Monday, 01 June 2020

Rental Conversions and Pricing

Written by Posted On Wednesday, 16 August 2006 17:00

There's an interesting and important dynamic occurring in the rental conversion market that Realtors need to be aware of.

Brokering rental conversions is what I do, but until we conducted a focus group among Realtors recently for a new apartment we were converting, I had not given the resale aspect of rental conversions much thought.

If you are in a major rental conversion market you no doubt are reading the ads extolling the virtues of "free upgrades." At the sales office you learn that instead of paying a higher price for the upgrades, your prospect can purchase the unit "as is" for a lot less money.

Sound good?

The correct answer would be "yes" if your client buys "as is," and "no" if your client purchases an upgrade. Most will go for the upgrades.

Let's say the upgraded unit costs $250,000 and your prospect can purchase the same unit in the same building for $225,000 "as is."

Here's the problem.

When these two buyers, both owning the same unit in the same building decide to sell, which seller do you think will benefit the most?

The seller who originally purchased "as is" will benefit the most at appraisal time, because the "upgraded" unit cost more to purchase and the appraiser will not assign the same values as the developer probably charged.

The solution, according to the focus group Realtors is "consistent pricing," a term with which I was not familiar.

Consistent pricing means the developer has priced all units the same price and included the same upgrades in all of the same units in the same building.

Consistent pricing protects all buyers because they are all buying at the same price (not including premiums for views, location and time of purchase).

How critical is this issue?

To me, it is so critical that we are recommending to our rental conversion clients to offer all luxury units and not allow anyone, including tenants, to purchase "as is" if they want the local Realtors market to get behind the sellout. Not only is this the right thing to do, but it gives the developer a competitive advantage, especially if they are the first in the market to do it.

Does this mean you should not take your prospects to see properties that offer both "as is" and "upgrade" units? Not at all. If your prospect doesn't plan to move or just plain can't purchase unless it is at the "as is" price, then you are doing them a favor, as long as they understand the resale probabilities.

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David Fletcher, NHCB

Lifetime Achiever David Fletcher is Founder and CEO of New Home Co-Broker Academy LLC, home of the New Home Co-Broker (NHCB) designation. More than 4,000 real estate agents have completed the  Academy's course, How To Build A New Homes Niche, a three-hour online course based on research, case studies and David's  long career recruiting, training and supervising onsite teams, who sold more than $3 billion new homes and condominiums.

Along the way, he wrote Condominium Sales and Listings and has been the featured speaker for the National Association of Realtors and a present at the International Builders Show. He served as chair of the Sales and Marketing Council for the Florida Home Builders Association. 

He started in real estate as the project manager for Bay Island, of the first major condominium communities in Florida. During this time, he obtained his Florida real estate broker's license, served as chair of the Sales and Marketing Council for the Florida Homebuilders Association, earned his MIRM designation, and served as president of the Florida Condominium Developers Association. It was here that he leaned to work with local Realtors, 

After a successful three-year run, he brokered 27 lender workouts, 11 rental conversions, a TPC golf course, and more than 1000 condominium units in six different communities. 

He recruited, trained and supervised onsite sales teams for more than 70 communities, always insisting on co-broker cooperation in his listing agreements. 

He has been a contributor to Realty Times for 16 years and contributed to Inman News for 3 years. 

His education philosophy is based on these simple assumptions:

  • Builders need qualified buyers. Realtors need saleable inventory. 
    Today's home shoppers expect their Realtor to help them navigate the buying process whether it be for a resale or new construction. 

To lean how you or your office can benefit with our popular online new homes course, visit our website.

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