What is the average discount on non-performing notes?

What Is the Average Discount on Non-Performing Notes?

This is one of the most common questions we hear—and the honest answer is:

There is no “average” discount.

Discounts vary widely depending on several key factors.

1. The Property

Not all collateral is created equal.

Notes can be secured by:

  • Residential properties
  • Commercial real estate
  • Multifamily
  • Land or development projects
  • Or even be unsecured

Each asset type carries different levels of risk and liquidity.

For example:

  • A loan at 110% LTV will require a deeper discount than one at 80% LTV
  • A property in a weaker market will typically trade at a greater discount than one in a high-demand area

2. The Borrower

Borrower profile plays a major role in pricing.

Key considerations include:

  • Recourse vs. non-recourse loans
  • Bankruptcy status
  • Payment history and credit profile
  • Level of borrower cooperation

A second-position note with a non-performing borrower will demand a significantly steeper discount than a first-position loan with a re-performing, cooperative borrower.

3. The Seller

Seller motivation can significantly impact pricing.

  • Some banks are highly motivated and sell in bulk
  • Others may be more patient and hold out for higher pricing

Your own strategy also plays a role. For example, if your goal is to acquire the underlying property through foreclosure, you may approach pricing differently than if you're targeting cash flow.

Why There’s No Simple Answer

These are just a few of the variables that impact pricing. Every deal is different, and discounts are driven by a combination of risk, collateral quality, borrower profile, and seller motivation.

How to Think About Pricing

The only way to properly price a note is to determine what it’s worth based on your required return.

Ask yourself:

  • What risk am I taking on?
  • What outcome am I targeting?
  • What return does my capital require?

That’s what ultimately determines your offer—not an “average discount.”

Want to Learn How to Price Notes Correctly?

If you're serious about investing in non-performing notes and aren’t sure how to evaluate deals or determine pricing, our training program walks through the full process step-by-step.

👉 Learn how to price non-performing notes

Next Step

Use Bank Search to identify institutions with distressed assets, then apply these principles to evaluate each opportunity.