Proficient Note Buyers
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March 24, 2011
Read the Fine Print
Many will remember the famous Norman Rockwell painting called “The Gossip”. (Google it if you don't have this point of reference - it's essential to what follows.) This illustration is a good lead-in to the subject of broker daisy chains.

A broker daisy chain exists when one broker is linked to the seller, one broker is linked to the investor, and there may or may not be even more brokers in between the two. This situation is bad for all parties for a myriad of reasons: Here are my 'Five Rules of the Chain':

1) Too many cooks spoil the broth. How are 2, 3, 5(?) brokers going to get paid if they are all in the middle?
2) Good information turns bad in a hurry. Refer to "The Gossip" again. If the seller has to communicate to broker #1, who then must pass information along to broker #2, etc., what kind of message is finally going to reach the investor? Remember playing this game as a kid? How often did the correct message make it all the way through the participants?
3) Your reputation is jeopardized. The more brokers involved, the more your credibility as a professional suffers.
4) Investors will opt out of the deal. Most end investors will not get involved with a transaction if they know a daisy chain exists. Take a cue from them: If they are unwilling to get involved in that kind of scenario, why would you?
5) THE DEAL WILL NEVER CLOSE. Forget the first four if you’ve gotten this far. This is the only one that matters, and is reason enough to flee from every daisy chain scenario. Remember Raid Bug Spray? Their jingle was “Raid kills bugs dead”. Daisy chains kill deals dead. THE DEAL WILL NEVER CLOSE. Repeat after me. THE DEAL WILL NEVER CLOSE.

Daisy chains aren’t always easy to identify. Some brokers have ways of disguising the true structure of the deal. Ask the caller if they are direct with the seller (owner) of the note. Ask this until you get a ‘yes’ or ‘no’ answer. If they say anything but ‘yes’ or ‘no’, the answer is ‘no’. If the answer is ‘yes’, continue reading below. If the answer is ‘no’, see Rule #5 above.

I have successfully closed several transactions that were brought to me by brokers. However, the following criteria must be met before we will consider working with a broker:

• The broker must be direct with the seller.
• The broker must be willing to give up control of the deal and put us in direct contact with the seller. This is absolute…there are no exceptions. If the submitting broker cannot agree to this condition, we review Rule #5 above, thank them for their time, and hang up the phone.
• The broker must temper their fee expectations. If we are controlling the deal and doing all the work, the broker should be paid a referral fee, but not share equally in the commission. We will be fair, but firm. If broker has a problem with this…you guessed it, Rule #5.
• Know the broker personally. If we don’t know the broker personally, we ask for references from other people in this business. We do not partner in deals with someone we know nothing about.

There you have it. Follow the simple guidelines laid out above and you too will save yourself a lot of headaches. Implement a solid marketing plan, foster relationships with several note investors, and you’ll never need to bother with these cancers of the industry. To you note holders out there - this applies equally to you. If some inexperienced broker gets ahold of your note and simply shops it to other brokers, where do you think the money is going to come from to get everyone paid? YOUR POCKETS!

Daisy chains are like unwanted dinner guests - they bring nothing to the table but more mouths to feed!

Make it a great week.


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