A note broker or note consultant acts as the financial matchmaker. They seek out note holders receiving payments and connect them with investors wanting to purchase notes. The note buyer funds the transaction and pays a referral fee to the note broker at closing.
Definition: A Seller Financed Note Broker is an individual who negotiates and arranges individually held seller financed notes and usually works for him/herself. Negotiating and arranging can include asking questions, gathering information, compiling copies of pertinent documents and creating acceptable offers based on the pricing received from end note buyers. Seller Financed Note Brokers generally are not licensed and are unregulated except for industry self-policing.
To make it clear early in this article, some states do have licensing and regulation issues, but not most. So, any information here can and likely will vary based on the state where the note broker resides.
What do Note Brokers do? A note broker helps note holders (sellers) to sell their individually held Seller Financed Note and Note Investors (buyers) to buy individually held Seller Financed Notes. The vast majority of note brokers are engaged in the buying and selling Seller Financed Notes secured by residential types of properties (as opposed to notes secured by commercial properties or land). Let’s look at the two sides of a transaction and some of the duties of the note broker on each side:
Working with Sellers (Seller Financed Note Holders): When a note holder decides they want to sell their note, the vast majority will go online to find a note buyer and call a note broker to work with a note professional to find out what their options might be. There is no database of Seller Financed Notes listed for sale, like an MLS database for properties. In selling an individually held Seller Financed Note, some of a long list of duties and activities of the note broker include:
- Determining the note’s value in the current market.
- Educate the note holder in explaining why there is a discount.
- Determining what options are available to the note holder.
- Advise the note holder in gathering pertinent documents.
- Verifying information received is accurate.
- Answer note holder specific questions.
- Report to the note holder honest, straightforward and realistic feedback for their situation.
- Help the note holder to try and get what they need and sign a purchase agreement.
- Coordinate the process from initial acceptance through the closing and funding.
Working with Buyers (Institutional and individual note investors): The same note broker that communicates with the note holder (seller) is the same note professional that contacts and works with the buyer (note investor). A note broker will work both sides in a transaction and will most always be working with the seller (note holder) and the buyer (note investor) at the same time. Let’s look at some of the duties and activities of a note broker working with buyers (note investors):
- Help them to locate notes that meet their requirements.
- Help them with securing a signed initial agreement.
- Advise them on the demographics of the area, market conditions, and if they believe that the property securing the note was sold at a realistic price.
- Work with them to craft custom tailored pricing options.
- Work with them through negotiations and counter offers from the note holders.
- After an initial purchase agreement is executed, coordinate or assist with the due diligence process if requested.
- Coordinate/schedule appraisals, inspections, and other activities if requested.
- Deliver and answer any questions regarding all documents, title insurance, deeds, etc.
- Work with them through the closing and funding.
While note brokers are sometimes compared to travel agents when discussing the changes brought about by the Internet, they still add much value to the transaction process and are considered an invaluable part of a note purchase transaction for many note buyers across the nation. By helping note investors (buyers) and note holders (sellers) to get value and get through the process is a valuable and appreciated service. Remember success demands action, keep on marketing, it’s going to work! TWITA! (That’s What I’m Talkin’ About!)
Jeff Armstrong of Armstrong Capital has been a note broker and investor specializing in the seller financed note industry since 1991. He can be reached by email at firstname.lastname@example.org. For more updated and current information on how he can help you with your note business, your note investments or to request a quote on a note you currently have visit www.armstrongcapital.com.