During the last several years I have tried to determine “What makes the best note brokers successful?”
I have personally had the benefit of seeing the industry from a wide variety of views. From start-up home based broker to Assistant Vice President of Metropolitan Mortgage, and co-owner of Diversified Investment Services, I have seen the cash flow industry from all perspectives. I could spend hours discussing the positive traits that the best brokers in the country posses. For the purpose of this article, I would like to mention what I feel are the biggest mistakes brokers make. Individually, these are not huge problems. However, if you find yourself having trouble with several of these, you could be missing out on a lot of money making opportunities.
1. Not Knowing Why the Note Holder is Selling
If you do not know the answer to this question, you have already begun an uphill battle to purchase the note. How can you possibly structure a purchase to take care of the sellers needs if you do not know what those needs are? All sellers WANT a full, 100 cents on the dollar purchase. What they will ACCEPT may be something entirely different . I once dealt with a seller that was shopping his 100K note. He told every broker he wanted a full purchase. Everyone offered him 80K – 85K. (A 15K – 20K discount.) It turned out that after I spoke with the seller I found out all he NEEDED was $11,500 to go on a cruise. A simple partial. I couldn’t believe that none of the other brokers (5 of them) had taken the time to find out “why” he was selling. There are almost an unlimited number of ways to purchase a note. Your job is to determine which method will work best for your seller. You can not do that without knowing their needs.
2. Quoting Without Seeing the Documents
The industry seems split on this subject. Some brokers believe that you must have the documents in hand to quote (“no note, no quote” policy). Other brokers simply give quotes all day on the phone without seeing any documents. I have done both and I can tell you the advantage to seeing the documents in advance is twofold. One, you have a more committed seller. If the seller took the time to send you the documents, you know they are at least somewhat serious about selling their note. Secondly, you know you are dealing with accurate information. Often the seller will not remember the correct payment amount or that there was a balloon or bump payment. Additionally, quoting the deal without seeing the Payors credit is a big problem as well. Some brokers feel it is necessary, others do not. More deals are cut due to the credit worthiness of the Payor than any other reason. The credit may also determine what yield you will get from an investor. If you quote “assuming” good credit, you will find yourself in a numerous amount of re-bidding situations that you could have avoided by obtaining the credit report up front.
3. Not Knowing All Of the Ways to Purchase a Note
With increased competition, a simple full or partial purchase may not get you the deal. You need to know ALL of the purchasing programs that are available to you. You may use each purchasing method only once or twice a year, but it will be the difference in your buying more deals and outbidding your competition by a significant percentage.
4. Poor Packaging
Packaging is your opportunity to sell the deal to the investor. Too many brokers neglect this step. Your packaging may determine; How much will be paid for the deal, if the deal will be purchased, how you are perceived as a broker, and how fast the deal will close. It does not do you any good if you find great deals all day long but cannot package them in a way that the investor can see that. A large number of deals are not purchased simply because the broker did not take the time to put together a complete package.
5. Letting the Seller Control Your Negotiations
Remember that you are dealing with the art of negotiation. You want to maintain control at all times and keep it conversational. Do not appear too desperate. You want to make the deal, but the more matter of fact you can make the conversation (as if you do this all the time) the better off you are. Additionally, be prepared to walk away. If the seller is pushing for an unrealistic price, let them know. If you can not come to an agreement, leave the door open for the seller to come back. Often they will.
6. Poor Marketing
This one seems obvious. The important thing to remember is “cost effective” marketing. You may be getting some response from an ad in a certain paper, but is it cost effective? Many brokers continue a specific marketing method that has long since panned out, but they stay with it for emotional reasons. Be prepared to keep moving. If you do not, you may go broke before you ever get enough deals.
7. Telephone Skills
Remember that you are running a business. No matter how many times I have heard this said, I can still call a broker, get a machine and hear dogs barking or children in the background. If I hear it, so does their note seller. Doesn’t instill a lot of confidence, does it? Always be professional!
8. Shopping the Note
This is something that just makes a broker look bad. Know your investors and what they will purchase. If you send out 10 requests for a quote and choose one of them, you still have nine other investors that wonder where the deal went. Not a big problem on one transaction, but if you get the reputation for sending them all over, it is difficult for the other 9 investors to take you seriously.
9. Incorrect Balances
This occurs when the broker simply takes the word of the seller on what the current balance of the note is without checking. Often when a file is closing and the documents are being prepared, it becomes obvious that you are dealing with an incorrect balance amount. You must, at that time, search out the correct balance information; thereby causing delays in your closing & possible price adjustments.
10. Keeping Your Word
If you say you are going to call a seller on Tuesday with appraisal results, call them back on Tuesday. Even if you do not have the results, call them. Simply state that the results are not in. Waiting an extra couple days makes you look unprofessional. In this case, you could not control a late appraisal, but you can control your calling the seller as promised and let them know the status. Also, by keeping them involved and aware of what is going on, your seller will be more cooperative down the line.