Over the past couple of years I have had the pleasure of speaking to hundreds of Brokers and Realtors across the country about fractional vacation homes. It seems none of them has too much of an interest in fractional vacation homes.
Being in the Construction and development business for over 20 years I too for the longest time was hesitant or downright resistant to new ideas. As I grow older and look back and see some of the innovations that have taken place in the industry, I can say some have worked and some did not. I think one of the biggest changes I've seen is the introduction of Home Depot. In 1989, Home Depot opened its 100th.h store, and the way lumber was sold started to change drastically. When I first went into Home Depot I was shocked at what they had, it was so large that I figured most people would still prefer to deal with the smaller local lumber yards. But soon more people went to Home Depot and found out they would rather buy there because it was cheaper. Now 19 yrs later we have only a small handful of local lumber yards left and from what it seems like, there is a Home Depot on every other street corner.
The reason I used Home Depot as an example is because I am very familiar with it and I never thought that company would survive. And now, over time I must admit I shop there myself. I am not comparing myself or my company to Home Depot by any means, what I am saying is we should always look at new ideas and concepts.
When I decided to enter the Stand Alone Fractional Vacation Home Market I always knew in the back of my mind I would need the support of the local Realtors but never did I think It would be so hard to get their attention. So I hope this post intrigues all Realtors but especially those who work in Luxury markets in the following areas.
1. Water frontage or beach areas
2. Ski Areas
3. Large Metro Destination Areas (ie. Las Vegas)
4. Golf Destinations
Through my many conversations a few of the same misconceptions and thoughts arose:
1. Its just like a timeshare
2. What if I don't get along with the other members?
3. What if my fellow owners don't pay there share
4. Who will take care of it?
The answer to the most common question: Unlike a timeshare, Fractional's are a deeded interest in the property and everyone is on the deed. Your fractional share can be sold or passed down to your family. The second is thought was, "What if my clients do not get along with the others in the group?". The answer to that is simple, they will never see them or probably never even meet them. Any contact through the member is done through the management company. The answer to the third most common question regarding non payment of fellow owners: When the fractional agreement is set up for a Stand Alone Fractional Vacation Home the documents will spell out everything that is needed so all owners will know what their responsibilities are and what is expected from them. It will also spell out when they will be using their property for the next 6 years using a rotating schedule (if developed as a 1/6 fractional). And lastly, each property will be assigned to a management company that will handle all aspects of the property, from paying the taxes to cutting the lawn to assisting owners in switching their time. And at closing an escrow fund will be set up to handle any short falls that may occur.
How can fractional's help you as the realtor?
Now while not all properties are suitable to be fractionalized and by no means are fractional's the complete answer to save a bad market, there are a few things that you as the realtor may benefit from. Lets say you have a listing at or above 1 million dollars in one of the above locations. You can offer that listing as whole ownership or as a fractional with the use of a reservation agreement for selling shares. If you can sell the shares first it would sell fractionally, if it sold whole and you did have buyers interested in the fractional concept, you would have a list for a future property.
Example: You have a listing on the market for 1 million dollars. Using round numbers lets say that home has a fractional value of 1.3 million. That would make each share approx.$217,000.00 if you developed it into a 1/6 fraction.
The agent selling all 6 shares would receive the commission on the 1 million dollar listing (6% = $60,000) PLUS an additional commission on all the fractional shares (i.e. @ 6% = $78120.00). This would be in a perfect case scenario where the same agent sold all shares....it would be hard work, but it could be done.
Another example would be if you had a buyer that is on the fence about selling because they still use the house but are tired of all the costs, converting to a fractional is the perfect solution. This same scenario would work in a new build development where a builder may have some luxury standing inventory.
Other possible benefits:
Additional revenue source
Move Inventory Quicker
Attraction Of More Buyers
More Options For Your Clients
Close More Sales Due To Affordability
More Networking
In closing I just wanted to touch on a few points about Stand Alone Fractional Vacation Homes. I could write for hours on this but I feel most of you would stop reading. While it is not the answer to everything, it is here to stay and will become a large part of the way Vacations homes will be sold. When I decided to make this an extension of my current development company I saw a demand for a product and while it is still in its infancy it will continue to grow. I am looking forward to fulfilling you and your clients' needs. I am always available to answer any questions you may have & for a more comprehensive list of development services we will be offering, please contact me.
I also want to say that I am very happy with the Active rain community, I have enjoyed reading the posts and the few conversations I have had with members.
Oh and one other piece of info :
If you'd invested $1,000 when Home Depot went public in 1981, you'd have been worth around $1.4 million in January 2000.
If you think you may have an interest in hearing more feel free to contact me at jeffrey@desertquarters.com or call 716 909 8664
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