PROView - January 2008 - (Page 11) A - Do you have a pilot in your family or among your set of friends? They’ll be familiar with the concept. Although many people dream of owning a vacation property, most either can’t afford the type they want or wouldn’t use it enough to justify the expense. Fractional ownership provides a solution by allowing the owner to pay only a fraction of the costs and ongoing expenses of vacation home ownership, and also share the risks of unforeseen maintenance problems. The market is not just baby boomers and young retirees but buyers who want benefits without the hassles. For those who can afford it, the practical appeal of a fractional could pay off both in price and peace of mind. Q - What should I tell my seller? A - If you make the seller aware of the opportunity to sell by both whole ownership and fractionally, you can double the market exposure for the property and increase the seller’s ability to move the property and facilitate a transaction. The seller can also retain a fraction of the title, should they want to retain partial ownership. Some sellers need help with taxes and insurance and feel forced to sell, but retaining a portion might work with their lifestyle. Q - Why can’t the owner, or I, the agent, just divide the asking price into pieces and sell the pieces? A - How simple that would be! But anyone who does so becomes a private developer and then must comply with federal, state, local, and securities regulations. Documentation to protect everyone’s interests must be created to preclude future lawsuits against you or the seller. Q - Why do the pieces add up to more than the whole ownership price? A - The legal documentation, furniture, furnishings, equipment and marketing expenses specific to that fractional offering all need to be included in the price of the product. Q - But how can this be beneficial to my buyer? A - A fractional is a completely different product than whole ownership, with “value added” in the creation of a product featuring high quality, desirable usage, and lower price. For example, in a grocery store, you could buy a whole small key lime pie for $5.99 and a half pie for $3.99. That’s a markup of about 50% for some packaging. You could buy a whole large fruit pie for PINELLAS REALTOR® ORGANIZATION $7.99 and a quarter slice for $2.89. Do pieces of pie sell? Does the consumer get what the consumer wants? Is the grocery store providing a service? Q - How should I counsel my buyers? A - If your clients want to own an impressive second home with personalized services but can’t quite justify the expense because of using it only a few weeks or months of the year, this type of real estate arrangement may appeal to them. This is truly a “win-win” transaction, with the property being sold, the buyers getting what they see as “a deal”, and the agents helping both buyer and seller clients. Q - What do I need to be careful about? A - Don’t be misled by how something is named or advertised, structured or managed. Future appreciation depends on the quality of the bricks and mortar and the specifics in the documents governing the project, not on what the arrangement is called and whether or not it is deeded. If you represent a buyer or seller of a fractional that is designed for investment purposes, (renting out the property when not in use) check your broker’s or your own compliance with the securities laws (series 7 and 8 SEC licenses). Q - When should I steer clear of fractionals? A - You need product knowledge to professionally represent either a buyer or seller in the transaction. Don’t open yourself to liability for doing something incorrectly. If there’s a seller or agent who doesn’t know what he/she is doing or a property with incomplete and/or poorly written documents, you are at risk of a future lawsuit. Q - What kind of legal structure is used? A - The structure can be simple or complex, with the simplest having family members or individuals who know each other then agreeing to own jointly as tenants in common. For people being brought together through a commercial endeavor, two different approaches occur. One is to aggregate the customers, provide strong documentation for creating a self-managed entity, and sell the property and the process to the customers. Another approach is providing a two-level structure, with a company being created which owns January 2008 11
Table of Contents Feed for the Digital Edition of PROView - January 2008 PROView - January 2008 Contents Chairman's Notes Feature ProActive Marketing Finance Marketplace Analysis Home Sales Report MLS Update MLS Mind Your Manners Education Calendar of Events & Programs PROBiz Special Feature Brokerage Design New Affiliates and Members for 2008 PROView - January 2008 PROView - January 2008 - PROView - January 2008 (Page Cover1) PROView - January 2008 - PROView - January 2008 (Page Cover2) PROView - January 2008 - Contents (Page 1) PROView - January 2008 - Chairman's Notes (Page 2) PROView - January 2008 - Chairman's Notes (Page 3) PROView - January 2008 - Feature (Page 4) PROView - January 2008 - Feature (Page 5) PROView - January 2008 - Feature (Page 6) PROView - January 2008 - ProActive (Page 7) PROView - January 2008 - Marketing (Page 8) PROView - January 2008 - Marketing (Page 9) PROView - January 2008 - Finance (Page 10) PROView - January 2008 - Finance (Page 11) PROView - January 2008 - Finance (Page 12) PROView - January 2008 - Finance (Page 13) PROView - January 2008 - Marketplace Analysis (Page 14) PROView - January 2008 - Home Sales Report (Page 15) PROView - January 2008 - MLS Update (Page 16) PROView - January 2008 - MLS Mind Your Manners (Page 17) PROView - January 2008 - Education (Page 18) PROView - January 2008 - Calendar of Events & Programs (Page 19) PROView - January 2008 - PROBiz (Page 20) PROView - January 2008 - Special Feature (Page 21) PROView - January 2008 - Brokerage Design (Page 22) PROView - January 2008 - Brokerage Design (Page 23) PROView - January 2008 - Brokerage Design (Page 24) PROView - January 2008 - Brokerage Design (Page 25) PROView - January 2008 - New Affiliates and Members for 2008 (Page 26) PROView - January 2008 - New Affiliates and Members for 2008 (Page Cover4)
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