Tips for Buying a Fractional in a Recession

Written by Amy Gunderson 12/03/2008

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With housing prices still searching for their bottom, it’s no wonder that some buyers are planted firmly on the sidelines. But there is good news amid all the gloom. If you’re looking to buy a fractional residence, you have more options and negotiating power than ever. Keep these tips in mind during your hunt.

Search out lower prices

While there is no single index that tracks fractional prices, anecdotal evidence shows that developers are beginning to lower asking prices on projects. Take Resort Equities, the fractional residence developer that has homes Tuscany, Hawaii and Lake Tahoe, among other locations. This fall, it dropped the asking price on four shares of condominiums at the Lake Tahoe ski resort, Northstar-at-Tahoe, and managed to get several offers. Also this fall, the developer of the Ranch on Soda Rock in California’s Sonoma County lowered the price from $300,000 to $250,000 for a one-tenth share of a three-bedroom home set on a vineyard. The developer is also offering to cover taxes and dues for the first year, an incentive package totaling $15,600.

Negotiate on everything

It’s the fractional industry’s well-guarded secret. Prices are negotiable. Will every development be open to chopping the price of a share? No. But many of them will be amenable to tossing in financial incentives that can get buyers to the closing table. “It is a buyer’s market, and developments are willing to work with you,” says Paula Gold-Nocella, the owner of Global Quarters, a fractional real estate brokerage. She’s seen properties accept lower deposits, agree to stagger payments for a share or even offer to cover one year’s worth of dues in order to close the deal. The key? Ask for it.

Consider Europe

The dollar has been on a charge against the Euro since mid-summer, which is good news for buyers interested in fractional residences in Tuscany and Paris. Shares priced in Euros represent the biggest chance to save. Take Fractional Paris, which is now selling one-twelfth shares of a two-bedroom apartment in the Marais for €120,000. Earlier this year, the first six shares of the home sold for the equivalent of $189,600, but buyers now would pay just $152,400.

Fractional developers that price shares and yearly fees in dollars are also beginning to take steps to lower annual dues to reflect the newfound strength of the dollar. This fall, Resort Equities lowered the annual dues for its home in Tuscany from $19,000 to $16,000. If a European project hasn’t adjusted its annual dues yet, use that as a negotiating point, pointing out that the dollar goes more than 20% farther in Europe than it did this summer.

Look to bigger developers if you need financing

Securing financing remains a sticking point for fractional purchases, and companies like NextStar Funding are no longer offering mortgages for one-off fractional homes. If you need a mortgage to buy, your best bet is to look at larger fractional developments with multiple homes rather than small developers carving up slices of single homes for sale.

Get more tips on buying a fractional vacation home by downloading our Decision Guide to Fractional Residences.