How Fractional Home Ownership Resale Works

Selling an Existing Fraction

With fractional ownership, the individual legally owns part of the deeded title to a property. Typically, fractional owners are tenants in common, with each owner's name and percentage interest appearing on the deed. Therefore, each owner has independent control over the sale of their share and can decide to sell it at any time (usually after a minimum period of 12 months of ownership).

Selling an existing fraction is similar to selling any other real estate asset. However, there are a few key differences and specificities to consider. Here are the main steps you can take to sell a share:

1) Set the price

The fractional owner is free to sell his/her share at any price he likes. The owner can conduct his/her own research to assess a value for the fraction (how much shares for similar properties are selling for now, how much real estate prices have increased or decreased since the share was bought). The developer can also help determine a fair market value. Some developers can provide an up-to-date Comparative Market Analysis (CMA). The CMA is an estimate of a property's value based on comparable properties that have sold in the area. The fractional owner can use it as a guidance, but ultimately the owner has absolute freedom to set his own sale price.

2) Check resale restrictions

Most fractional ownership arrangements include some re-sale restrictions. Here are some examples:

Minimum period of ownership: 12 months after the original purchase, or once all ownership interests have been sold (whichever occurs first), the fractional owner is free to sell its share at any time. This is designed to dissuade speculative purchasers.
Right of first refusal: sometimes, the shares need to be offered to the other co-owners first. Current co-owners have a first right of refusal before the fractions are offered for sale on the open market.

3) List the share for sale

The shares can be sold on the open market via a broker or agent just like any other property, or the owner can choose to sell them directly on the property manager's platform (in the United States, sellers can expect to pay a 6% commission fee when using this channel). Fractional home ownership is a rather new concept, and therefore the secondary market for fractional ownership shares is yet at the start of its growth. Then, it does make sense to choose an agent with experience in this real estate segment, as many potential buyers might be unfamiliar with the concept.

4) Execute and sign the sales contract

Once an agreement has been reached with the buyer, the seller will need to execute a sales contract, which is a legally binding document outlining the terms of the sale. After the sales contract has been signed, the seller will sign over the fractional share by deed in return for the sale price. As the property's title does not change - the interest is simply reassigned to the new buyer - the closing process is usually faster than a traditional sale.

5) Pay any tax due

Unless the property has been used as a primary residence, the seller might have to pay capital gain taxes on the profit (if any) made. Tax treatment depends on the individual circumstances of each person. It is always recommended to seek professional tax advice.

From theory to reality: how selling an existing fraction works in the real world

The fractional market in real estate is still young, and as such the resale market is relatively immature. Often the prospect of benefitting from capital appreciation (which is one of the main advantages over timeshares) causes buyers to overlook how the resale process might be. With fractional ownership, shares are generally harder to sell than whole properties. It is also worth noting that there is no guarantee the share will be worth more (or the same) as initially paid. So, is fractional home ownership a good investment? According to Pacaso, the theory - streamlined transaction and property appreciation - matches the reality: "shares in its properties have resold in an average of 12 days, at an average of 12 percent more than they cost 18 months ago." (source: The Sunday Times).