MODULE THREE
DEaling with unrealistic expectations
What does the prospect want for their note?
In the last lesson, we talked about the most important question: asking the prospect what they want for their note. You arrive at this question after using the track of 27 questions from the Note Interview Worksheet.
You are also following the five benchmarks we introduced at the beginning of the course:
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
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)
As discussed in the previous lesson, the third benchmark—finding out how much they want for their note—is the most important one.
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
As you conduct the interview using questions from the Note Interview Worksheet, you will know whether you’ve got a good note or a bad note. When they give you a quote for what they want for the note, you should know instantly whether what they have realistic or unrealistic expectations.
Half the time their expectations are realistic. If so, you end the interview there and post the note to the web site for investors to bid on.
The other half the time, their expectations are unrealistic. We deal with those situations differently, by going through benchmark #4 and benchmark #5, as we’ll explain in this lesson.
Let’s look at some of the most common reasons for unrealistic expectations.
1. The prospect knows that he has a bad note, but doesn’t realize how unattractive that note would be to an investor. That is an unrealistic expectation.
2. There are people who have perfectly good notes, but they want 100% of the value of the note. This is clearly an unrealistic expectation.
3. In some cases, you even run into people who want more than what the note’s worth. This is an unrealistic expectation.
4. Some people, lastly, have no real interest in selling the note. They are curious about what it might be worth but they show no real interest in selling it. That’s an unrealistic expectation.
As a result of unrealistic expectations, you will move on to the 4th Benchmark: Find a new problem or a different way to look at old problem.
As you conduct the 4th benchmark, you are ultimately setting them up for the 5th and final benchmark: a partial purchase of the note. This solution will accommodate anyone with an unreasonable expectation and who therefore could not possibly get any serious offers on their note should they sell it.
With a partial purchase, you will show these prospects how to get cash out of their notes without selling them.
Assuming that you’ve completed benchmarks 1 and 2, and the entire Note Interview Worksheet, you should know whether they have a good note or a bad note.
They tell you what they want for their note, and you will know whether their expectations are realistic or unrealistic.
If they’re realistic, that ends the interview and you can proceed to post the note to the web site.
If they’re unrealistic, you follow through with the techniques outlined in this section.
In the prior section, we outlined the four follow-up responses that you go through after they’ve indicated what they want for their note. We told you that in your response to their quoted figure you must:
1. Be upbeat in your response—tell them you’ll help them get what they want.
2. Point out the small problem.
3. Reiterate your intention to get them what they want for their note.
4. Qualify the possible offer—would it be worth their while if they got less?
We proceeded with the assumption that the note was good.
What if the note is not good?
Our approach will be similar, but with a different (decidedly negative) tone.
But first, let’s look at the four tell-tale signs that a note has a problem.
Of the 27 questions in your Interview worksheet, these 4 areas carry considerable weight in terms of pricing out the note and determining what it’s worth:
If one of these four areas is a problem on your note, you could still get offers, but no more 70-75% max.
If two of these things are a problem, you probably won’t get offers at all. Or the offers you do get will be 50 cents or less on the dollar.
Conversely, good notes can get offers of 75 to 85 cents on the dollar, and better than average notes can get 90 cents or more on the dollar.
Let’s look at the four areas now.
If the note has only 5% equity, that’s a trouble note. You won’t get more than 70-75% max for that note. A note with at least 15% equity is a good note and will get a good offer.
The seller will usually be unaware of the payer’s credit score (the only exception would be that of a professional investor). However, if the note holder thinks the payer’s credit score is not good because he is not always current with his payments, then that’s a big negative on the note.
By itself a bad credit score may not be a problem. If there’s a good amount of equity in the property, it may cancel out a poor credit score and the note could still pull a good offer.
Remember, if only one of these issues is a problem, you could still get an offer up to 75%. It’s only when you start getting two or more problems that you may not get any good offers (if any) at all.
Unseasoned Notes – This factor is not as important as it once was to investors, but it’s still a factor. If the note has less than one year of seasoning, investors typically pay lower prices for them. Alone, this factor doesn’t necessarily kill the note, but in conjunction with other factors it could eliminate the possibility of investors making offers on the note, or reduce those offers to no more than 50 cents on the dollar.
A second position note is a problem. Additionally, if it’s a second position note that is significantly smaller than the first position, that could be a problem. For example, consider a second position worth $10,000 against a first position note worth $100,000. That’s a ratio of 10:1, and that could be a problem. Any ratio bigger than 3:1 or 4:1 will be a problem note.
Ok, now that you know what to look for, let’s consider the different scenarios that might happen after you ask the big question: what do you want for your note?
You ask the prospect: “Tell me, how much do you really want for your note to make it worth your while to sell at this time?”
Suppose
they reply: “I’d be happy with 50 cents on the dollar for this note.”
If
that’s their reply—and we know that we have a bad note—then we know that they don’t
have an unreasonable expectation.
50 cents on the dollar (or less) is certainly reasonable for a less than
stellar note.
However, you can’t assume that they will get even 50 cents.
So…use the four step follow-up response we taught you earlier. In this case, however, we know that the note is bad, so our tone of voice must negative—not upbeat and enthusiastic.
You state: “Well, Jim, I’ll try to get
you that if I can. But you know we’ve got some big problems with this note. It
has only 1 month seasoning on it, and there’s no down payment. Because of that,
I may not be able to get you what you want.
If,
because of these two big problems on the note, the best offer I get back is not
even 50 cents on the dollar—it may even be 20 or 15 cents on the dollar, would
there be any reason to call you at all, or would that be a total waste of your
time?”
If
they state: “Listen, at this point I’m getting tired of this note and I’m
willing to consider any offer. If it’s reasonable, I’ll take a look at it.
Bring me whatever offer comes back.”
If
he says that, then that is not an unreasonable expectation. He
understands the problems with the note and those factors that may cause his
note to be viewed unfavorably.
You
can tell him you will do some research and get back to him within a few days.
Ok,
now let’s consider what would, in fact, be an unreasonable expectation.
Suppose
that the prospect says, “No, absolutely not. I’m taking anything less than 50
cents on the dollar for this note.”
At
this point, we certainly know we have an unreasonable expectation to deal with.
The
note has problems, and we may not get an offer at all.
This is where you begin the move to benchmark #4: Find a new problem they can solve, or a new way of looking at the old problem. Ultimately we want to pitch the possibility of a partial purchase of notes.
Let’s see how we get there.
This
is where you must deal with reality. You response must show that you know they
won’t get any offers within their asking price. Further, you must now catch
them off guard by going further, and recommending that they don’t even sell the
note.
You state: “Jim, I really would like
to get you 50 cents on the dollar for this note, but from my experience, I know
that you won’t get that, and therefore it would not be worth your while to sell
it.”
You
accomplish two important objectives with this response:
1.
You let them know flat out that they won’t get any offers.
2.
You let them know that it would be better for them to keep the note
because it not be worthwhile for them to sell it.
Be
sure that you restate what the problems are on the note that would prevent it
from getting any offers. This way the prospect understands that you are not
personally rejecting the note, but that the note has problems inherent within
itself that makes it unattractive to investors.
This
response relieves them of any pressure at this point. You want to maintain a
professional relationship, but it just won’t work out.
However,
there is a secondary strategy that you bring up before ending any further
discourse with the prospect. You initiate this secondary strategy only after
you’ve come to the apparent “end of the road” with the prospect
You
set them up for a possible partial purchase of the note, the final benchmark.
They
will not understand the phrase “partial purchase of the note” or even how such
a thing is supposed to work. But you can phrase it this way:
“You
know, Jim, there might be something I can do if you’re interested. There are
ways to get cash out of your note without having to sell it. It’s something
like getting an advance on future interest, without touching any of your
current principal. If you could get cash out of your note without selling it,
would you be interested?”
Never
explain what a partial purchase of a note is. That concept simply won’t make
any sense to them. Just tell them there are ways to get money out of a note
without selling it.
To
get there, however, you will have to go through benchmark #4: Find a new
problem or different way to look at old problem.
However,
the prospect may come back with another response:
Possible Response #2: “Thanks, but I’m not interested.”
This
vague response basically means, “I don’t know what you’re talking about.”
They’re
confused, and a confused mind always says no.
With
both responses, your tack will be the same…you will be leading them up to the
solution of a partial purchase of a note to solve their problem. Rather than
explaining what a partial is, you need to find out what they need the money
for.
Once
you know what they need, you can tailor your solution towards solving their
problem.
You
will find a new way of looking at an old problem, or find a new problem that
they can solve with a partial purchase of the note (Benchmark #4).
You
will state your solution (partial purchase of their notes) in terms of solving
their needs, not as an abstract concept.
As
you go down this path to unearth what the prospect needs the money for, you may
come across a different way of helping them that they may not have thought of
before.
For
example, consider the case of a man who just got laid off from a job, and says
he needs $50,000 to start a business, but the banks won’t give him a loan.
On
digging deeper, you find that the reason he can’t get a loan is that he has
$20,000 in credit card debt. Perhaps you could get $20,000 out of his note so
that he can pay off his credit card debt? His credit rating would rise, and he
could get his loan from the bank.
So
you see, asking what the prospect needs the money for may enable you to help
him in ways that he may not have considered.
You
can kick-start this discussion with the prospect by suggesting some possible
needs such as:
·
high interest credit card debt
·
a vacation cruise
·
pay a relative’s college tuition
This
will usually start them talking about their ideas.
Once
you find what they need, you end your discussion at that point. It’s not your
point to explain how it’s going to be done.
When
you post their note to the web site, you ask for two offers:
·
the first offer you’re requesting is for the full purchase of the note;
this is the offer that you know will be turned down
·
the second offer is the money they need to solve their problem; be sure
to describe the problem in detail.
The
investors will start creating partials that will solve that problem.
Let’s
review the process so far.
We
know that this is a bad note.
You
asked them what they wanted for the note.
You
know that their request is unreasonable, given the problem(s) with the note.
Recommend
that they keep their note.
Offer
to see if you can get money for them out of their note while they keep it.
Find
out why they need the money.
Post
the note to the website, both with the original request for the purchase of the
note and then the secondary request where you explain why the prospect needs
the money.
Wait
for investors to come in with partial offers on the note.
Finally,
talk to your coach. Once you get your partials back, review them with your
coach. He will explain to you what they all mean and how to present them to the
note holder.
You
will bring back to the note holder two offers: one for the full purchase of the
note, and the other for the partial purchase. Explain to them what both of
these offers mean.
This concludes the scenario with a bad note. Let’s consider some scenarios involving good notes.
You
know that it’s an ok note, but they want the full price.
That’s
not a reasonable expectation.
You
do not follow the 4-Step Response in this case. You won’t delude them into
thinking you will try to get them the full purchase price for their note, when
there is absolutely no chance of that happening.
Instead,
you have to bring them back to reality.
You state: “You know, Jim, I
understand your desire to have the full purchase price. But that just can’t
happen. I mean, why would anyone stay in a business if there’s no chance of
them making a profit? I suggest that if you need the note, just keep the note.”
A
savvy person may tell you that you can still make money on the interest on the
note.
To
someone like this, you can say something like,
“Well
that would be ok if we are lenders, but we are not lenders. We are not licensed
to lend money. If we were a lender, we could opt for less money on our
investments because we’d choose safer investments. We’d get to choose who we
loaned to, based on credit reports, appraisals and so forth. We would determine
how much interest we could charge based on how risky the note was.
In
this situation, we have none of that input. We’re talking a note that’s already
put together, and so we need some kind of profit built into it. No investor
will pay you 100% for it.
So
I suggest that you just keep the note
But…”
And
here you repeat your lead-in to a partial purchase of the notes:
“You
know, Jim, there might be something I can do if you’re interested, especially
since you’ve got such a good note here. There are ways to get cash out of your
note without having to sell it. It’s something like getting an advance on
future interest, without touching any of your current principal. If you could
get cash out of your note without selling it, would you be interested?”
Bring
up some possible needs they could solve.
Follow
the same tack as before.
These
people will add up the payments left on the note, and tell you that’s what they
want.
Maybe
the note is $25,000, but they have five years’ worth of payments left totaling
$30,000. So they ask for $30,000.
That’s
an unrealistic expectation.
Again,
you have to tell the prospect that there’s no investor who would do this,
especially since there’s no wiggle room to profit from any interest using this
approach.
Tell
the prospect to keep their note.
However…
Then
repeat the process of suggesting partial payments, as you did with the other
prospects.
You
ask them what they’re going to do with the money, and they don’t know what to
say because they may not need the money. They just want to know what the note’s
worth.
This
prospect may have a good note and may not really want to sell it.
Go
down the same path of suggesting the partial.
Perhaps at a future date, they can contact you if they want to pursue
that.
Offer
the prospect an appraisal on the note. They can attach the appraisal to their
note, and then they’ll know what the note is worth. This can become useful for
tax purposes, and it will have your number so that they can contact you at some
future date if they want to sell the note.
The
appraisal is really an advertising piece for your business.
1. List the two benchmarks that you must follow before you are certain the investor has unrealistic expectations.________________________________________________________________________________________________________________________________
2. Name the four tell tale signs that a note has a problem.
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
3. Which of these is not an unrealistic expectation.
a. The Prospect knows that he has a bad note, but wants 100% of face value.
b. The Prospect has no real interest in selling the note.
c. The Prospect asks for 50 cents on the dollar, but says he’ll take what he can get.
d. The Prospect knows that he has a bad note, but doesn’t think investors will mind.
4. When you introduce the concept of “partial purchase of notes,” be sure to explain to them what a partial is. (T/F)
5. Whatever happens, never tell the prospect to keep the note. Remember that you are out to make money, so you must use every possible means to motivate them to sell. (T/F)
6. What should you offer a prospect who has no real interest in selling?
a. Free Tax Consultation
b. An appraisal
c. Real Estate Investments
d. Other Mortgage Opportunities
7. How do you lead into benchmark #4?
a. Tell them about the wonderful world of partials.
b. Tell them they really should consider selling.
c. Ask them what they need the money for.
d. Tell them to call you in a couple of days.