1. Annuitant wishes to sell only part of their structured settlement
2. Factoring company offers to buy the partial payments but sale contract provides for ALL of the payments to be transferred to factoring company and factoring company then becomes responsible for paying the unsold payments to the annuitant as and when paid to factoring company (“servicing”).
3. Annuitant then is solicited to sell the balance of the payments at a later date.
4. When or if the annuitant decides to sell later, factoring company lowballs the offer and is a captive because other factoring companies are loath to buy payments being made by their competitor.

When selling partial payments, you should be aware of this practice and avoid it.

Once payments are transferred to the factoring company you lose the benefit of an A-AAA rated insurance company being responsible for making the payment to you with all of the tangible benefits associated therewith and become dependent upon the factoring company to make the payment to you. Also, you lose the benefit of being able to have factoring companies compete for any subsequent sale because many companies may not want to rely on a competitor to pay them.

At Sovereign Funding Group we only take assignment of those payments which we buy, entitling you to receive the balance of the payments directly from the insurance company as originally bargained for.

Please exercise caution when reviewing a sales contract. If you would like a second opinion, please call us at 877-836-4661.

Sovereign Funding Group would have offered a net price of $39,802.00 for the same set of payments.

This case represents another example of how important it is for prospective sellers to get a price quote from Sovereign Funding Group before making a final decision to sell.

Sovereign Funding Group offers the best price upfront and routinely makes offers in the 8% to 9% discount rate range.

Please give us a call to get a second opinion. Call us toll free at 877-836-4661.

1. Make a low ball offer and test whether the seller will accept or shop for a better price.

2. If the seller shops and receives a better offer they will make a counter offer higher than the highest offering price and drag the completion of the case out several months so as to recover the lost profits through interest drag.

Interest drag is the widening spread between the fixed purchase price payable to the seller and the floating sale price set at transaction completion with the investor or securitizer. This spread can be significant, and sometimes more than $100.00 per each day that the transaction remains uncompleted. If a case is dragged for an extra 2 months, that would amount to an extra profit of $6,000.00 due to the factoring company.

Unfortunately this tactic is employed by many structured settlement factoring companies.  As a first line of defense make sure that the company that you are obtaining a quote from are members of the Better Business Bureau and have no complaints.

At Sovereign Funding Group we deplore such tactics. We not only offer the best price upfront to the seller but we also offer a Closing Guarantee* whereby if a transaction takes longer than 8 weeks to close we will guarantee the per diem interest drag by way of a additional payment due to the seller at completion of the transaction.

At Sovereign Funding Group we explore all of your financial needs and help you to make the best informed choice with no pressure an no games! Call us today at 877-836-4661.

*Certain conditions apply. Please contact us for more information.

The following three recent cases illustrate our mission in practice:



*Information supplied by sellers

The sellers in both the FL and GA cases agreed to sell to us.

The NY case is the widely publicized Ciemielewski case that was recently denied by the court. We never bid on that case. Our price reflects the sale price that we would have been prepared to pay had the seller contacted us.

At Sovereign Funding Group we explore all of your financial needs and help you to make the best informed choice. Call us today at 877-836-4661.

Each structured settlement sale and transfer requires court approval. Each state has a different test that the court must apply to determine if a sale ought to proceed. These tests range from “best interest of the annuitant taking into account the welfare and support of the annuitant’s payees” to “imminent financial hardship”.

In determining whether or not to sell, the annuitant should consider the following:

1. What are the immediate financial needs including family needs?
2. What are the assets and net income available to service these needs?
3. What is the shortfall, if any?
4. Is there a substantial asset (such as a car or house) that needs to be bought in order to maintain or improve the individual or family’s standard of living?
5. Are there medical, school, or other expenses currently due or will be due in the future unfunded by current resources?
6. What is the ability to obtain conventional financing and at what rate?

If there is a current cash need, if that need cannot be financed at rates in the range of 7 to 7.5%, and even if you can get financing if it cannot be serviced at current income levels, then it is likely appropriate to sell your structured settlement at this time.

Other circumstances may make it sensible to sell now:

1. You have investment opportunities at rates of return greater than 8% per year.
2. You have inherited the structured settlement and do not need the payment stream.
3. You no longer have the same needs that were present at the time the structured settlement was arranged.

At Sovereign Funding Group we explore all of your financial needs and help you to make the best informed choice. Call us today at 877-836-4661.

1. What are the immediate and medium term cash needs of your client?

2. What are the fixed costs of the sale and transfer?

3. What are the long-term financial planning goals?

Below I'll discuss each of these factors.

1. It is important to accurately assess how much cash is required by your client now. Often clients will underestimate this need and then have to resort to a further partial sale of payments in six months to a year thereby doubling the processing costs. It is better to overestimate the immediate and medium term needs to avoid double cost penalties.

2. There are significant fixed costs associated with a sale and transfer of structured settlement annuity payments. These costs include transfer legal fees and court costs, independent professional advice fees (mandatory in some states), insurance company transfer fees (ranging from $500 - $800 in most cases), lien search costs, courier costs, and wiring fees. Depending on the state and insurance company involved, often the total fixed costs can exceed $3,000.00.

When considering splitting a payment (partial to be sold while balance to be retained) it is important to understand that insurance companies have the right to object to such a transaction. As well, some insurance companies charge double the transfer fee as they must now make two payments instead of one.

The discount rate obviously goes up when the fixed costs comprise a greater proportion of the present value being sought by your client. This provides another reason for your client to generously estimate the funding amount they require now so as to spread the fixed costs over more payments being sold.

3. In many structured settlement cases the long-term care or retirement of your client was considered when designing the original payment stream. If the seller is currently working but planning to retire in a few years, it may be better to sell the immediate payments and keep the future payments to supplement retirement cash needs. On the other hand, further out payments fetch a lower discount rate so it may be more financially beneficial to sell them first.

Sovereign Funding takes all of these considerations into account when developing the best solution for your client. Please give us a call to get a second opinion. Call us toll free at 877-836-4661.

How this cycle will play out will depend on many different variables we cannot readily predict: inflation, higher materials costs, interest rates, reaction of the economy to the slower housing market, rate of new home construction, and the rate of increases in the existing inventory. There is no longer a bottomless pool of buyers. As fewer home shoppers vie for a larger number of homes, it appears that as the year moves on, prices are being slashed by anxious property sellers. As a property seller, you can consider doing some things to distinguish your property from your competition.

What can you do?

- First and foremost, the property asking price must be in line with what you are competing against on the market. Establish too high a price, and your property will sit.

- Offer material incentives. Some builders are offering the following incentives: upgraded or higher-end appliances, free security systems and/or monitoring, an inground pool and free pool service, granite countertops, a prepaid lease on a vehicle, and/or a free Hawaii vacation, etc.

- Offer to buy down the interest rate for the buyer, or, better yet, offer your own turnkey internal seller-financing program that carries a ton of benefits for you and prospective buyers.

What are some of these benefits?

- You can ask a full retail sales price with little, if any, price concessions since financing is offered.

- A larger pool of potential buyers exist beyond those who must go out and obtain their own financing.

- There are no loan points for either the seller or buyer to pay.

- The closing fees are limited and do not include so-called "junk fees" for creative expenses like document review, warehouse, underwriting, tax service, etc.

- A fast closing is feasible with numerous buyers wanting the property.

- No prepayment penalty exists for the buyer. He can opt out of the seller-financing program and refinance the loan without having to wait for fear of a prepayment penalty.

- Owner-offered financing can be immediately converted into cash at the same time the closing takes place when the property is sold (simultaneous closing).

- The discount of the mortgage for immediate cash can be minimized by properly selecting the right property, buyer, and structure for the seller-financed loan to be sold.

- As a seller, you can make a deal work almost on the spot instead of requiring a prospective buyer to obtain his own financing. You can offer a turnkey program that includes your own internal financing for potential buyers. This provides a greater degree of control over the entire process.

You can really shine as a property seller by offering an initial lower-than-normal “teaser” interest rate for a short period of time then adjust it upward to a long-term, fixed rate.

Example:

Your young, first-time home buyers are willing to pay $200,000 for your home and also have 10 percent to put down, good employment stability, and reasonably good credit. You offer to finance the balance of $180,000 over 360 months at a slightly higher-than-market interest rate of 7.5 percent, which will require a monthly installment payment of $1,258.59.

They have a problem with this because the payment is too high for them as they get accustomed to home ownership. They would like to keep their initial monthly installment payment at $925. You offer them a "teaser" interest rate for the first 12 months of installment payments, which will keep their payment right at $925. This will be an interest-only installment of $925 per month or $11,100 of interest due for the first year on $180,000. If you divide the $11,100 of annual interest into the $180,000 principal amount, you will get 6.1 percent as the initial interest-only "teaser rate" that can be offered to these first-time home buyers. From year two and onward, their monthly installment will jump to the $1,258.59 due on a 30-year loan at 7.5 percent.

Here are the calculations on a financial calculator:

N I PV PMT FV Comments

360 7.5% $180,000 $1,258.59 0 - payment too high

6.1% $180,000 $925.00 0 payment they can afford

As you can see, $180,000 can still be financed for this buyer while providing them with an initial monthly installment that is acceptable to them. Two years from now, after they have settled into home ownership, the installment payments and interest rate will rise.

Clearly you do not want to hold onto this seller-financed “paper” for the duration of its term, so you elect to sell and convert the seller-financed note into a lump cash sum at the discounted amount of $160,000. By selling off the loan, you have collected the buyer’s $20,000 down payment and generated an additional $160,000 for a total of $180,000 on a property you sold and financed at $200,000. More importantly, you have cash in hand.

With buyers gaining the upper hand in many marketplaces around the country, why not distinguish your properties that are for sale from your competition’s properties by offering some incentives before lowering the asking price.

Michael T. Morrongiello is the author of the Unity of Real Estate & "Paper" home study course and the president of Sunvest Inc. He is a member of the Million Dollar Club and a Master Consultant. Visit www.snvestinc.com.

To properly explain the vendor guarantee, we first have to define the concept of PO financing a little more clearly. PO financing allows a company that either manufactures or wholesales a product and does not have the needed credit lines or history, to acquire the necessary materials or finished goods in advance from suppliers that require payment in full prior to delivery.

The PO funder typically advances up to 60 percent of the face value of a purchase order from a reliable and creditworthy debtor, subject to a fairly restrictive set of rules and guidelines that usually make most potential deals difficult to close. Because of the risk associated with PO deals (such as non-performance, late delivery, etc.), the fees can be prohibitive, especially if the client’s gross profit margin would not allow for the added cost. Not including the factoring fees, PO funding can easily add between 5 percent to 8 percent more to the manufacturer's/wholesaler’s cost of goods sold. At a time when most companies need to keep these costs low to compete in the marketplace, PO financing is not going to be the best solution. So, here's where the vendor guarantee concept comes into play.

The vendor guarantee is a simple agreement that, if accepted by the supplier (vendor), can be implemented by the factoring company to "guarantee" payment directly to the supplier if he will release shipment of the materials/finished goods to the client once the invoice is generated and verified by the customer (the client's debtor). The factor pays the supplier immediately for the cost of goods, then forwards the remaining balance of the advance to the client. The factor will not pay the vendor until the invoice is accepted and verified and does not take responsibility for nondelivery.

For a fee that is considerably less than PO financing, a new factoring client can be added to the revenue stream, increasing commissions that would otherwise not be earned.

It should be noted that the suppliers are taking some risk if the orders are not met in a timely manner, but they will usually only consider the arrangement if the customer relationship is good and they have confidence the funding source will pay on time. The vendor guarantee will not be suitable for all your deals, but enough of them can be doable under this arrangement to make it worthwhile.

Written by Jeff Sheikowitz the vice president of business development for Paragon Financial Group.

Cashing in on equity is not a new idea; however, since interest slid from well over 10 percent in the early 1990s to a recent wholesale rate of only 1 percent on an adjustable rate mortgage, homeowners have been pulling cash out for all kinds of toys, trips, tips and/or remodeling, debt consolidation, and even alternative investments.

Leveraging a powerful aspect of real estate investing

The Greek mathematician Archimedes said, "Give me a lever long enough and a fulcrum on which to place it, and I’ll move the world." Unlike any other investment vehicle, real estate leverage is a huge benefit. Think about it. You can have the whole "bundle of rights" and control the entire asset while investing only a fraction of the cost up front. In fact, in many cases, you can pay nothing down at all. Your equity increases as the market drives appreciation upward. The principal reduction on the loan further increases equity, and if the house is rental real estate, the tenant pays off the loan for you. How much better can it get than that?

Let's stop here for a minute and consider the difference between "home equity" and "investment real estate equity." Before I became a real estate broker, I considered my home an investment. While technically that may be true, think about it. For all you men out there who justified the purchase of a diamond ring for your wife as a prudent investment, just try taking it away from her and selling it when times get tough! By the same token, it is almost impossible to liquidate a man’s castle or a woman's family nest even during a threat of foreclosure. One may be well-advised to think twice before mindlessly using his home as an ATM machine.

If you analyze the risk-to-reward as shown on an investment pyramid, you will notice that your personal residence is located along the foundation of the pyramid with cash, savings, retirement programs, life insurance, certificates of deposit, and checking accounts. As you move up the pyramid, you will find income-producing real estate (rental property) about halfway to the top. As an investment strategy, leveraging at that point by pulling out cash from equity through refinancing to build wealth, acquire additional real estate, diversify, or even send the kids to college while having the tenant continue to pay off the new loan is a great idea.

However, in spite of the fact that adjustable rate interest loans on personal residences (home loans) are coming due this year, homeowners continue to be barraged with zero-interest loans, reverse mortgage schemes, and coupons to get "cash back" at closing. One study shows that there is over $1 trillion in adjustable rate loans coming due this year.

It doesn't take a rocket scientist to see the crack in the foundation of the real estate market as conventional interest rates begin to rise, foreclosures increase by as much as 82 percent, and the housing market is softening across the board. The same study showed that half of a couple's income is used to service their home loan.

The possible solution for many of these owners is to shop for a fixed-rate, 30-year loan combined with an accelerated repayment plan. This combination could quickly accelerate equity by reducing the principal at a rapid rate. Many just bail out with equity equal to the proverbial sack of donuts.

For those who have reached or are close to reaching the end of their financial rope in terms of ability to service the increasing mortgage payment due through an adjustable rate, a land trust could be the answer. There has been an exponential increase in the number of land trusts held by the corporate trustee (Equity Holding Corporation) in the last year. Homeowners (settlor beneficiaries) are able to salvage all or part of their equity while getting investment capital to tide them over from an investor (investor beneficiary). For more information on this, please go to our Web site at: www.equityholding.org and click on "articles." These investor beneficiary interests are a new kind of cash flow, with returns certainly worth looking into.

Note investors should use due diligence when purchasing seller carryback notes from sellers who have sold "subject to" an existing loan or are under an agreement where the buyer gets a new loan and the seller carries back a second trust deed. Look at the closing papers to assure the buyer has something to lose (a good sized down payment) and that a notice of delinquency (in addition to a notice of default) is included along with provision of a tax service. If the seller is overly anxious to dump the note, perhaps he knows something you don’t. Review Henry Dvorken's "7 Reasons Why People Sell Notes" and "Zero Equity = Zero Ka-ching at the Cash Machine."

Written by: Thomas Standen , DCFS, is CEO of Note Servicing Center, Inc., and is a member of the Million Dollar Club. He can be reached by c alling 800-646-3445. See www.sellerloans.com for more information.

Consider, also, this statistic: In 1999, the senior market was estimated at $492 billion of in-force life insurance policies. Remember, with the “graying of America,” the senior market is burgeoning and formidable.

For many years, the insurance companies were essentially the only market for this commodity in which an individual has probably been investing for years. The advent of a secondary market has now created a free market for policy owners to value their insurance just as they do other financial assets.

A recent article entitled, “The Benefits of a Secondary Market for Life Insurance Policies,” published by the American Bar Association (Real Property, Probate & Trust Journal), concludes that the secondary market is both pro-competitive and pro-consumer. I will outline three basic options for managing life insurance assets.

Option 1 — A Life Settlement, or Sale of a Policy

For many a policyholder, selling his policy makes total sense. Here are some reasons why:

- The policy has become too expensive to maintain.
- Lapsing his policy provides little or no benefit.
- Settlement amount is always greater than the cash surrender value in a policy.
- Perhaps her day-to-day expenses are not easily met.
- A decline in his health has increased his medical expenses.
- Her health and long-term care have become a financial problem.
- He is afraid of leaving his family burdened with debt.
- New tax laws or estate changes have made her current life insurance coverage excessive.
- The policyholder is living in an assisted-care facility and has exhausted his ability to pay for his residential care.
- Perhaps he needs alternative funding for more suitable financial products.
- Maybe his heirs are all adults, and he doesn’t need the amount of coverage he once needed to ensure their security.
- By selling his policy, your client eliminates the expense of premium payments, is better able to pay day-to-day expenses, preserves his high quality of life, enjoys increased financial liquidity in mercurial economic times, and maintains control over his own affairs before passing. This is tremendous peace of mind for many seniors.

Ideal candidates for selling life insurance policies are over 65 years of age with a life insurance policy of at least $250,000 (smaller policies can also be marketed), and a life expectancy of 15 years or less.

Option 2 — A 1035 Exchange

Prior to the secondary market for life insurance, consumers who wanted to retain insurance coverage while eliminating premium payments had few options. Non-forfeiture laws provide for either surrendering the policy for cash or exchanging it for a paid-up policy with a reduced face amount. Because both of these options are based on cash surrender value amount, they frequently undervalue the policyholder’s asset.

Programs now exist under the 1035 Policy Exchange that allow a policyholder to transfer an underperforming policy’s market value into a new, paid-up policy that can be based on either guaranteed or current rates. By tapping into the market value of the original policy, this exchange provides more coverage than a traditional exchange — more than cash value would provide. As a result, qualifying clients now have a strategy to meet their estate planning needs by retaining a significant amount of coverage while eliminating future premium payments.

This type of exchange offers a revolutionary shift in how life insurance assets are managed. Instead of accepting the carrier’s non-forfeiture options, financial advisors are now having their clients’ policies appraised on the secondary market. They learn what the policy is worth in cash and as a paid-up policy, allowing them (or you) to help your clients use their capital more efficiently.

By taking advantage of this program, your client will create a guaranteed benefit in place of a non-guaranteed benefit. He will receive a paid-up policy that more specifically meets his current needs, and he will create for himself additional disposable income by eliminating future premium payments. Sometimes key executives who retain their policies after retirement find the premiums too expensive to maintain, and this can be a perfect solution for them.

Option 3 — Premium Financing

I want to mention premium financing programs, even though this is not where you make the big bucks. You should be aware of it, however, so that you can easily discuss this option with your clients.

Premium financing has long been a valuable estate planning tool, particularly useful in the advanced estate and business planning marketplace where clients commonly have large insurance needs andassets they do not wish to liquidate.

Until recently, however, these loans offering to finance life insurance premiums were granted on a recourse basis with significant collateral and/or personal guarantees. With new programs being offered, however, a policy owner can now borrow against the future market value of a life insurance policy. By using a non-recourse loan that is supported by the projected value of the underlying policy, we reduce or eliminate the need for further collateral or personal guarantees.

Premium financing allows your client to obtain a significant amount of insurance with no additional collateral requirements while minimizing his initial financial outlay.

Because a client’s life insurance policy and medical information is so personal, it is important that your client know we deal only with institutionally funded companies who actually have separate divisions (often in separate buildings) who handle medical information and underwriting. All information is held in the strictest confidence; and if the client decides, for any reason, not to move forward with the transaction, all his personal data is destroyed.

Where to Go?

Large, upscale insurance companies are good; they’d rather their clients sell their policy to someone else who will make the payments (so they continue to receive their commissions) than let those policies lapse. CPAs are also good, as they should be able to point out tax, cash flow, and other benefits of using this financial asset in a new way.

In addition, wealth managers or upscale financial planning experts love having a new tool with which to help manage their clients’ assets. Many of them know vaguely of life settlements, but you can make a real ally by taking them to lunch and educating them.

Finally, look around you. You will be amazed at the policies your clients, friends, relatives, and co-workers are carrying. They will be amazed at the options you will show them for this great financial asset.

As you become a trusted cash flow advisor, I think you will find adding life settlements to your arsenal will be interesting and very lucrative. Call us for help in understanding, getting proper forms, marketing, and closing the life settlements you uncover. Good hunting!

An excerpt of "Making a Living with Life Settlements" in the American Cash Flow Journal from the December 2006 issue written by Marilyn Singer (cfsinger@adelphia.net), DCFS, CMA owner of Capital Asset Funding Inc.

There is a correlation between cash flow and the working capital needs of a business. Cash flow is the lifeblood of every business, and it is the task of the business owner to keep the cash flowing. The faster a business expands, the more cash it will need for working capital to keep operations progressing seamlessly. Any hiccups in timing can generate troublesome cash flow snags the business owner has to deal with.

Financing companies can be a helpful and valuable resource for businesses in any industry, and most businesses can benefit from the infusion of capital from time to time. Businesses looking for a competitive edge should always consider establishing a relationship with a funding company to counteract any cash flow issues before the need arises.

A business desiring a working capital financing relationship with a funding company has to first ascertain what type of financing would be the most beneficial. Should a small business consider a business loan, a line of credit, accounts receivable factoring, and credit card factoring? A savvy business owner should consider all of these types of financing in order to respond immediately to cover ‘unexpected expenses’ or ‘opportunities’ as they come to pass.

Next, the business has to determine what type of interruptions in cash flow can be expected and the amount of working capital required to overcome the shortfall of needed cash. Perhaps the most important consideration the business owner must be familiar with is the impact each financing vehicle has on the bottom line.

The most successful business owners always manage their businesses as if they were going to sell their business in the next month. For that reason, they are more likely to make decisions based on how financing choices affect the bottom line. That is a trait worth emulating by managers everywhere.

It doesn’t take a genius to know that debt impacts the balance sheet in a negative manner for two reasons:

Debt is a liability and reduces the net worth of the company until the debt is repaid.
The interest expense also reduces the net worth of the company.

For these reasons and from a business point of view, debt for funding working capital purposes should be avoided, if at all possible.

On the other hand, factoring impacts the balance sheet in a positive manner for two primary reasons:

Factoring becomes an asset increasing the net worth of the company by reducing the working capital requirements to almost nothing.

Because of the associated discount fee reducing the pretax profits, significant tax relief increases the net worth of the company. Factoring is the only financing vehicle that increases the net worth and the equity position of a business.

If the business owner needs an influx of capital for whatever reason, a choice has to be made - debt or factoring. Factoring increases the equity position of a business whereas debt does not. Which is better? An improved bottom line is always more satisfactory.

Quite often the business has no real choice, because many banks offer personal or traditional loan products only to their customers with perfect credit or to those businesses that already have the working capital they need at their disposal. Business owners can seek commercial loans and factoring from many different funding companies, but in doing so, it is always best to know the impact on the bottom line before applying for financing.

There are many financial loan calculators available on the Internet, and all of them fail to provide insights about the impact that impending debt would have on the bottom line of a business. These financial calculators also fail miserably in providing comparisons with any other financial instruments, i.e., factoring. For that reason it is difficult to make sound financial judgments using these financial calculators.

Author: Joe Winegardner of 3wi.com.

The property that I chose was a 3/2.5/2 with a pool located in Arizona. The reason I chose this property for my test is that it was bought below market value, and there had been a complete remodel done on this home in the last year. I also had two full US Property and Appraisal's (USP&A) done on this home. The first appraisal was done in November of 2000, at which time it appraised at $145,000. The second one was done in June of 2001, at which time it appraised at $153,000.

So, armed with this information, I set out to discover the real truth about BPO's and Appraisals. I contacted three different companies in my local area that did BPO's. To my surprise I discovered that the cost of having a BPO done ranged anywhere from $75.00 to $200.00 with pictures. Keep in mind that I paid $300.00 for a full appraisal from a national company.

Broker # 1 charged $75.00. It took him 4 business days to complete the BPO. His value of the property was stated as $122,000. When asked about how he established this value, he said he based it on comps in the area along with the tax rolls. He also let me know that this was not his main line of his business. He main line of business was listing homes. Despite that, he had no problem taking my money! When I brought to his attention that the lowest priced sale in the area in the last 6 months was a $129,000 and a 2/2/2 (smaller home), he recommended that I seek the assistance of an appraiser to establish property value.

Broker # 2 charged $120.00. It took him 9 business days and I received color photos of the outside of the property. The value that he placed on the property was $129,500. When asked how he established the value, he informed me that he had sold several homes in the area in the last two years. He also stated that his last sale in the area was over nine months ago.

Broker # 3 charged the highest of all at $200.00. It took him 6 business days, and I received what looked like a novel about the property. In his report he told me everything about the property size; shape; color; location; schools; shopping centers; freeway access; comps; taxes; neighborhood amenities; etc. His assessed value of the property was $136,000. This BPO was, by far, the most impressive. Only one question still remained – How is it that he can still be 12% off on the value of the home? As he attempted to explain how he arrived at the $136,000 value, he disclosed some very important facts to keep in mind when comparing a BPO to an Appraisal. He stated that a BPO is designed to do a quick comparison of the subject property based on the current sales in the area. When I asked him if traditional lenders would use a BPO to establish value on a piece of real estate, he stated "highly unlikely". They are looking for a much more comprehensive approach to establishing the value of a piece of real estate.

It is also important to understand that institutional note buyers typically have a margin of approximately 10% when looking at the value of a BPO. None of the BPO's that I received would have fallen into their margin, which in turn would have given them the opportunity to change the pricing on this deal.

So, the question remains: Which is the best way to establish the value of a property, a BPO or an Appraisal?

I personally have found that the best way to establish value on a piece of real estate is through a full appraisal with interior photos from a national company. By doing it this way I have found that when I sell a note it eliminates any question of value that the buyer may have. Thus a win / win situation is created for both the buyer and the seller.

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About The Author

Troy Fullwood is the President of Pinnacle Investments located in Chandler, AZ. Created in 1997, Pinnacle Investments is a nationwide principal buyer of 1st lien performing and non-performing real estate notes, and an industry leader in continuing to offer the simultaneous purchase of newly created notes. Troy is a respected teacher and speaker in the industry, he has written over 50 articles on real estate investing and spoken at several industry conventions.