A note buyer pays for your note with their own money. A note broker finds a buyer for it and is paid out of the deal. Plenty of companies do both, and some that call themselves buyers are brokers, so ask who will fund the purchase and you will know which you have.
The answer matters because the two have different interests. A buyer makes more by paying you less. A broker’s interest depends on how the broker is paid, and you are entitled to know that before leaning on their advice.
Direct buyers
A direct buyer keeps the note or sells it on later. The group runs from individuals buying one note at a time with savings or retirement funds, through small funds, to larger companies that buy steadily.
The appeal is simplicity, since one company quotes, checks the file and pays. The limit is that you see a single price, set by one buyer’s view of risk and one buyer’s appetite on that day. Buyers vary a good deal in what they want. One avoids land, another takes only first liens on houses, a third already holds as many notes in your state as it cares to. None of that has anything to do with the quality of your note, and all of it shows up in the number.
Brokers
A broker does not fund the purchase. They gather the facts of your note, present it to buyers, bring back offers and manage the sale through to closing. Their value to you lies in reaching buyers you would not find alone and in doing the work of packaging the note and chasing third parties.
Whether a particular broker delivers that comes down to how they work. Reach is the first thing to ask about, because a broker who sends a note to many buyers produces competition and one who passes every note to the same buyer produces an extra layer. Disclosure is the second. Some brokers say plainly that they are brokers and state what they earn, and others present themselves as the buyer and mention neither. Then there are chains, where one broker hands the note to another, who hands it to a buyer, with each link paid out of the price. Ask how many parties stand between you and the money.
Listing boards
A listing board is a website where you post a note and buyers bid. It gives you access to buyers and leaves the rest to you: describing the note accurately, uploading documents, answering questions, judging whether a bidder can perform and negotiating terms.
Someone who sells notes regularly may be comfortable with that. A person selling the only note they have ever held is taking on a specialist’s job for the first time, with their own money at stake.
The three side by side
| Direct buyer | Broker | Listing board | |
|---|---|---|---|
| Whose money buys the note | Their own, or money they manage | A third-party buyer’s | Whichever bidder wins |
| Offers you see | One | One or several, depending on the broker | As many as bid |
| Who does the work | The buyer | The broker | You |
| How they are paid | The return on the note | A fee or a margin inside the price | A listing or transaction charge |
| Main thing to check | Whether their one price is competitive | How many buyers they asked, and what they earn | Whether you can judge the bids yourself |
How each one is paid
A direct buyer is paid by the note. They pay less than the balance owed and then collect the payments, and the wider the gap between the balance and the price, the higher the return on their money.
A broker is paid in one of two ways. Some charge a stated fee. Others work on a margin, where the buyer pays one price, the seller receives a lower one, and the broker keeps the difference. As an example with round figures, if the buyer pays $82,000 and you are offered $80,000, the broker’s margin is $2,000. Either method is legitimate provided you are told the amount. Without it you cannot tell whether a low offer reflects your note or the way the broker is paid.
A listing board charges for the listing, for the transaction, or for both, so read its fee terms before you post.
Questions that show who you are dealing with
- Will you fund this purchase yourselves, and if not, who will?
- How many buyers have seen my note, and can I see their offers?
- What do you earn on this sale, and where does it show?
- What yield is this offer priced at?
- Who will be named as buyer on the purchase agreement?
- Could a partial, the sale of only some of the payments, work on this note, and if not, why not?
The fifth answer should match the first. As for the last, a company that proposes a full sale every time is telling you what it prefers to buy, which may differ from what suits you. Watch how the questions land as well as what is said. Evasion, irritation or a sudden deadline belongs among the red flags that mark a bad buyer or a scam, and it tells you something that a polished answer would not. If the answers leave gaps, keep going with a fuller set of questions to ask a note buyer until you know who is paying and what they earn.
Checking that a company is real
Whoever you deal with, some basic checks cost little:
- Look up the company’s registration with the secretary of state where it says it is based.
- Ask for the names of the people you are dealing with, and see whether those people can be found.
- Ask which closing agent or title company they use, and call that company on a number you looked up yourself.
- Do not pay money to receive an offer.
- Do not release the original note until a signed agreement and closing instructions are in place.
Rules about who may buy or broker notes differ by state. If licensing matters to you, ask the company what applies to them in your state and confirm it with the state regulator or an attorney.
Where we fit
We sit on both sides of the difference between a note buyer and a note broker. Some notes we buy with our own or partner capital, and the rest we broker to other buyers. When you send us a note to price, you are told which applies to it, and our pay appears on the pricing sheet that comes with each offer, so the questions above are ones we expect to be asked.
If you already hold an offer
Go back to whoever made it and ask who will be named as buyer on the purchase agreement and what they earn on the sale. Those two answers place the company in the table above. If it is a direct buyer, the figure in your hand is one buyer’s view, and a second price from elsewhere is the only way to test it. If it is a broker, ask how many buyers saw the note before that figure was reached. Of all the decisions in a note sale, who you deal with is the one that sets how many prices you get to see.
Related questions
Is it better to sell to a direct buyer or through a broker?
Neither is better by default. A direct buyer is simpler and shows you one price. A broker who really shops the note shows you several. What counts is how many buyers priced your note and whether you can see what everyone earns.
How can I tell if a company is a broker posing as a buyer?
Ask who will fund the purchase and whose name will appear as buyer on the purchase agreement. If the answer is a different company, you are dealing with a broker. That is fine as long as they say so and tell you what they earn.
Do I pay a note broker directly?
It depends on the broker. Some charge a stated fee and some are paid from the difference between what the buyer pays and what you receive. Ask which applies and ask to see the amount in writing.