‘Pivot’ and ‘adapt’ are the war cries of businesses and real estate agencies during COVID-19. Fortunately, this is more than possible thanks to flexibility and clever thinking.
Things were turned on their head so quickly during March of 2020 and it is only now many of us are catching our breath, coming out of panic mode and figuring out what to do next.
As a real estate agent, you no doubt had a number of property transactions being put on hold and it is little wonder. However, now the dust is settling it is possible to come up with ways to move forward.
At BDH Solutions, we specialise in rent roll sales rather than property sales but our business has also been impacted by global economic uncertainty. However, our commitment is to helping our clients and we have been able to do so by coming up with creative and flexible solutions which are tailored to buyers and sellers.
Here are some ways we are adapting our approach so we can get rent roll transitions over the line.
Extended retention periods and retention amounts
Generally, a retention period for a rent roll transition is put in place to protect both the vendor and the buyer from the loss of landlords in the months following settlement.
Because it is impossible to gauge exactly how many landlords will transition with a rent roll sale, the contract usually includes a buffer period from the end of settlement. During this period, 10 to 20 percent of the sale price is held (by a third party) for a period of at least three to six months.
Once the allocated time has passed, the rent roll is reassessed and the value of the properties no longer being managed is subtracted. The leftover funds are distributed between the vendor and buyer accordingly.
Read more about rent roll transition periods.
Because so many things are up in the air right now, an extended retention period may be helpful. It is understandable for landlords to be in a transition period due to changes with tenants’ financial situations so a couple of extra months may be required in order for the final headcount to be clear.
Additionally, the retention period amount may be revised to be more or less than the standard 20%. Again, due to the current unusual circumstances, the buyer may be concerned about a considerable drop off in landlord numbers. Increasing the amount included in the retention period will give them more peace of mind about the value of their purchase.
Flexibility in management fee reconciliation
The terms of a rent roll sale usually dictate the annualised management fee be calculated to the beginning of the retention period.
During COVID-19, to get a deal across the line, the parties may negotiate to extend calculations to the end of the retention period as it will give a more realistic forecast of future management fees.
While it is unusual to negotiate this kind of clause, we are in the midst of unusual times. If a rent roll sale negotiation comes down to including this clause or walking away, it may be the best option.
Vendor terms or staged settlements
A staged settlement may be required due to the current climate with lending and also changes to regular real estate agency income.
Instead of a lump-sum payment, the buyer could pay the vendor in instalments, with the vendor releasing portions of the rent roll in accordance with what is agreed in the contract.
Again, this is something which can be worked out depending on the circumstances of the sale and the parties involved.
The beauty of a rent roll sale is it can be flexible. With the right support on your side, you can make decisions which are beneficial financially for your agency and which make economic sense for the long term.
During COVID-19, one recommendation remains the same: Make sure you get advice and support from your accountant, an independent valuer and a rent roll exchange specialist before you sign on the dotted line and agree to a rent roll sale.
BDH Solutions are rent-roll agents with over 30 years experience in connecting the right vendor with the right purchaser. Download our information booklet on the new Victorian Minimum Living Standards Legislation