make two offers with the same headline price worth different amounts, which is why comparing offers on your note means comparing net against net.
The discount: the cost that is on no bill
The discount is the difference between the balance your payer owes and the price a buyer pays you. It exists because a buyer wants a return on their money that is higher than the interest rate on your note. A note cannot pay its buyer more than its own rate unless the buyer pays less than the balance for it.
To put round figures on it as an example: a note with $90,000 still owed that sells for $81,000 carries a $9,000 discount, which is 10% of the balance. No closing statement will list that $9,000, because the purchase price already contains it. The charges in the table above are fixed sums for particular jobs, while the discount is taken across the whole amount sold, so the yield a buyer uses deserves more of your attention than who pays for the title search.
The discount can be reduced from either direction. Competition between buyers can bring the yield down. Selling fewer payments, which is the idea behind a partial, shrinks the part of your note that is discounted in the first place, though a partial does not suit every note.
What a broker earns
If a broker arranges the sale, the broker is paid from it, in one of the two ways note brokers are paid. The pay may be a stated fee, shown on its own line as an amount or a percentage. Or it may be a margin, where the buyer pays one price, you receive a lower one and the broker keeps the difference. A margin never appears as a fee because it sits inside the price you were quoted.
Under both methods the money comes from the same place, the gap between what the note is worth to the end buyer and what you receive, and a margin you cannot see is a cost you are paying all the same, so ask for the amount.
Our own pay is shown on the pricing sheet that accompanies every offer we return after you send us your note details, next to the balance, the yield and the discount. Selling through us has a cost like any other route, and our commitment is that you can see what it is before you decide.
Costs on your own side
Some expenses never pass through the buyer at all. If you want the purchase agreement reviewed, you pay your own attorney, and on a large or unusual sale that is money well used. A conversation with a CPA before closing is another, and it goes further if you already know how tax comes into a note sale. Tax is not a fee, but for some sellers it changes what they keep by more than every item on this page, and how the proceeds are treated depends on how the original sale was reported, your basis in the note and your state.
Then there are the costs of putting the file right. If the title search finds something that has to be cleared, such as an old lien that was never released, the fixing may fall to you. Replacing documents means certified copies from the county, or the paperwork for a lost note. And a seller acting for an estate or a trust needs the court or legal papers that show authority to sign.
Charges to question
The costs above are ordinary parts of a sale. The following are different in kind.
- A fee to receive an offer. A buyer can price a note from a short description, so ask what a quote fee is paying for.
- Money up front for “processing”. Third-party costs can be settled at closing or carried by the buyer. A request to send money before any work is done should be explained to your satisfaction.
- Deductions that appear for the first time on the closing statement. Anything taken from your proceeds should have been disclosed with the offer.
- A charge if you decide not to sell. Some agreements make the seller repay the buyer’s costs if the seller withdraws. Know whether yours does before you sign.
No single item on that list proves bad faith. Each is a reason to ask for an explanation in writing, and there is more on the pattern in how to sell a note, under reading the offers.
Ask for the net in writing
Everything on this page comes together in the answers to a short set of questions, and you can put them to any buyer or broker:
- What yield is this price based on?
- What will be deducted from the purchase price before I am paid, item by item?
- If you are a broker, what do you earn and where does it show?
- What is my net, in writing?
- If the sale does not close, do I owe anything to anyone?
The fourth is the one to hold a buyer to. Once you have it, the whole cost of selling comes down to one subtraction: the balance your payer owes minus your net. Set that figure beside what the cash is worth to you now.
Related questions
Who pays the closing costs when a note is sold?
It depends on the buyer. Some pay the title, valuation, recording and closing charges themselves and some deduct them from the seller's proceeds. The offer should say which, and you can ask for an itemized list.
Is the discount a fee?
No. A fee is a charge for a service. The discount is the difference between the balance owed and the price, and it comes from the return the buyer needs. It is still the largest cost of selling, so ask what yield produced it.
Do I owe anything if I get a quote and decide not to sell?
A quote from us is free and carries no obligation. With any buyer, check the purchase agreement before signing, since some agreements ask the seller to cover costs if the seller withdraws after that point.