We have now launched Clearview Express^TM for those organizations that are already well into their sales efforts and looking to improve their closing percentage.  This system uses smarter Lead Response Management along with technology to save money in marketing outreach and improve the percentage of leads that are engaged, qualified and ultimately closed.  Have a look below or request a personal demo.

It was not long ago when real estate developers chose fractional ownership because the opportunity was there to make more money, a lot more money.  The advertised price per foot was in many cases double what a similar stand alone home was (consultant speak:  the whole ownership multiple was 2.0) and that price was split into 8 or 10 sales per residence, whatever the owner per residence ratio was determined to be.

Now resort developers are choosing fractional for different reasons; a wider target market stemming from a more reasonable price point, a practical and responsible second home decision for those who have learned lessons from “The Great Recession”, a possible savior for unsellable million dollar whole ownership inventory and yes there is still the prospect of stronger revenue if executed properly.

Today the 1.8 or 2.0 whole ownership multiple of 2005 is, for all intents and purposes, history.  While there might be the occasional special circumstance in a destination with little supply and extreme demand, most markets are not impervious to logical concerns from savvy buyers.

So what is the going rate in 2010?  We have seen multiples fall to 1.3 or 1.4, indeed a far cry from 2005 but (drum roll) a positive indicator for the future of fractional ownership real estate.  Now resort developer’s expectations from fractional sales are strong but not outrageous, and price points better represent what we preach, a practical use of our discretionary money and a responsible way to retire.

Fractional real estate pricing is based on the following factors:

• National and local real estate implications
• Specific local market performance
• Supply & Demand
• Competitive environment
• Seasonality implications
• Amenity offerings
• Number of sales that need to be made/ projected sales period

The method in which the average price point and price schedule is determined is more complex than might appear, as indicated by the bullets above, and has nothing to do with how much money needs to be made by the owner or developer.  Fractional real estate pricing should be set by a fractional consultant in cooperation with the real estate owner.

Handling the Objection - Price Justification

Regardless of where the whole ownership multiple ends up, there will no doubt be the occasional buyer with a “beef”, needing justification for the raised price per foot.  If the multiple is set at 1.5 for example, don’t be shocked to hear this objection:  “Your price per foot comes out to $975 and I can go down the street and buy my own home at $650.  You are making a killing!”

This objection is logical when you consider where it’s coming from.  Most prospects are simply not educated on the development, sales and marketing process of fractional real estate - nor should they be.  A properly trained Sales Director’s response should be as follows:  “I understand how it might appear that way at first.  Tell me, which real estate agent are you working with?”

Nine times out of ten the answer will be “I’m not working with an agent.”  From this point forward the escalated price per foot will begin to make sense.  One of the culprits for a raised fractional price per foot is the absence of the general real estate community.  You’re more likely to see Barbara Streisand singing a duet with Quiet Riot than a Realtor® showing a fractional residence.  Thus, fractional developers need to actually market and sell their inventory, just as Streisand markets and sells records - with money.

Here is an overview of the rest of the perpetrators to the fractional price point:

• Sales costs - far greater than a typical real estate development. Depending on what the owner to residence ratio is, fractional developers must make eight or 10 or even 12 times the number of sales than a traditional residential development. We employ sales teams in sales offices, put on evening events, dinners and even special preview visit packages where we pay for the travel expenses if the prospect buys - more money.
• Marketing costs - not even in the same league with a traditional whole ownership community. Real estate agents are not a significant piece of the fractional sales puzzle, so we do not simply throw our product on the MLS and forecast the traditional six percent cost to sell an interest. Our marketing costs can be upwards of 15 to 20% of total revenue for a fractional project. We spend that money on things like advertising, public relations, sponsorships and referral fees.
• Legal and consulting costs - developers know how to subdivide a plot of land and build product but do they know how to develop the appropriate usage plan, install the right exchange program, implement the right rental programs, or register the project correctly with the state? Usually not, so there are additional costs associated with legal and consulting work not often relevant in a traditional residential real estate community.
• Amenities - down the street at the home you could purchase for $550 per foot, does it include a restaurant, spa, tennis courts, swimming pools, a golf course, or a Vintner’s Club for example? The cost to build a resort’s infrastructure is far greater than what it costs to build a standalone home.
• Furnishings - fractional residences are completely furnished down to the wine opener and the blender.

Of course, a fractional sales team should be properly trained to answer this objection without shoving the knife in and twisting.  The points above are most definitely teetering on the edge of overload city for most prospects and could easily induce sales person vomiting at the sales table - nobody wants that!  To avoid deep discussions into developer costs, sales teams should start with this kind of discussion:

• “The price per foot is slightly higher due to these reasons”. “However, take a look at these whole ownership comps in the area at a lower price per foot and consider them as your alternatives.” If the fractional product is priced right (with a 2010 multiple) then this can quickly put an end to the objection because the comps will be exponentially higher.
• “By the way, the annual taxes, upkeep and maintenance associated with a fractional interest are only a smidgen of what they would be down the street.” $10,000 per year is a lot more attractive than $80,000 - especially when typical usage is only 4 weeks.
• “Calculate your price per foot based on what you are paying - the club is designed to allow you as much access as you would typically require in that second home down the street.”

It is of this author’s opinion that the price per foot objection is not even mentioned the majority of the time.  It’s a cramp in the side of the prospect that is largely left unsaid- (in developer speak:  unsold). Most people are simply not confrontational - save New York, New Jersey… definitely Philadelphia - and will end up riding off into the sunset leaving their Sales Executive to wonder what happened.  Furthermore, it’s up to the developer to price the product reasonably and ethically.  If higher sales velocity is the goal then we should not be putting sales teams in a position of defending their price.

As we begin to emerge into the post-recession period, it is my hope that this article is completely forgotten, that price points stay at a practical and responsible level and sales teams can spend more time talking about how close the ski lift is or how far away the angst of real life is.  Simply put, the price of a fractional interest can and should be considered too good to be true.  If we continue to recognize this and stay away from dreams of doubling traditional profits, fractional resort real estate will easily and consistently outsell whole ownership and everybody wins.