The Art of Negotiating With Note Holders
by Jeff Armstrong  www.ArmstrongCapital.com

The topic of negotiation is always controversial. The traditional school of thought is to obtain a good rapport with the seller and show the benefits of why the deal is in the seller's best interest. Next is trying to explain the time value of money and if that does not work, follow up, follow up until you overcome objections by stating the obvious benefits. After all, the traditional thinking goes, it's a numbers game. Keep a thick skin, keep working hard and make lots of phone calls.

By doing this you wear the seller out, turn the seller off, or, more likely, wear yourself out! 

My approach on negotiating has nothing to do with any of the elements above. You see, when negotiating with a note seller there should only be one goal. That goal is getting to the truth as opposed to pushing for the deal.

When you do not push and have a conversation that is natural and just letting the universe flow the direction of the conversation, the defenses of the note holder will melt away. Sometimes having a little small talk without trying to accomplish a goal can be immensely valuable.

The key is getting a note holder to be comfortable with you -- only then should you talk about the note.

You should also let them know upfront that the market is going to discount the note. Whether they are dealing with you or some one else in the marketplace, notes trade at a discount. You should always ask them, how do you feel about that?

The note holder usually asks what the discount is. You should respond that it depends on how desirable the real estate is, on the credit quality of the payor and how much equity there is in the property.

Asking them a few questions about the note and giving the note holder a feel of what the discount might be as opposed to an offer is another strategy. It probably is not a good idea to go into the time value of money conversation. I cannot recall that method ever working.

I typically will tell the note holder that the people who tend to come to us are generally people who have a financial problem or a terrific business opportunity that cannot get financed by a bank, relative or friend. Only after they have explored those options should they even consider selling their note as an option. I cannot state this enough. We typically aren't their primary option but a secondary or tertiary option. I like to use the term that I am the Plan B option. I might say something like this:

"It sounds like you have a better option. If plan A does not work out, you are welcome to call me back to explore the Plan B option."

By doing it this way, you are upfront with your intentions and you are asking the seller to be upfront with their intentions. Too many times we waste time with people who would never sell the note even if we gave them a 100 cents on a dollar of their note balance.

Always ask the seller why they took back the note in the first place. When there is a good down payment, you may ask the seller why the payor never went to the bank. If you can get the seller to open up to you about this, you will find out the problem of why he took back the note. Remember if you can get this information out of the seller, you will be in a better position to negotiate an effective discount with the note seller.

Jeff Armstrong of Armstrong Capital has been a note broker and investor since 1991. Email info@armstrongcapital.com. For information on how he can help you with your note business, your note investments or to request a quote on a note you currently have, visit www.armstrongcapital.com