What Discount Do Land Note Buyers Charge in Texas?

If you are considering selling your land note in Texas, one of the first questions that comes to mind is what discount will the buyer apply to my remaining balance? It is a fair and important question, and the answer shapes the entire economics of your decision to sell. The discount — the difference between your note's remaining balance and the cash a buyer will pay you today — is not arbitrary. It is driven by a set of identifiable, measurable factors that professional note buyers analyze with every deal they evaluate. Understanding what those factors are and how they influence the discount is the single best thing you can do to prepare yourself for a successful and satisfactory note sale.

The Texas land note market is large, active, and competitive. Thousands of seller-financed land notes change hands every year, and the discounts applied to those transactions vary widely — from as little as eight or ten percent for the strongest notes to thirty-five percent or more for notes with significant risk factors. Where your note falls on that spectrum depends on a combination of variables that include your borrower's payment track record, the interest rate and structure of the note, the type and location of the land that serves as collateral, and the overall risk profile that the buyer perceives when they evaluate the complete picture.

This guide will take you through every major factor that drives discounts on Texas land notes, explain the economic logic behind the discount, give you realistic ranges to benchmark against, and show you practical steps you can take to minimize the discount and maximize the cash you receive. Whether your note is a pristine performer on prime collateral or a more challenging instrument with some rough edges, you will find actionable information here that helps you understand and navigate the discount conversation with confidence.

Why Note Buyers Discount — The Economics Behind Every Offer

The Time Value of Money in Practice

At its most fundamental level, the discount exists because of the time value of money. When a buyer purchases your note, they are exchanging cash today for the right to receive a series of future payments that will arrive over months or years. A dollar received today is inherently more valuable than a dollar received a year from now because today's dollar can be invested immediately to earn a return. The buyer's discount is the mechanism through which they ensure that the price they pay today, combined with the stream of future payments they receive, produces an annualized return that compensates them fairly for the use of their capital.

This concept is identical to how bonds are priced in the financial markets. When a bond trades at a discount to its face value, it is because the bond's coupon rate is lower than the prevailing market rate, and investors require a higher yield than the coupon alone provides. In the land note world, the "coupon" is your note's interest rate, and the "market rate" is the yield that buyers require on land note investments in the current environment. The discount bridges the gap between your note's stated return and the buyer's required return, adjusted for the specific risk characteristics of your particular note.

Risk Premium — Compensating for the Unknown

Beyond the pure time value of money, the discount also includes a risk premium that compensates the buyer for the uncertainties inherent in any land note investment. Unlike a U.S. Treasury bond, which is backed by the full faith and credit of the federal government, a land note is backed by a single borrower's promise to pay and a single piece of Texas real estate. The buyer must account for the possibility that the borrower will stop making payments, that the collateral will decline in value, that the foreclosure process will be costly and time-consuming, or that some other unforeseen issue will affect the investment. The risk premium portion of the discount covers these contingencies, and the size of the risk premium is directly related to how risky the buyer perceives your specific note to be.

A note with a long history of perfect payments, a low loan-to-value ratio, and collateral in a strong market presents relatively low risk, so the risk premium is small and the total discount is modest. A note with limited payment history, a high LTV, and collateral in a weak or uncertain market presents higher risk, so the risk premium is larger and the total discount is deeper. This risk-based pricing is not unique to the note market — it is how virtually all financial assets are priced, from corporate bonds to insurance policies. Understanding that the discount is a function of perceived risk gives you a roadmap for reducing it: anything you can do to reduce the buyer's perceived risk will tend to reduce the discount.

Transaction Costs and the Cost of Doing Business

A third component of the discount, often overlooked by note sellers, is the buyer's transaction costs. Purchasing a land note involves real expenses: title searches, legal review of documents, potentially an appraisal of the collateral, closing costs, and the ongoing costs of servicing the note after purchase. These costs are relatively fixed regardless of the note's size, which means they represent a larger percentage of the deal on small notes than on large ones. A buyer who spends $2,000 in transaction costs on a $50,000 note is absorbing a four percent drag on their return. The same $2,000 on a $15,000 note represents a thirteen percent drag, which the buyer will pass through to you in the form of a deeper discount.

This is one reason why notes with very small remaining balances tend to receive larger percentage discounts than notes with larger balances. It is not that the buyer thinks less of your note — it is that the economics of small deals are simply less efficient. If you hold a very small note and are considering selling, this dynamic is worth factoring into your expectations.

Typical Discount Ranges for Texas Land Notes

The Premium Tier — Discounts of Eight to Fifteen Percent

The best-priced notes in the Texas market trade at discounts in the eight to fifteen percent range. To qualify for this premium pricing, a note generally needs to check most or all of the following boxes: at least twenty-four months of consecutive on-time payments with no late payments whatsoever, an interest rate of nine percent or higher, a loan-to-value ratio of fifty percent or less, a remaining balance of at least $25,000, a fully amortizing payment structure with no balloon, and collateral consisting of desirable land in a strong Texas market — think lakefront lots, suburban residential parcels near major metros, or well-located commercial tracts. Notes that achieve this level of pricing are the cream of the market, and they are relatively uncommon because so many factors need to align simultaneously.

If your note has these characteristics, you are in an excellent negotiating position. Multiple buyers will be interested, and the competition among them should produce an offer near the favorable end of this range. When you receive your quote, compare it not just to the remaining balance but to the total cash flow the buyer will receive over the life of the note — you may be pleasantly surprised by how fair the pricing is when viewed through that lens.

The Standard Tier — Discounts of Fifteen to Twenty-Five Percent

The majority of Texas land notes that trade on the secondary market fall into this middle tier, with discounts ranging from fifteen to twenty-five percent. These are solid, investable notes that have good but not exceptional characteristics. A typical note in this range might have twelve to twenty-three months of seasoning with one or two minor late payments, an interest rate in the six to eight percent range, an LTV between fifty and seventy-five percent, a moderate remaining balance, and collateral consisting of rural acreage, small-town lots, or other property types that are marketable but not in the highest-demand category.

Notes in this tier represent the bread and butter of the Texas land note market, and experienced buyers purchase them routinely. If your note falls into this range, you should receive a fair and competitive offer from any reputable buyer. The key to getting the best price within this tier is to have your documentation complete, to be transparent about any payment history issues, and to work with a buyer who has deep experience in your specific type of collateral so they can evaluate it accurately rather than applying a generic risk assessment.

The Higher Discount Tier — Twenty-Five to Thirty-Five Percent or More

Notes at the higher end of the discount spectrum — twenty-five percent and above — typically have one or more significant risk factors that cause buyers to price more conservatively. These risk factors might include very limited seasoning of fewer than twelve months, a history of multiple late or missed payments, a high LTV ratio where the note balance is close to or above the collateral value, a very low interest rate that makes the note less profitable for the buyer, collateral in a remote or economically declining area, missing documentation that creates uncertainty, or structural features like large balloon payments due in the near term.

Notes in this tier can absolutely be sold — the Texas market has buyers for virtually every type of land note — but sellers need to have realistic expectations about the pricing. If your note has significant challenges, the discount reflects the real risk that the buyer is taking on, and asking for a lower discount without addressing the underlying risk factors is unlikely to be productive. Instead, focus on what you can control: provide complete documentation, be transparent about the note's history, and work with a buyer like Longhorn Note Buyers who has the experience to evaluate challenging notes fairly rather than simply applying a worst-case discount. For additional context on how discounts work across different scenarios, you may find this article on discounts when selling a land note in Texas helpful.

The Specific Factors That Drive Your Discount Up or Down

Payment History — The Most Powerful Factor

If there is a single factor that matters more than any other in determining your discount, it is the borrower's payment history. A perfect payment record is the strongest possible signal that the borrower will continue to pay, and note buyers respond to that signal by reducing the risk premium embedded in their discount. The difference in pricing between a note with thirty-six months of perfect payments and a note with only six months of history can easily be ten percentage points of discount, which on a $50,000 note translates to $5,000 of additional cash in your pocket.

Late payments, missed payments, and payment gaps are the most damaging factors in a payment history because they directly undermine the buyer's confidence in future performance. A single thirty-day late payment that was subsequently cured is a relatively minor issue that most buyers will overlook with only a modest impact on pricing. Multiple late payments, a sixty-day or ninety-day delinquency, or a pattern of chronic lateness is a much more serious concern that will push the discount significantly higher. If your note has payment history issues, honesty is the best policy — share the complete history upfront and let the buyer price the note based on the actual facts rather than discovering the issues during due diligence, which can lead to a re-trade or a collapsed deal.

Interest Rate — Higher Is Better for You

Your note's interest rate has a direct, mathematical impact on the discount. A higher interest rate means the buyer earns more income per dollar invested, which means they need less of a purchase discount to achieve their target yield. The relationship is nearly linear: for every one percentage point increase in the note's interest rate, the discount typically decreases by roughly one to two percentage points, all else being equal. A note at ten percent interest will generally sell at a smaller discount than an identical note at seven percent, and the difference can be significant in dollar terms.

If your note has a relatively low interest rate and you have the ability to modify it — for example, if the borrower would agree to a rate increase in exchange for some other concession — that modification could improve your note's marketability and reduce the discount. However, this is rarely practical, and most note sellers simply need to work with the rate they have. Understanding the rate's impact on pricing helps you set realistic expectations and evaluate offers in the proper context.

Loan-to-Value Ratio — The Collateral Cushion

The LTV ratio is the buyer's measure of how well-protected their investment is by the underlying collateral. A lower LTV provides a larger equity cushion, which reduces the buyer's potential loss in a default scenario and directly translates into a smaller discount. The relationship between LTV and discount is not perfectly linear, but there are clear breakpoints. Notes with LTVs below fifty percent are in the most favorable category. Notes with LTVs between fifty and seventy percent are considered solid. Notes with LTVs between seventy and eighty-five percent face somewhat steeper discounts. And notes with LTVs above eighty-five percent face the steepest discounts because the margin for error is very thin.

One of the most effective ways to improve your LTV is simply to let time work in your favor. If your borrower has been making payments and paying down principal, the remaining balance has decreased. Simultaneously, if land values in the area have appreciated, the collateral value has increased. Both of these dynamics push the LTV lower over time, which means a note that had a seventy-five percent LTV at origination might have a fifty-five percent LTV after a few years of payments and appreciation. If you are not in a rush to sell, waiting for the LTV to improve can meaningfully reduce your discount.

Collateral Type and Location in Texas

The land securing your note is the buyer's last line of defense, and its type and location affect the discount through their impact on the buyer's liquidation analysis. Buyers ask themselves: if this borrower stops paying, how quickly can I foreclose and resell this property, and at what price? Properties that can be resold quickly and at predictable prices — suburban lots near growing cities, waterfront parcels on popular lakes, well-located commercial tracts — support smaller discounts because the liquidation risk is lower. Properties that are harder to sell — remote rural acreage, landlocked tracts, parcels in economically stagnant areas — carry more liquidation risk and lead to deeper discounts.

Texas is an enormous state with dramatically different real estate markets. A note buyer's assessment of your collateral depends not just on the type of land but on the specific micro-market where it is located. A twenty-acre tract in Williamson County north of Austin will be evaluated very differently from a twenty-acre tract in a sparsely populated county along the Rio Grande, even if the notes have identical financial terms. If your collateral is in a strong market, make sure the buyer understands the local dynamics that support the land's value — population growth trends, nearby developments, infrastructure improvements, and comparable sales data can all help the buyer feel confident in the collateral, which translates into a better price for you. For an in-depth look at the factors that drive collateral evaluation, review this article on what determines note value in Texas.

Note Structure — Balloons, Amortization, and Term

The structural features of your note affect the discount by introducing or removing specific types of risk. Fully amortizing notes with level payments and no balloon are the cleanest structure from a buyer's perspective because the cash flows are predictable and the note will be paid off through regular payments without any need for the borrower to come up with a lump sum. These notes typically receive the smallest structural risk premium in the discount calculation.

Balloon payments add refinancing risk because there is always a chance that the borrower will be unable to pay the balloon when it comes due. The closer the balloon date, the greater this risk, and the larger the structural premium the buyer will add to the discount. A balloon due in eight years is much less concerning than a balloon due in eighteen months because the borrower has more time to prepare or the note has more time to amortize before the balloon date arrives. Interest-only notes carry the highest structural risk because the borrower is building no equity through their payments, and the entire principal will be due at once. If your note has a balloon or is structured as interest-only, the buyer will price that risk into their offer, but the note can still be sold — these structures are common in the Texas land market and experienced buyers handle them regularly.

How to Minimize the Discount on Your Texas Land Note

Allow the Note to Season

The most impactful step you can take to reduce the discount is to allow the note to build payment history before selling. If your note currently has six months of payments and you can wait until it has eighteen or twenty-four months, the improvement in pricing can be substantial. Every month of on-time payments adds to the body of evidence that the borrower is committed and capable, and that evidence directly reduces the risk premium that drives the discount. This strategy requires patience and the willingness to continue managing the note in the interim, but for many sellers, the improved pricing justifies the wait.

Of course, this advice only applies if you have the luxury of time. If you need cash urgently for a medical expense, a business opportunity, or another time-sensitive purpose, selling now at a larger discount may be the right financial decision even though waiting would yield a better price. The value of money is always contextual — a dollar today may be worth more to you than a dollar and twenty cents six months from now, depending on your circumstances.

Compile Complete and Accurate Documentation

Complete documentation reduces uncertainty, and reduced uncertainty reduces the discount. When a buyer receives a well-organized package that includes the original note, the security instrument, a detailed payment history, title insurance, and a property description, they can evaluate the note quickly and with confidence. When a buyer receives incomplete information and has to guess or make assumptions, those assumptions will always be conservative, which means a larger discount. Taking the time to organize your paperwork before requesting quotes is one of the easiest and most cost-effective ways to improve your offer.

If you are missing documents, do not panic — most critical documents can be reconstructed from public records or obtained from your closing agent or title company. But be upfront with the buyer about what you have and what you are missing. A buyer who knows from the start that title insurance is missing can factor that into their initial quote accurately, whereas a buyer who discovers the gap during due diligence may use it as leverage to renegotiate the price downward.

Sell Directly to an Experienced Texas Buyer

Working with a direct buyer who uses their own capital eliminates the broker layer and ensures that every dollar of the purchase price goes directly to you. Brokers typically charge commissions of one to five percent of the transaction, and that money comes out of your proceeds. By selling directly to a buyer who funds the purchase from their own accounts, you save that commission and get more cash at closing.

Beyond the commission savings, direct buyers who specialize in Texas land notes have the market expertise to evaluate your specific collateral accurately. A generalist buyer or one based in another state may apply overly conservative valuations to Texas land simply because they are unfamiliar with local market dynamics. A Texas-focused buyer like Longhorn Note Buyers, which has purchased over $46 million in notes exclusively in the Lone Star State since 2007, understands the nuances of the Texas market and can price your note based on real knowledge rather than generic assumptions. That expertise typically translates into a smaller discount and more money for you.

Consider a Partial Sale

If the discount on a full note sale is more than you are comfortable with, a partial sale may be an attractive alternative. In a partial sale, you sell a specified number of monthly payments to the buyer while retaining the right to receive the remaining payments after the buyer's purchased payments have been collected. The discount on a partial sale is often smaller than on a full sale because the buyer has a shorter holding period and the note seller retains a residual interest that aligns incentives between the two parties.

For example, if your note has 120 remaining payments and you sell the next 60 payments to a buyer, the buyer's investment horizon is five years rather than ten, and you will resume receiving payments after the buyer has collected their purchased payment stream. This structure can reduce the discount by several percentage points compared to a full sale, though you do not receive as much cash upfront. Whether a partial sale makes sense depends on how much cash you need, how quickly you need it, and how you feel about continuing to hold a position in the note for the long term. For a detailed comparison of the two approaches, read about full versus partial land note sales in Texas.

Red Flags That Signal You Are Being Offered an Unfair Discount

Unusually Deep Discounts Without Explanation

If a buyer offers you a discount that seems significantly deeper than what the note's characteristics would suggest, ask for an explanation. Reputable buyers will walk you through their pricing logic and explain which factors are driving the discount. If the buyer cannot or will not explain how they arrived at their number, that is a red flag. Some unscrupulous buyers deliberately lowball offers in hopes that sellers who are unfamiliar with the market will accept a price that is well below the note's fair value. Getting quotes from multiple buyers is the best protection against this tactic — if one offer is dramatically lower than the others, you will know it is an outlier.

It is also worth noting that the initial quote is not always the final word. Most buyers are willing to have a conversation about their pricing, and if you can provide additional information that reduces the buyer's perceived risk — better documentation, evidence of stronger collateral values, or a longer payment history than the buyer was aware of — the offer may improve. Negotiation is a normal part of the process, and a fair buyer will welcome it.

Fees and Charges That Erode Your Net Proceeds

Some note buyers quote an attractive purchase price but then deduct various fees at closing — processing fees, due diligence fees, wire fees, or other charges that reduce the cash you actually receive. When evaluating offers, always ask for the net amount you will receive at closing after all fees and deductions. A buyer who quotes eighty percent of the remaining balance but deducts three percent in fees is effectively offering seventy-seven percent — less than a buyer who quotes seventy-eight percent with no fees. Longhorn Note Buyers provides transparent, all-in pricing with no hidden fees, so the number they quote is the number you receive.

Renegotiation After You Accept the Offer

One of the most frustrating experiences in the note selling process is having a buyer renegotiate the price downward during due diligence after you have already accepted their initial offer. While there are legitimate reasons for price adjustments — such as the discovery of previously undisclosed payment history issues or title defects — some buyers use an intentionally high initial quote to lock you in, only to reduce the price once you are committed and have stopped entertaining other offers. This practice, sometimes called a "bait and switch," is a serious red flag.

To protect yourself, work with a buyer who has a strong track record of closing deals at their quoted price. Longhorn Note Buyers' 100% close rate on quoted deals means that when they give you a number, they stand behind it. Ask any buyer about their close rate and their history of re-trades before you accept their offer. A buyer who routinely closes at the quoted price is one you can trust, while a buyer who frequently renegotiates should be approached with caution.

Ready to Sell Your Note?

If you are holding a land note in Texas and you want to find out what discount a buyer would charge for your specific note, the fastest and easiest way to get an answer is to request a free quote from Longhorn Note Buyers. With over $46 million in Texas notes purchased since 2007, a 100% close rate on quoted deals, and an A+ Better Business Bureau rating, Longhorn is one of the most experienced and trusted note buyers in the state. They will evaluate your note thoroughly, explain their pricing transparently, and provide you with a fair offer — typically within 24 hours.

Call Longhorn Note Buyers at (210) 828-3573 or visit longhornnotebuyers.com to get started. There is no cost, no obligation, and no pressure. Whether you decide to sell today, next month, or not at all, Longhorn's team is happy to answer your questions and help you understand what your Texas land note is worth in today's market.

Frequently Asked Questions About Land Note Discounts in Texas

What is the average discount on a Texas land note?

There is no single "average" discount because every note is unique and pricing depends on the specific combination of payment history, interest rate, LTV, collateral type, and other factors. That said, the most common discount range for notes that trade in the Texas market is between fifteen and twenty-five percent of the remaining balance. Exceptional notes with strong characteristics across the board may sell at discounts as low as eight to fifteen percent, while notes with significant risk factors may see discounts of twenty-five to thirty-five percent or more. The only way to know what discount applies to your specific note is to have it evaluated by an experienced buyer.

Can I negotiate the discount with a buyer?

Yes, negotiation is a normal and expected part of the note selling process. If you believe the buyer's initial offer does not adequately reflect the quality of your note, you can make your case by highlighting strong factors such as an extensive payment history, a low LTV, desirable collateral, or other positive characteristics. That said, experienced buyers price notes based on established market parameters and their own cost of capital, so there is typically a limited range of negotiation available. The most effective way to "negotiate" a better price is to have complete documentation, a well-seasoned note, and multiple quotes from competing buyers — competition among buyers is the most powerful negotiating tool you have.

Is the discount tax deductible?

The discount itself is not a tax deduction in the traditional sense, but the tax treatment of your note sale can be complex and depends on your specific situation. When you sell a note for less than its remaining balance, the difference between the balance and the sale price may be treated as a capital loss, which could offset other capital gains. However, the tax calculation also involves factors like your original basis in the note, any gain you recognized when you originally sold the property, and whether the note sale qualifies for installment sale treatment. Tax treatment of note sales is a specialized area, and you should consult with a tax professional who can analyze your specific situation. For a more detailed discussion of the tax implications, review this article on tax implications of selling a land note in Texas.

Will the discount be different if I sell only part of my note?

Yes, partial note sales typically involve a smaller percentage discount than full note sales. This is because the buyer's risk is reduced in a partial sale — they are purchasing a shorter payment stream and they know that the note seller retains a residual interest, which aligns the seller's incentives with the buyer's. The exact difference in discount between a partial and full sale depends on how many payments you sell, the overall characteristics of the note, and the buyer's pricing model. If minimizing the discount is a priority for you, exploring a partial sale option is worth your time.

Does selling to a direct buyer versus a broker affect my discount?

Selling to a direct buyer who uses their own capital generally results in better net pricing for you compared to selling through a broker. Brokers charge commissions that come out of your proceeds, effectively increasing the total discount you bear. When you sell directly to a buyer like Longhorn Note Buyers, there is no broker commission, and the full purchase price goes to you. Additionally, direct buyers can often close faster because they do not need to find another buyer for your note — they are the end investor, which means fewer moving parts and a more streamlined process from quote to closing.