Selling a Second Home—at Least a Part of It

With new apps, real estate pros are offering clients a way to buy vacation homes at a fraction of the cost.

By Melissa Dittmann Tracey

Who doesn’t dream of owning a beachfront property or a home nestled in the mountains? For many wouldbe vacation home buyers, though, that dream is out of reach. That’s why some real estate pros are pitching an alternative: co-ownership. By purchasing just a one-eighth or a one-quarter equity share of a home, buyers can lessen their costs and split ownership responsibilities with others. Tech startups—like Pacaso, SecondShare, and investorfocused solution Fractional—are helping real estate professionals broker co-ownership arrangements among groups of buyers, who may be family, friends, or even strangers. SecondShare said co-ownership could reduce the upfront ownership costs of a vacation home by 75%. “Many people can’t afford the vacation home they’d

Korisbo ©/Adobe Stock

like to own,” said co-founder Patrick Duncan. “For those who can, it often doesn’t make economic sense to own the entire property when they’ll use it for only part of the year. Co-ownership could represent the future of vacation homeownership.” Josh Dotoli, founder and principal of Compass’ Dotoli Group in Fort Lauderdale, Fla., presented the idea recently to one of his buyers. Using the Pacaso platform, his client purchased a one-fourth equity share of a waterfront home. The home would have cost $5 million to purchase outright, but the client purchased a share for $699,000. “Our client got everything he wanted at a price that worked for him,” said Dotoli, who has added a section on his broker- age’s website devoted to coownership opportunities. Real estate pros are a critical part of fractional ownership transactions, said Marnie Blanco, vice president of industry relations at Pacaso. Companies rely on agents to tout the idea of fractional ownership and to represent buyers who enter into these arrangements. Pacaso said 89% of its buyers are buying a second home for the first time, evidence that coownership is opening up possibilities to a new segment of purchasers. Agents collect a commission when representing each individual buyer in a co-ownership agreement. When pitching the idea of fractional ownership, Pacaso, SecondShare, and their competitors realize they must first clear up an ambiguity: They aren’t selling timeshares. Timeshares sell time or are essentially long-

Photo by Bailey Anselme on Unsplash

term leases, not collective ownership or a piece of a real estate asset. Co-owners share in the equity. Owners can sell their stake in a Pacaso or SecondShare property publicly after one year of ownership. The tech startups know they need to promote this new class of ownership to get more of the public on board. To do that, Pacaso is partnering with real estate brokerages. Recently, it partnered with Engel & Völkers to sell co-ownerships in Park City, Utah; Aspen and Vail, Colo.; and Malibu, Calif., among other locations. Pacaso also has worked with the Real Estate Standards Organization to help establish co-ownership as a property subtype in RESO’s 2022 Data Dictionary of Industry Standards. “With RESO’s definition of co-ownership as a property type and our ongoing work to establish partnerships with leading brokerages, we are further cementing coownership as a mainstream buying decision,” Blanco said. “We are helping real estate professionals tap into a new group of buyers, those who have always dreamt of owning a second home but were priced out or not ready to commit to the whole.” Learn more about three fast-growing co-ownership real estate startups:

Pacaso

After launching in 2020, Pacaso quickly earned “unicorn” status as a tech startup with a billion-dollar valuation. In 2021—its first full year in operation—the company sold 400 units in Pacaso-owned properties. How it works: Pacaso purchases a luxury vacation home through an LLC and then sells ownership shares, oversees management and maintenance, and coordinates time use and payments by owners. It’s in 35 markets in the U.S., Spain, and the United Kingdom, with plans to expand into 30 new markets in 2022. Property shares: Purchasers must buy a minimum of one-eighth share, which allows them to spend 44 nights a year in the home. About the homes: Pacaso’s homes are often valued at $1 million or more, located in second-home hot spots, and professionally designed and furnished. How to finance: Buyers can finance up to 70% of the purchase price. A minimum down payment of 30% is required. Pacaso offers competitive rates with banking partners. For real estate pros: Agents earn a commission for referring buyers. Pacaso also works with buyer’s agents on homes it purchases.

SecondShare

Founded in 2021, SecondShare offers co-ownership as a service for virtually any home in the U.S. How it works: It’s a platform that can be used to arrange co-ownership transactions and manages property and ownership details. Co-owners can be matched on the purchase of rental properties or use the

service to purchase equity shares of a property for their exclusive use. Property shares: Co-ownership for vacation rentals is usually sold in one-quarter shares, with a maximum of 50%, to allow each owner 21-plus days of annual use while still allowing enough weeks to generate shortterm rental revenue. Co-ownership for owner use only is typically sold in one-twelfth shares, allowing up to four weeks of property use for each owner. About the homes: The company can arrange coownership for practically any home. How to finance: Buyers can finance up to 70% of their purchase, using cash, a personal line of credit, or financing accessed through SecondShare’s financing partners. For real estate pros: SecondShare pays commissions to listing agents and to agents representing the buyers in a co-ownership transaction.

Fractional

Fractional, a member of the National Association of Realtors®’ 2022 REACH cohort, facilitates investment opportunities. How it works: Users can create or join existing investment proposals. Once a property generates enough interest and funding, Fractional will make an offer on the property and then form an LLC to divide equity shares among owners. Fractional manages the co-ownership agreements and administrative duties and distributes rental payments among owners. Fractional is primarily in Georgia, Texas, and Florida but can support properties in any U.S. location. Property shares: The minimum investment amount is $5,000. About the homes: Co-ownership investment opportunities are available for residential and multifamily real estate, including single-family homes, duplexes, or entire apartment buildings. How to finance: Fractional’s lending partners provide short- and long-term financing. Interest rates and down payment amounts vary based on location, property type, and loan type. For real estate pros: The company works with agents to close on its purchases.

Melissa Dittmann Tracey is a contributing editor for REALTOR® Magazine. She can be reached at mtracey@ nar.realtor. Follow her on Instagram and Twitter: @ housingmuse. Reprinted from Realtor® Magazine Online, July 2022, with permission of the National Association of Realtors®. Copyright 2022. All rights reserved.

BUILD, BUY, REFI

HOME LOANS

We’ve Got You Covered

Lifetime Servicing Multiple Loan Types No Down Payment Options

LEARN MORE AT UFIRSTCU.COM

EQUAL HOUSING LENDER NMLS #654272

Federally insured by NCUA. Loans subject to credit approval. See current rates and terms.

Real Estate Forecast: Market to Ease

A housing slowdown precipitated by low inventory and rising mortgage rates will open opportunities for some buyers.

By Catherine Mesick

Even though national GDP contracted for the second quarter in a row and home sales nationally have fallen for five straight months, property prices are likely to continue growing because of low inventory, Lawrence Yun, chief economist for the National Association of Realtors®, said in July during NAR’s quarterly Real Estate Forecast Summit. Yun offered his economic and housing market predictions for the remainder of this year and into 2023 at the event. One of the most unusual aspects of the current economy is the labor market, Yun said. There were more job openings than unemployed people in May—with the difference being nearly two to one, according to Bureau of Labor Statistics data. Construction job openings were at a record high in January, and these unfilled jobs point to a potential slowdown in the housing market, Yun said. Both existing-home sales and pending home sales have been falling or stagnant for months, NAR data shows. Rising mortgage rates have combined with low inventory to exert downward pressure on the market. “Closing activity will continue to sink even more,” said Yun. “Some [potential home buyers] don’t want to pay higher monthly rates. Others can’t.”

Lightfield Studios ©/Adobe Stock

Hope for Consumers

There are bright spots in the market, such as gradually increasing inventory, which is good news for consumers. “They no longer have to make an offer after seeing only one [house],” Yun said. “They can see three or four. It’s returning to a normal process.” Despite some homes with high list prices beginning to languish on the market, the overall lack of inventory is still leading to price gains. “Even after reductions, prices are still higher compared to one year ago and much higher compared to before the pandemic,” Yun added. Though the Federal Reserve is expected to hike interest rates several more times this year, Yun said mortgage rates won’t rise much further because lenders have already priced in the potential increases. This can mean increased opportunity for consumers. “We may be topping out independent of what the Fed will do,” Yun said. “Rates will go a little up and a little down. It may be a good idea to lock in when the rates are down.” He also noted that foreign investment in U.S. real estate is still well short of pre-pandemic levels but predicted that international interest is likely to increase as travel restrictions ease.

Finally, Yun predicted that in 2022, total home sales will be down 13% from the previous year, home prices will be up 11% and total dollar volume will be down 2%. For 2023, he predicted no increase in home sales, a 2% hike in prices and a 2% increase in dollar volume.

Current Trends and Market Opportunities

Jessica Lautz, NAR’s vice president of demographics and behavioral insight, also provided data from the June Realtors® Confidence Index. Among her key findings: • Median days on market for homes nationwide hit a record low of 14.

Photo by Dillon Kydd on Unsplash

• The average number of offers per property dipped to 3 from a previous high of 5. • Approximately 30% of buyers are waiving inspection and appraisal contingencies—a number that has held fairly steady since the start of the pandemic. • The share of all-cash buyers currently stands at 25%. This number has actually decreased from a high of 35% in 2014. • First-time buyers are still being sidelined and make up 30% of the market. Historically, they make up around 40%. In addition, Lautz offered five “touch points”— opportunities for Realtors® to reach out to clients in the current climate. 1. Twelve percent of buyers are purchasing homes virtually—and they want a Realtors® to assist with the process. 2. Remote work continues to influence buying trends: 34% of buyers want features that enable them to work from home. 3. Consumers continue to have a skewed view of the typical amount required for a down payment.

Thirty-five percent of buyers believe a down payment of 16% to 20% is required; 10% of buyers believe they need a down payment of more than 20%. However, the typical down payment for a first-time buyer is only 6% to 7%. For a repeat buyer, it’s 17%. 4. There is value in promoting energy efficiency in listings: Forty-four percent of Realtors® say it’s “somewhat valuable,” and 19% say it’s “very valuable.” 5. Seven in 10 buyers report a desire for the latest in heating and cooling, windows and doors, insulation, lighting and appliances; however, the typical home purchased is 29 years old and unlikely to have the newest features. This disconnect presents an opportunity for Realtors® to contact previous clients about satisfaction with their current home and any improvements they have made.

Reprinted from Realtor® Magazine Online, July 2022, with permission of the National Association of Realtors®. Copyright 2022. All rights reserved.

Introducing

Eileen

Director of agent DeveloPment/owner Eileen is a Utah native, who came to the world of real estate from an executive position at Maverik. Since 2015, Eileen has consistently been a top producer in the Realty ONE Group franchise, starting her career during her time living in Northern Arizona and then transitioning to her full time residency back in her home state of Utah. In 2018, Eileen formed a team with Jeff, in Arizona where they consistently ranked in the top 1%. Upon Eileen’s return to Utah, she and Jeff started a team and since then Eileen has been training other team leaders on how to grow a profitable and client driven business. In 2021, the opportunity to open a Realty ONE Group franchise presented itself and Eileen couldn’t wait to get started building a brokerage and creating an agentcentric environment while helping others realize their full potential. Licensed for 20+ years, Jeff is excited to continue his real estate journey as the Principal Broker for Realty ONE Group Distinction. Holding licenses in 4 different states - giving him a unique perspective in how other markets handle shifts, best practices and an overall deeper understanding of the issues that impact our industry locally. Jeff is committed to his agents success and thinking outside the circle to find solutions to problems that are both ethical and legal. Jeff has been in the Realty ONE Group family since 2014 but has also been with Century 21, Windermere and ERA throughout his career bringing additional insight into his experience. We’re excited to be a part of the South Jordan community but also the Wasatch Front.

Jeff

PrinciPal Broker/owner

JoinROGD.com 801-810-0101

11240 S. River Heights Dr, Suite 150 South Jordan, UT 84095