If you have sold a property recently and facilitated the sale by offering a seller carryback secured by that property, you probably have received letters and phone calls offering to buy your note. If this is the first seller carryback transaction you have done, talking to a stranger about selling your note can be a little intimidating because it is unknown territory for you.
A professional, experienced note broker/buyer will be sensitive to your concern. You can expect that this person will probably give you a brief overview of current market conditions, try to match your expectations with reality, explain that he will need to get some information from you in order to give you some initial pricing options. He will probably ask for a copy of the note, and may also request to see the closing statement and perhaps your buyer’s payment history. This is the same experience you would have in an initial meeting with an attorney, CPA, tax preparer, etc.
With these minimum documents in hand and answers to questions about the property and your buyer’s credit history, the note buyer is now in a position to review this information and give you a realistic offer based on the circumstances surrounding your particular note. When he calls back, you will receive a specific dollar offer based on the current balance of your note. If he is a broker, you may get offers from two or three different funding sources. Typically, these offers will be relatively close to one another. Every buyer has his own pricing model, preferences, etc., but given the same solid information, the “market” pricing will be close.
This is the way our business is done.
Recently, however, I have talked to several sellers who appear to be having a conversation with a note broker in which the broker asks for no documents. Before the conversation ends, the broker will say something like ” Well, your note would get about 84% or 85% of the current balance.” No specific dollar offer is given. When the seller talks to another broker/buyer who goes thru the process I just described, and the seller then gets specific dollar offers less than the 84% or 85% thrown out to him, the seller will say “I have a higher offer than that.”
If I know based on my experience that the market will not pay 84% or 85% based on the facts of that particular note situation, what is going on here? It just may be that the broker who threw out that “offer” knows that no-one will match 84% or 85%. So when the seller is done talking with a few professional note buyers and none of them can match that number, he will call that broker back and tell him he’s got a deal. As the notebuyer now completes his due diligence by reviewing all the documents, determining credit and property value, the facts of the situation may dictate that his dollar offer is something less than the 84% or 85% the seller was given by the broker in the initial conversation. In fact, the offer may now be totally in line with the other offers the seller received. Since the seller has invested some time to get to this point, he may decide to just go ahead and close the transaction. If he is angry enough, he may call one of the other brokers he spoke to whose initial pricing was similar to what he is now being offered, and proceed with him.
What happened? Looks like Bait and Switch to me. Sellers want the highest price possible for their note. Understandable. Unfortunately, since so many sellers in this market are first time creators of a seller carryback note, their inexperience is being taken advantage of by some folks in our business who don’t adhere to a professional code of conduct. They just want to get the deal. And if the seller is given an initial “offer” that the marketplace can’t match, the broker gets the deal.
A good portion of my current business is from sellers who spoke to me initially a few years ago. They have been receiving my monthly Newsletter, reading this Blog, hopefully getting more comfortable with me and my business process. I try to be upfront and honest, and sometimes sellers don’t like the message. I get that. But if I can get you as a seller to understand the seller carryback marketplace and then align your expectations with that reality, it may help you when the time comes for you to talk to both the professional and unprofessional people who inhabit our business.
