Jennifer thought she'd done everything right. She'd offered seller financing on her Arizona land deal — 10 acres outside Phoenix for $75,000. The buyer put down $15,000 (20%), and she was collecting $710/month at 10% interest on a 10-year note.
Two years later, she needed capital. The balance was about $57,960. She expected offers around $46,000–48,000 (80% of balance). The actual offers shocked her: $34,776 (60%), $29,000 (50%), and one outright decline.
She lost $14,000–19,000 compared to what she expected.
Her five mistakes: used a land contract instead of deed of trust, self-serviced the loan, didn't pull a credit report (borrower was 580), minimal documentation, no title insurance. Each mistake cost thousands.
After buying over 150 land notes, I can tell you exactly what determines a note's value — and why some sell for 80% while others struggle to get 50%.
Two Paths to Selling (And Why Timing Changes Everything)
Path A: Selling at Closing (Simultaneous Close)
Path B: Selling Seasoned Note (2 Years Later)
The lesson: if you're going to offer seller financing, plan your exit strategy BEFORE you originate the note.
The 6 Factors That Determine Land Note Value
Factor 1: Down Payment (Most Important)
Down payment is the single best predictor of default. Default rates: 0–10% down = 20–35% default, 10–15% = 15–25%, 20–25% = 5–10%, 30%+ = under 5%.
Down Payment Impact: Same $60K Sale
Recommendation: Minimum 20% down, preferably 25–30%.
Factor 2: Credit Score + Down Payment Matrix
Credit score and down payment work together. Same $75K sale with 20% down: a 720 credit borrower gets you an 80% offer ($48,000), while a 610 credit borrower gets 55% ($33,000). That's a $15,000 difference.
I look beyond the score at the actual report. Medical debt is common and doesn't always indicate payment problems. Recommendation: Minimum 660 credit score for standard pricing.
Factor 3: Professional Loan Servicing vs. Self-Servicing
This single decision affects note value by 10–20%. Self-serviced loans have no third-party documentation, payment disputes are common, and note buyers can't verify history. Professional servicing costs $15–30/month and provides complete records, third-party verification, and easy transfer.
Servicing ROI
Recommendation: Use professional servicer from day one. Structure it so the borrower pays the fee.
Factor 4: Documentation Type
Land contracts cost you 10–20% compared to note + deed of trust. Two identical Tennessee properties with $65K balance: land contract gets $39,000 (60%), note/deed of trust gets $48,750 (75%). That's $9,750 lost to the wrong document type.
Recommendation: Use promissory note + deed of trust (non-judicial states) or mortgage (judicial states). Avoid land contracts →
Factor 5: Interest Rate & Term Length
Note buyers target 14–20% annual return. If your rate is too low, they must discount heavily. An 80K note at 6% gets a 64% offer ($51,200). Same note at 10% gets 80% ($64,000). That's $12,800 from interest rate alone.
Shorter terms also command higher prices. A 13-year remaining term gets 70%, while a 5-year remaining term gets 80%.
Sweet spot: 9–12% interest, 5–10 year terms.
Factor 6: Property Quality, LTV, and State
Note buyers ask: if the borrower defaults, do I want this property back? Good collateral (legal access, utilities, buildable, good location) gets full pricing. Poor collateral (landlocked, remote, no demand) gets 50% or declined.
Maximum LTV: 70%. Non-judicial states (TX, TN, GA) get higher offers than judicial states (FL, IL, NY) because foreclosure is faster and cheaper.
Want to maximize your note value from day one?
Get Pre-Approved Before You List →The Pricing Tiers
Tier 1: Premium (75–80% of balance)
- Sold at closing (simultaneous close) OR seasoned with perfect history
- 660+ credit, 25%+ down, professional servicing
- Note + deed of trust, 9–12% interest, 5–10 year term
- Good property in non-judicial state, 60% or lower LTV
Tier 2: Standard (60–70%) — Good payment history, 620–660 credit, 20% down, professional servicing, standard property.
Tier 3: Discounted (50–60%) — Land contract OR self-serviced OR 600–620 credit OR 10–15% down OR some late payments OR weak property.
Tier 4: Problem (40–50% or declined) — Multiple Tier 3 issues, below 600 credit, under 10% down, missed payments, documentation problems.
Common Mistakes That Cost Thousands
- Self-servicing: Costs $8,250 on a $55K note. Fix: $20/month servicer.
- Using land contract: Costs $9,750 on a $65K note. Fix: $500–1,000 attorney fee for proper structure.
- Low down payment: 10% vs 25% down costs $13,050 on a $60K sale.
- Wrong interest rate: 6% vs 10% costs $10,500 on a $70K note.
- No credit check: Costs $10,000+ if borrower turns out to be 580. Fix: $30 credit pull.
Why Selling at Closing Gets You 80%
Through our simultaneous close program, I oversee the entire origination: right borrower, proper structure, professional servicing from day one, clean documentation. Lower risk = better pricing. I also build long-term relationships with repeat investors, creating efficiencies that benefit both sides.
The Real Comparison
The Bottom Line
Your land note's value is determined by six factors: down payment, credit score, professional servicing, documentation type, interest rate and term, and property quality. Get these right from day one and your note sells for 75–80%. Get them wrong and you're looking at 50–60% or unsellable.
The difference on a typical $75,000 deal: $15,000–25,000.
Key Takeaways
- Selling at closing gets best pricing (80% through our program)
- Seasoned notes get 60–70% if done right, 50–60% with problems
- Professional servicing pays for itself 1,462% over
- Land contracts cost 10–20% vs. note/mortgage
- Down payment is the #1 factor (20% minimum, 25%+ preferred)
- Plan your exit strategy BEFORE you originate