Fractional Sales: Square Pegs In Round Holes?

While the buzz around fractional property ownership continues to grow, it’s inevitable that there will be some bandwagon jumpers who see the fractional model as a sticking plaster to apply to developments with a surplus of unsold stock.

Les Milton, chairman of The Fractional Ownership Consultancy says developers who see fractional as a magic wand to conjure up sales are heading for disappointment. “If a property is un-saleable outright it is unlikely to be saleable on a fractional basis. Fractional ownership should be a lifestyle purchase.  A property which is clearly unattractive, either because of its location, surroundings, or size will always be difficult to sell, even at a heavily discounted price. Fractional purchasers are buying into a dream and the developer needs to bear this in mind when he is planning the resort. Since there is no substance in the notion that fractional buyers are content to buy ‘bin-end’ deals, I don’t see any reason that developers should have any expectations of success.”

June Matthews of the Fractional Agents Network agrees: “Fractional ownership is not a method for disposing of poor stock. Consideration must be given to the location, style and qualities of the development – fractional developments should be carefully selected on the basis of year-round usership with the correct facilities, infrastructure, high quality maintenance, property qualities and of course, location.”

As well as developers, it is also essential to make sure that any agent selling fractional is specifically trained and suitably versed in the complexities of fractional sales.

Marina Palmerio of Castello di Casole in Tuscany, says that not all mainstream agents have the required knowhow yet. “Some do, and with time and education I definitely see mainstream agents being able to sell fractional property ‘correctly’. That said, they need to have a dedicated representative on the developer’s side to act as coach and provide information and updates in a timely manner.  It also depends on the agent’s country of origin, and of course, their familiarity with the fractional concept.”

There has been some scepticism in the industry over whether agents charged with selling both fractional and whole ownership properties on the same development will put sufficient effort into fractional sales, with potentially lower commission rates. But it appears there are several ways to address this.

“It’s all about finding a compatible partner, which sometimes involves kissing a few frogs before a prince is found. Regardless of the lower commission percentage (and based on the way that we work with third party agents) this is basically just a referral or introduction fee. We do not expect agents to ‘sell’ the property for us, but to merely introduce a qualified potential prospect.  If the agents’ referred client purchases, they receive a commission at closing for simply making an introduction. We do all the work,” says Marina Palmerio.

Roger Still of Palheiro Real Estate in Madeira says: “Good agents will bring the same levels of effort and professionalism to fractional sales as they do to whole ownership.  It is likely that accepted levels of sales commissions will be higher for fractional sales than for full freehold, thus compensating the selling agent for lower value per sale. Speaking as a developer, this seems reasonable.”

Les Milton asserts that dedicated fractional sales teams are the way forward: “In our experience, fractional property is best sold by teams that have accepted the concept and are eager to specialise in this new and growing area. Agents or sales people in general who are responsible for both outright and fractional will always gravitate to what they know best – outright sales.”

- George Sell - Fractional Life

Posted:
3/07/09
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