Posts
Why Must I take a Discount? Why Can't I Sell for Full Face Value?
The burning question every note seller wants to know!!
The answer is simple--RISK
The person wanting to buy your note is actually buying your risk. The same risk you took on when you loaned--by carrying financing you are in essence making a loan--your buyer the money to purchase your property or business. The risk that they could at anytime--especially in today's economic climate--default on their payments.
Therefore when a potential buyer of your mortgage note does their evaluation of the note to determine a purchase price, what do think they are evaluating? That's right--the Risk Factor.
There are many variables that determine the risk factor of a note--payers credit score, payment history, seasoning, loan to value (LTV), just to name a few. The lower the risk factor of each and every variable, the more money your potential buyer might be willing to pay you for your note. Conversely the more risk factors that carry high risk your note has, the bigger the discount you are going to receive.
There was a day when a high quality note could bring you more than a 90% purchase offer, but with today's economy in turmoil that same note is lucky to see offers in the mid 80 percentile. That's just the way it is today and you can expect this to remain the norm until the economy as a whole begins to make a recovery.
As a mortgage note holder--no matter how long you have been one--you surely can understand the risk factor involved, and therefore must also understand the potential buyer of your notes' requirement for a built in security factor--in the form of cash discount. Should the payer of your note ever default on the new buyer they must have the built security of the discount you were given to prevent them from losing their shorts. They are still likely to take a loss but it may not hurt as much.
So rather than asking the broad brush question of why you must take a discount, try refining your question to, why must I take this much of discount? You'll find this question will bring you more clarity as to the valuation of your note and help you understand why such a discount is required.
Of course you can always shop around, but you will likely find all offers to be "very similar" as all note investors use the same basic criteria to evaluate a note.
Call today for a fast, Free Evaluation on today's current market value of Your mortgage note.
