Why Use a Note Broker
There are a variety of reasons why you may want to use a note broker to assist you in selling your note. A good broker will probably have a large list of other note buyers. Therefore, they will be able to present your asset to many different potential buyers in a very quick time frame. Oftentimes, these brokers may have worked with their buyers previously, which can help you vet the note buyer if necessary.
Choosing the Right Broker
There are certain steps to follow to sell real estate notes through a note broker. The first thing you are going to do when trying to work with a note broker is to find a good one to work with. There are various ways to achieve this.
One of these may be in online groups, such as Facebook groups that are affiliated with note investing. Another place may be at nationwide note investing events or local note investing meet ups.
Oftentimes, note investors will attend these events to try to help themselves build up their buyer and their seller lists. Another easy way is to make yourself public. For example, when you post in the comments section of a note investor Facebook group, brokers will reach out to you to see if they can broker that note. Or they will start making offers on that note to see what you are willing to sell it for and then they will broker the note.
So, how exactly do you vet a note broker to determine if they are right for you? First, ask if they have done any past deals as a broker. How long they have been in the business as a broker?
You may ask to examine contracts or agreements they have used while acting as a broker. You can reach out to other experienced note investors and ask them if they have done any business with this person or heard their name.
Another question to ask is if they have a usual fee schedule, i.e. how are they expecting to get paid if they help you sell your note to a buyer. You can also judge their character through conversing over the phone. Sometimes, we can use our instincts to identify the wrong people.
What to Watch Out For
Some things should be considered if you are using a broker to help you sell your note. Remember to ask them about their broker fee. Two types of broker fees a broker will utilize are the percentage of the asset sale, generally ranging from 3-5% depending on their experience and the network they have to offer you.
One way in which a broker tries to make very large fees is through overage. A broker may go to a note seller and ask, “how much do you need to get out of this note?” Whatever amount the seller states, the broker will request to keep any amount over that amount.
You should be careful about these types of brokers because they may not get you the price that you really want.
You may want to consider having a written non-disclosure agreement in place prior to disclosing to your broker any confidential information on the asset.
You may also want to be sure that the note broker is not asking you for exclusive rights to sell that note. If that broker is unable to sell the note in a timely manner, you should be able to sell it to someone else in your network. Having a contract in place with that broker in which they have exclusive rights to sell could be problematic.
Avoiding Daisy Chains
Lastly, make sure the broker you are working with is not part of a “daisy chain” or otherwise, known as a joker broker. These types do not have relationships with note buyers or note sellers.
Joker brokers will see notes for sale on the market, will secretly grab them off the internet, raise the sale price of that asset, and then start sending it around to other brokers who have networks of buyers.
This is called a daisy chain because one broker who you are working with to get your note sold may be a joker broker, who will take that note and give it to another broker, who has the relationships with the buyers and sellers.
This creates a “daisy chain” of two brokers between the seller and the end buyer, and each broker will want their share of the money, which will increase the sale of the note, which could prevent it from selling.
Conclusion: Yes, you can sell real estate notes using brokers. Just be mindful of how to use them effectively and carefully.
