Category : IPA
How to Tell: Am I Getting a Fair Price?
To answer the question, am i getting a fair price? You should really exercise your right to an Independent Professional Advisor. The states have set up consumer protection laws directly for this purpose. Some states they are mandatory, and in others they are fee to the consumer.
The reason for this is to fully understand a fair price for a future payments requires complex financial computations. You first have to take the percentage rate from the IRS of what a dollar today will be worth at the time of payment, and then include what is an acceptable discounted rate within the financial sector. Calculate that over the period of time per payment selling to come up with a present day discounted value for the future payment. Sounds simple right? Even I have to use a specialized computer program to calculate these figures.
When you do decide to sell your future payment you will get a purchase contract from the buyer and in it there will be the breakdown of what you are selling and receiving and the % rate you will be paying for selling your payment.
Here is an example:
- 44 monthly payments .of $1,385.00 from June 1, 2014 through and including
- Purchase Price.$45,000.00
- total dollar value of the payments that you are selling is: $60,940.00.
- discounted present value of The payments: $58,602.64.
- YOU WILL BE PAYING THE EQUIVALENT OF AN INTEREST HATE OF 19.63% PER YEAR.
- the net payment amount of the present value of the payments is 76.79%.
So 19% is not the worst rate, although if the fair market for this same payment was 2% different we could seen increase to the payee.
100 K payment due on 01/01/2020 at 16.00% = 43.176.75;
if reduced to 14.00% (2.00%), value is $47,663.03, or $4,486.28
so that is an increase of $2,000 – $4,000 to the seller.
Confused yet? I know I would be.
That is why it so important to get the Independent Professional Advice of an Independent Professional Advisor, these transactions are so different from one to the other, tat even with just have given you the facts to a set of specific payments, you can not apply this to your payments to get an exact price point. I use these numbers solely for the purpose of showing the concept behind the pricing structure. If you have a concern over the fairness of the price of the payments you are selling, the only true way to find that is through the Independent Professional Advisor process. Choosing an IPA with a firm understanding of the process and calculations and market, is so important I can not emphasize enough.