Written by Jeffrey R. Armstrong – President/Owner of Armstrong Capital
Your favorite Master Note Buyer – Straightforward, Honest, Fair…
The note seller will say, “Your price is too low!” That translates to: “I am not convinced and do not appreciate the value of your service.” If you have properly prepared the note seller to understand the quality and advantages of doing business with you, this mistake will not raise its ugly head. Keep in mind that the customers are not interested in your product or service; customers want solutions to their problems. Expect resistance if the note seller/”opponent” doesn’t perceive value. Prepare your benefits and solutions presentations in an emotional manner, not just a bundle of facts and figures. The note purchases come to those who provide benefits for the note sellers.
Negotiate for real dollars and profits—not funny money. Note people like to talk about the “yield” on their deals. This can lead to forgetting the objective and not realizing the small dollar profit in the deal. A 30% yield sounds like a lot, but on a small deal it may mean only a few hundred dollars. Don’t get caught up in the yield…you are after dollar profits.
To stay on top of the profit picture watch the zeros. Don’t negotiate in round numbers. Don’t offer $40,000; offer $40,245. This makes your offer seem like a calculated figure that is not negotiable. Connect the price concession to actual dollar decreases in the price you will pay for a note. Many real estate, automobile and other high priced items have significant loans/liens on the asset. Buyer and seller are often guilty of discussing price, and losing sight of the small equity that may be negotiated away by talking about the high gross dollars.
Note sellers challenge with, “Your price is too low.” Prepared negotiators are ready with a rehearsed answer. In a friendly and calm way, they respond with, “What makes you feel the price is too low?” Then they wait for the note seller to respond with their reason or reasons.
The amateur negotiators make the mistake of immediately responding with a price concession, hoping this will satisfy the client and they’ll then make the agreement. Actually, the opposite is more likely to take place. If the note seller gets an immediate price increase from you, it’s just like giving candy to a child. They want more. If the first concession was easy, they’ll come back for more and bigger concessions until they’re satisfied. Making the note seller work for every concession is a much better policy. Giving concessions reluctantly will pay off in better deals.
Raising your buy price quickly will encourage the note seller to ask for more and bigger concessions. Raising your price without asking for a concession in return is a mistake all negotiators commit.
When you make a price concession, be sure you ask for a concession, otherwise the note seller will continue to ask for concessions until you stop giving them. Be prepared to ask for a concession each time you are asked to give a concession, that way the note seller quickly realizes that they will give up something each time they ask for an improvement in the deal. If the seller wants to be rewarded, that’s fine, just be sure you are rewarded in return.
Good examples of concessions that get concessions or improvements to the agreement would include asking the note seller to give you first right of refusal for a residual portion of the note, or adding additional equity, buying the note with recourse or paying less to do the transaction faster. A concession could be anything that provides a solution or benefits from the sellers’ perspective and gives you a benefit as well.
Use this information to become a better negotiator, which will in turn help you to become more successful as a note broker.