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Investor Insights Blog|Promissory Note Appraisals: The What, Why, and How

Promissory Note Investing

Promissory Note Appraisals: The What, Why, and How

document signing

The following guest post was written by Jeff Armstrong of Armstrong Capital.

If you, your self-directed IRA or other entity own all or part of a promissory note, mortgage note, or land contract, you should ask yourself, “Is my note properly valued, or is it over-valued?” Over-valued notes will cost you needless fees and taxes. Let’s be honest, all note investors want their promissory notes and mortgage notes to be worth as little as permissible for tax purposes, but worth as much as possible for spending purposes.

The importance of fair market valuations

What is the “fair market value” of your note based upon the definition used by the IRS? Rev. Rul. 67-276, 1967-2 CB 321, IRC Sec(s). 2031 says that the fair market value of notes, secured or unsecured, one note or a portfolio of notes, performing or non-performing, is presumed to be the amount of unpaid principal, plus accrued interest to the date of the gift, unless the donor establishes a lower value.

One of the requirements the administrator or custodian of your self-directed IRA account places on you is that you must submit a fair market valuation (FMV) of assets owned by your IRA annually.

Jeff Armstrong, Armstrong Capital

Unless returned at face value, plus accrued interest, it must be shown by satisfactory evidence that the note is worth less than the unpaid amount (because of the interest rate, or date of maturity, or other cause), or that the note is non-collectable in part (by reason of the insolvency of the party or parties liable, or for other cause), and that the property, if any, pledged or mortgaged as security is insufficient to satisfy it.

One of the requirements the administrator or custodian of your self-directed IRA account places on you is that you must submit a fair market valuation (FMV) of assets owned by your IRA annually. If you do not, they may use the balance of the note as the value of the asset. This can result in higher fees, higher taxes, and higher Required Minimum Distributions (RMDs) if you are of that age.

Real estate assets, promissory notes, private placements, tax certificates, tax deeds, etc. are each specific types of assets and must be appraised by a qualified third-party appraiser using set standards. Other assets, such as bank or brokerage accounts should have year-end statements proving their value and will not require a third-party appraisal.

Why are promissory note appraisals performed?

Promissory note appraisals are done for the following reasons:

  • Estate Planning
  • To save you or your clients from overpaying taxes
  • A note in an estate being probated may need to be appraised
  • Notes invested in a pension/profit-sharing plan may need annual valuations
  • A client may be receiving payments from a personal injury settlement
  • Perhaps one party in a divorce settlement accepted a note as his or her share
  • When a client needs to sell part or all of a note for cash, he or she may want an independent source to set a price on a note. The math is only a part of the valuation process.

Types of Note Appraisal situations that we have worked with include:

  • Secured or unsecured notes
  • Business notes with/without real estate
  • Seller carryback notes from sale of real estate
  • Seller carryback notes from sale of a mobile home
  • Promissory notes–trust deeds–mortgages
  • Personal notes, gift notes
  • Bank /mortgage company notes
  • Residential, commercial, industrial, and land notes
  • Property settlement notes
  • Partial Interest notes
  • Real estate notes
  • Performing or non-performing notes
  • Defaulted notes
  • Inheritances
  • Estate notes
  • Probate notes
  • Intra-family notes
  • Installment notes
  • Demand notes
  • Divorce notes
  • Royalty payments
  • Lottery winnings/structured settlements
  • More

What goes into a promissory note appraisal?

Many considerations are taken into account when determining the value of a promissory note or cash flow, such as:

  • Equity in property securing the note
  • Payment history of payer
  • Priority of debt
  • Type of property (if any)
  • Condition of property
  • Note terms
  • Credit of payor
  • Value of the collateral (if any)
  • Property location
  • More

As mentioned already, the IRA account owner is the one responsible for ordering and obtaining any promissory note appraisals. Generally speaking, note appraisals are usually required annually.

What should I expect to pay for a promissory note appraisal?

If you want a professional note appraisal done by an experienced, qualified appraiser of course it will cost something just like if you wanted to get an appraisal on a home or other piece of property. It cannot be done for free. Just as the electrician or the plumber cannot do their jobs for free.

There are different levels of appraisal reports that use different levels and types of information. Based upon the type of appraisal you need, and the amount of detail that you need, there are different prices charged. Just as GM makes the Chevrolet and the Cadillac model cars, and charges accordingly, different models of appraisal reports can be done, and are charged accordingly. We are more than happy to offer Equity Trust account holders a 10-percent discount on any note appraisal ordered (see the Resources > Exclusive Benefits section in myEQUITY for more details).

Contact Armstrong Capital today and depending upon your specific circumstances, we will give you our preliminary thoughts on your situation; give you a firm price for the services before starting; help you understand what you are to receive and when you are to receive it. Very few people in America have the proper qualifications and experience to appraise notes; I am one of them.

Be kind, keep safe, and stay healthy. Remember that success demands action; keep moving forward, it’s going to work!

About Jeff Armstrong

Jeff Armstrong of Armstrong Capital has been a note investor and broker specializing in the performing seller financed note industry since 1991 and appraising notes since 1999. For more updated and current information on how he can help you with your note business, note investments, note appraisals or to request pricing options on a note, visit to email him and subscribe to Jeff’s Weekly Training & Tips Newsletter. You can follow him on Instagram and Facebook @TwitaJeff


As Equity Trust Company (“Equity Trust”) is a directed custodian, like any investment, it is your responsibility to conduct your own due diligence before investing and before choosing a provider that is right for you. Equity Trust may, from time to time, establish independent contractor relationships with third-party providers, as described above, whereby you, as the IRA owner, can have access to third-party providers for services that may be beneficial to you. Equity Trust is not an affiliate of any such provider. Equity Trust makes no recommendation or representations as to any provider and service or the needs generally of any IRA owner or any IRA. Any service available from any provider that offers investment education or advice solely reflects the views of such provider and in no way represents any recommendation or advice from Equity Trust. Opinions or ideas expressed by third parties, their affiliates, and employees are not necessarily those of Equity Trust nor do they reflect their views or endorsement. IRA owners are in no way obligated to purchase services and IRA owners are free to choose a provider with services as they deem appropriate. IRA owners should consult with their financial and legal advisors before choosing to work with any provider.

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