MODULE ONE
INTERVIEWING THE PROSPECT
When you interview the prospect selling the mortgage note, you must overcome several obstacles in his/her thinking. They may wonder, “Is this legal?” and “How will this note be priced?” etc.
Your objective in asking your questions is to get them to
· trust you
· know how the note will be priced
· be willing to talk about they really need to have for that note to make it worthwhile to sell at this time.
Your questions will be pegged along five important benchmarks:
1. Develop Rapport with Note
Holder
2. Educate them About How the
Note will be Priced
3. Finding out How Much They
Want for their Note (This is most important. Half the time they want too much.)
4. Change the Discussion to other
problems they have. Everyone needs money. Find new problem or different way to
look at old problem.
5. Get them to Consider a Partial Purchase of Notes (sometimes they get more money than selling the whole note)
Depending on the answers you get, you will not necessarily need to ask all of these questions.
If, for example, you get to #3, and the price they want for the note is reasonable, then end of interview—post the note to the website for investors to bid on.
If, on the other hand, they want too much, you go to questions number 4 and 5. Here you establish what they need the money for, and suggest a possible partial purchase of the notes, which in some cases can make them more money than a full purchase. (This will be explained later.)
The purpose of the interview is not to take advantage of the prospect!
That’s not the nature of this business. Investors are interested in what kind of a yield they will get out of the note, not how much they can squeeze out of you or the prospect.
Some courses on brokering mortgage notes are geared towards the investor—how much money the investor can make.
However in this course we encourage you to get on the side of the prospect. You are working for him, trying to make his note most attractive. You are to be on his side at all times. You will get repeat business and referrals that way.
The Key: Ask them what they want for their
note.
If you know how much they want for their note, you can determine what your commission will be—usually in the range of $2000-5000.
Without this information, it will be difficult to gauge what your commission should be.
But before you ask them for how much they want for their note, you will need to follow the first two steps:
·
Develop Rapport with Note Holder
·
Educate
them About How the Note will be Priced
If you don’t do the first two steps, they won’t tell you how much they need. If you ask for a number before these first two steps, they’ll give you a very high number.
You are not placing the price on the note, neither are they. The price will be determined by factors intrinsic to the note: equity, interest, payments, etc. This is what educating them about how the note will be priced will reveal to them.
1) Return a phone call to them. Objective is to develop rapport, but you take control of the conversation. They listen to us, answer our questions.
Use the Note Interview Worksheet.
You can get a program for the Note Interview Worksheet.
You can run the program (based in Excel) on your computer. It has formulas
which show correct information,
ensures that numbers on the note will add up. Ask for the program by email.
2) Objective and Subjective Questions: Objective questions will elicit facts, while
subjective questions will help develop rapport.
Example:
Objective
question:
“Tell me about the house you live in, where it’s located,
square footage, how old is it.”
Subjective
question:
“Is it in a rural area—and what do you think of the schools?
(You are beginning to elicit a subjective response, opinion.)”
You reply: “Isn’t it
good to be close to schools? I am glad that we live in an area that’s close to
schools.”
This section can go on from
15-30 minutes. The longer you can keep this going, the greater the likelihood
that you will seal the deal.
Never approach this interview
with the attitude of a bank loan officer.
1)
Ask about property type—what type of property is collateral
for this note?
Objective: Get them to respond
to your questions. “Mr. Jones, is this a house or land or what type of property
is it?”(You will post the answers to these questions on the website where you
post the note—i.e., single-family residence,
square footage, hold the property is, etc. If it’s an apartment complex, you
ask about the number of units.)
Note Interview Worksheet will generate popup box that shows
you what questions to ask based on the property.
Use their lack of knowledge to
begin to educate them about how the note will be priced.
2)
Ask
about the Payer’s Credit Score: “Can you tell me what the payer’s credit score
is?”
They will rarely know. They may assume it’s ok because the bank loaned the payer money, but they have no idea what the interest rate was.
This will affect the price of their note.
You say: “Notes like this will be priced based on how safe they are. The safer the note, the better the price. A credit score will help determine how safe the note is. Just to get a general idea of what kind of offer you can get, let’s estimate what the note payer’s credit score based on how well he pays you.”
You say: “Does he pay you always on time, or is he sometimes late?”
They say: “He’s always been on time with me.”
You reply: “Ok, I’ll price the note based on the assumption that the payer’s credit score is at least average (C score) or even above average (B score) if you think we should.” Most choose C.
Offer the prospect: “Would you like a bid on the note assuming the payer’s credit score is B or C?”
They may say: “He’s been late sometimes.”
You reply: “Ok, I’ll bring back a bid on the
note assuming the payer’s credit score is no better than average (a C score, or
if you want, a D score, implying below average. Which do you want me to choose
a C score or a D score?” They will usually choose C score.
Results of this
dialogue:
· You now have a credit score, to make available with the note on the web site so that the investors can bid intelligently.
· In case you bring back a very low offer, you now have a reason for the seller…you can establish the credit score as the basis for the low offer. The seller sees that an external influence (beyond his control) affects the safety and the value of the note.
3)
Ask:
“What is the property value? How much is it worth today compared to what it was
worth several years ago?”
They rarely know, again.
You say: “Can
you give me some idea of what the property is worth now, do you have any idea?”
They may say: “I don’t know, but I bet it’s gone up.”
Note that this
response is similar to the response about the credit score.
You say: “As I mentioned earlier about the credit score indicating the safety of the note, the equity in the property is even more important. From an investor’s perspective, a lot of equity means that the note is safer because the payer has put a lot of equity into the property and is less likely to default on the note. Or, if there is a foreclosure, the investor believes that he can sell the property to get back the money that he paid for the note.”
Tell them, “If you decide to sell your note, we will run an appraisal. But let’s do an estimate for now.”
You say: “How long ago did you sell the property?”
They say: “Maybe
two years.”
You say: “How much did the property sell for?”
They say: “Maybe
$100,000 .”
You can make an estimate based on inflation: use 3-4%--this is a national average.
Multiply 4% by two years, it should be $109,000 (the Excel worksheet supplied in the program will help you here.)
You estimate that the property is worth $108-109,000
They will agree based on your computer’s conclusions.
They MIGHT say: “Oh, I’m sure the property is worth $150,000 by now.”
You say: “When did you sell it—and how much did you sell it for?”
They say: “Two years ago, for $100,000.”
Your computer program will show you right away that that is more than 4% inflation. At this point you indicate what your computer is telling you.
Challenge them: “Why did you think this particular property is worth more than $110,000?”
Most of the time, they’ll back off and realize they’re inaccurate.
However, they may be adamant and claim that they offered the buyer a great deal on the property at the time, and that it really is currently worth $150,000.
You have to realize that investors will not fall for this. The appraisal is meant as a check to help determine what the property is really worth.
There may be cases where a property has been significantly upgraded, however, in which case $150,000 is a reasonable figure.
In that case, post the $150,000 on the web site along with the note. But in the comments section, you should state that the seller is not trying to hype the note, but give all the details about the upgrade.
Investors will take this into consideration. They will make up their own minds and make what they believe to be a reasonable offer for the note.
Other Possible Answers the Prospect May Give You:
Let’s say a little town has been transformed by a big influx of infrastructure in the past few years, sending property values through the roof. Perhaps a big factory or a freeway has suddenly moved into their small town, causing a large appreciation in property values. Or they may say that they live in a pocket of the town with unusually high inflation.
Investors will take this into consideration. They will go for it if there is an independent appraisal justifying this amount.
With all of the questioning that you’ve given the prospect about their note, they may feel that your whole purpose has been to tear down their note and make them feel bad about it.
This is not your intention at all. From the investors standpoint, the better the note is, the safer the investment it is.
So, after your initial line of questioning, you should ask some questions to deliberately make the prospect feel good about the note.
For example, you could ask about the current interest rate of the note.
They will usually tell you that it’s between 6-8%.
You can encourage them with these words: “That’s a great rate. Do you know that if you had put this money in the bank, you would only get 1-2%?”
Or you might say something to the effect of, “This is such a good note, why would you want to sell it?”
These two statements will help put them at ease.
Don’t be worried about trying to make them feel too good about the note.
The fact is, regardless of how good the note is, they are selling it because they need money.
You’re trying to be a good professional: telling them what’s good and bad about the note. You’re not trying to tear them apart.
As a broker, you can make a profit whether the note is good or bad. These methods will be disclosed in the remainder of the course.
There are 27 questions total—we’ve covered only the first 3 in this section.
When you’re done with all of the questions, you will get to the most important question of all: How much do you really want for this note?
(FAQ) Frequently Asked Questions
Q: What if the wife is at home when you call to interview the prospect, and the husband is not available until the evening?
A: You have two interviews. Don’t make any assumptions about whether the wife will pass on decision making to the husband. You can ask a few basic questions of her up front and offer to ask the rest when both parties are available later on. Sometimes she wants to ask some questions to find out how much the note is worth. Tell her you can’t give that answer until you know enough information about the note.
If they are reluctant to answer any questions because they don’t know what it’s about, you can give a general response like this:
“Notes in general will get offers of 75 cents to 85 cents on the dollar. Good notes will sometimes get 90 cents or more on the dollar. Now, if you’ll answer a few questions maybe I can let you know if you’re note is good enough to get 90 cents on the dollar.”
You can tell them that these are the qualities of the notes that get 90 cents or more on the dollar:
· Note payer has B or better credit score.
· There is at least 15% equity in the property.
· It has at least a couple of years’ payments on it.
Having given this information, you can then proceed to ask the prospect to answer some questions so that you can give a more complete answer about the value of the note.
Q: Does the appraisal cost the prospect anything?
A: If you decide to sell the note then you run an appraisal on the property, and then both you and the prospect will know what the property is worth at that time. Sometimes the investor, you or the seller will pay for the appraisal.
Q: Why do we need to appraise the property if we are only buying the note?
A: The ratio between the appraised value of the property and the equity in the property indicates how safe the note is. The greater the equity, the safer the note is.
Q: If I want to discover a payer’s credit score, how would I do that?
A: Only the note holder can pull the credit score on the payer, because they owe the note holder money. An investor can pull a credit score as well, but only when the seller provides a signed document showing that he is selling the note.
1. At what point in the interview of the prospect can you ask them how much they want for their note? ________________________________________________________________________________________________________________________________
2. What kind of questions do you ask to develop rapport with the prospect? Give an example of each one. ________________________________________________________________________________________________________________________________
3. What is the main purpose of the interview when you first meet with the prospect? _______________________________________________________________
4. List the first three questions that you will ask in educating the prospect about how the note will be priced. ________________________________________________________________________________________________________________________________________________________________________________________________
5. List two questions and statements that you can make to the prospect to make them feel good about their note. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________