MODULE TWO
What do they want for their note?
The whole purpose for asking all 27 questions from the Note Interview Worksheet is to answer the all-important question:
What does the prospect want for their note?
As discussed in the previous lesson, you can’t take any shortcuts to this question. The only way to get a reasonable answer is to go through the first two benchmarks:
1.
Develop Rapport with Note Holder
2.
Educate them About How the Note will be Priced
If
you conduct the interview properly, you will earn the prospect’s trust, and
succeed more often than not.
Remember
that you are on their side.
If you skip the first two benchmarks and ask the question before you’ve built a proper relationship with them and educated them, you won’t get a reasonable answer to the question.
Ok, at this point you’ve done your homework, completed the 27 interview questions, and are ready to pop the question.
How you phrase the question is very important.
Example: “Tell me, John, how much do you really want for the note to make it worth your while to sell at this time?”
This is one way to ask the question.
Don’t ask them: “What’s the least you will take for this note? What’s your rock-bottom price?”
If you pose the question that way, you’ve just damaged the trust between you and the prospect. Remember that you are working with them, helping them to get the best offer for their note. You don’t want to come across as if you’re trying to defraud them. You can make your profit with good notes, bad notes, any kind of notes, if you do your homework correctly.
When you ask the question, you want them to give you a specific number—not a vague, general answer.
Regardless of how they respond, you will follow-up with a four-step response that follows this basic outline:
1. Indicate that you will help them get what they want.
2. Point out a “small problem” with the note that may hinder them from getting exactly the figure that they want.
3. Reiterate your intention to try to get them the offer that they want.
4. Qualify the offer: If they get a lower figure (as a result of the “small problem”) would that be ok, or would it be a waste of their time?
Let’s look at the possible scenarios that might ensue after you ask them how much they want for their note, and how you use this four-step response with each scenario.
Consider John, an analytical person.
You ask him for what he wants for the note, and he says plainly, “I need $45,000.”
You respond with the first step: tell him you will help him get what he wants.
Be sure that you are upbeat and positive in your response—assuming, of course, that it’s a good note.
Later in the course, we’ll address how to deal with scenarios that involve notes that are not so attractive, but for now let’s assume that this is a good note.
You state: “If it’s $45,000 you want for your note, I’ll try to get you that. In fact, if possible, I’ll try to get you more than that.”
Next you move on to the second step—the “small problem.”
This is not a ruse.
The fact is, every note has a small problem of some kind or another. We’ll list what these problems are shortly.
Suppose that the small problem with John’s note is the interest rate—a meager 3½%.
You state: “However, there does seem to be a small problem with this note. Its interest rate is only 3½%. That doesn’t make it a great investment from the investor’s standpoint.”
Next is step 3: Reiterate your intention to help get them what they want. In spite of the small problem, you say that you still will try to get them what they want.
Finally move on to step 4: Qualify the offer. Because of the small problem with the note (in this case the interest rate), you tell them that they might not get an offer of $45,000. The offer could be lower.
You tell them: “If because of the 3 ½% interest rate, the offer that comes back is lower, do you want me to bring you an offer or would it be a complete waste of your time?”
Response #1: “Yes,
go ahead and bring me back an offer anyway.”
In this case, the prospect is soft on the note. This means that you have some leeway on the note in case you don’t get them the offer they want.
Response #2: “No,
it’s $45,000 firm…”
This person is firm. In some cases, these people can come down a little, but not much.
If they remain firm, however, and it seems unreasonable that they will get that amount, then we’ll need to explore some other techniques with that person which we’ll study later in the course.
Every note has some possible small problem. Let’s review some of the most important.
· The Property Type—is it land, house, mobile home, shopping center, etc.? If it’s not a single-family residence, then that’s a small problem. It narrows the list of investors down because not many want to buy a note that’s not a single-family residence.
·
The
Payer’s Credit Score. If it’s not good, that would certainly be a small
problem.
·
The
Interest Rate on the Note. The lower it is, the less attractive the note.
· The Property is not Owner-Occupied. If the person making payments on the note is not living there—that’s certainly a small problem.
· The Number of Payments that have been paid. If it’s fewer than 12 months, that could be a small problem. Some investors can buy such “unseasoned” notes, but they will not give as good an offer as with seasoned notes.
· The Number of Payments left to be made. If you have a note with less than 12 months to pay, it may be a small problem. This means that in less than 1 year the investor will have to reinvest his money again.
· Payments that are small or if the note is small. Most investors, for example, will not buy notes less than $20,000.
·
If a note
was in a hurricane-ravaged area like
·
If it’s
not a “first position” note. Second position notes are not attractive to
investors.
· If it has a balloon payment. Some investors will buy balloon notes, but others will avoid balloon notes for fear that the payer will not be able to refinance when the balloon comes down.
A large majority of the 27 questions that you ask could reveal one or more small problems.
The Most Common Answers about What they Want for the Note will be Vague:
They might say: “I don’t know. What do you think I can get for this note?”
You state: “I can’t tell you just now what your note will be worth, I’ll need to research it for a few more days.”
Then, you give them a hypothetical—not a quote based on their note—but just something based on your experience.
You state: “I can tell you this, however. Notes like this in today’s economy are usually getting offers of 70 cents to 75 cents on the dollar. Better than average notes are getting as much as 90 cents on the dollar or more.”
You’ve given them a number, but you haven’t quoted what you think their note is really worth. After you make this statement, just be quiet and give them a moment to respond.
They might say: “Oh, how long does it take me to get my money?”
Implicitly, with this response they have just accepted the 75 to 85%, haven’t they?
Your next step is to address their question about how long it will take them to get their money.
You state: “Normally, it will take between 3-4 weeks from the time I receive all the documents I need to open an escrow. So I’ll go ahead and do the best I can to get you that 70-75% if at all possible.”
In the real world, it’s not uncommon to get offers of 75-85%.
You have to qualify this statement, however, as you did with the prospect who gave you an exact amount he wanted for his note.
Point out the “small problem” with their note. However, reiterate your commitment to try to get them the 70-75%.
Then you say: “If, because of the [name the small problem] with this note, I could only bring back 60-65%, would you want me to bring you back an offer—or would that be a complete waste of your time?”
With this line of questioning, you are repeating the 4-step process outlined earlier.
Possible Response #2:
Some prospects will hear you quote 70-75%, and then will reply that that number is too low, that it should be 80-90% or more.
Repeat the 4 step process as mentioned before.
Possible Response #3:
The prospect may be quiet, or indicate that they wouldn’t accept the 70-75%, but they don’t tell you what they would accept.
This prospect thinks this is a battle of negotiation.
You state: “You’ve
got a pretty good note here. I only mentioned 70-75% as an average—clearly this
implies that some notes do better than this, while others get less. I’ve seen
above average notes get 90% or more. If your note is above average, would an offer
of 90% or more make it worth your while to sell it at this time?”
At this point, most of these people would go ahead with a 90-95%.
You can then go back to your 4 step process…the “small problem” with the note…etc., etc.
Possible Response #4:
If, even after you state the 90+%, a prospect still doesn’t act convinced, you may be dealing with someone who is not serious about selling their note.
This is the kind of prospect who doesn’t reveal why he even wants to sell the note.
Remember that in the first lesson, we said you could ask the prospect: “Why would you want to sell such a good note like this?”
If they’re not serious about selling it, they probably won’t be able to tell you.
Such people are wasting your time and their time. They may reply with something like: “Just give me an offer, and if I like it I’ll get back with you.”
You have to “lose” this person in a very professional manner.
You state: “I can see that you don’t really want to cash your note at this time. Tell you what, why don’t I give you an appraisal on the note instead? I can get the appraisal done, send it to you, you can clip it to your note for tax purposes, and my number is on there.
Would you like an appraisal on the note?”
They most likely will say, “That will be great!” (They will say this because they don’t want to sell the note.)
However, you have just kept the door open for future communications from this prospect. Over time, you may get calls from these people—or even their referrals.
1. When asking for what they want for their note, which of the following is the most ideal way to phrase the question?
a) Please tell me what your rock-bottom price for selling this note would be.
b) How much do you really want for this note to make it worth your while to sell at this time.
2. List the four-step response to any quote they give you about their note.
________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________
3. Which of the following are possible small problems with a note?
a) The prospect’s asking price.
b) The interest rate on the note.
c) The number of payments made/left to be made.
d) A note with a balloon payment.
e) All of the above
4. How do you respond to a prospect who asks you to tell him what his note might be worth?
a) Offer him an appraisal instead.
b) Tell him he could easily get 90%.
c) Say you’d have to do some research, but average notes tend to get 70 to 75 cents on the dollar in today’s economy.
d) Tell him you have no way of knowing, and cut the conversation short.
5. How do you deal with a prospect who doesn’t seem interested in selling his note?
a) Give him your business card, and have him call you when he’s interested.
b) Offer him an appraisal for his note.
c) Motivate him to sell by reminding him that good notes can get 90% or more in today’s economy.
d) Remind him of some needs that he could fulfill by cashing in on his note.