In our first post “Understandingthe Reality in RealT”, we mentioned Transaction as an essential part of the 5 step value chain. We further elaborated its details in our following post – “Transacting & Using your RealT”. Today we bring to you a fast emerging trend in the Transaction phase of real estate projects – the introduction of Channel Partners.
The figure below shows exactly where Channel Partners have made their place in the value chain:
What are Channel Partners?
Essentially CPs are the agencies that take the responsibility to sell-off whole or part of the realty projects in a pre-agreed upon duration & take their commission/fees in doing so. In this process, they underwrite the properties which are to be sold by them. More on this will get clear in the following discussions.
How are Channel Partners different from Brokers?
Although doing the same work, there is a huge difference between Brokers and Channel Partners.
A Broker acts as a liaison between the Seller & Buyer and in this process he takes his commission from both the parties.
A Channel Partner on the other end underwrites the property to be sold for a particular duration by paying the owner some percentage of its cost (refundable). The CP is then free to use any means of promotion & sale including sub-broking, conducting events, etc. to sell the property. Once the property is sold in the pre-decided duration, the CP gets a handsome cut from its sale, much larger than a broker’s, and gets his underwriting amount back from the builder.
If in case a CP fails to sell the underwritten properties in the specified time duration, he is liable to pay to the builder, an amount that is pre-specified in the agreement between him and Builder.
Why do Builders prefer Channel Partners?
With the evolution of new ways & processes in Real Estate, Builders have quickly adopted the concept of Channel Partners. We were perplexed at first about the acceptance of Channel Partners in this sector but when we looked at its profitability by putting ourselves in the shoes of a Builder, we got all our answers.
Following are some of the benefits that a builder enjoys in partnering with a Channel Partner:
- Immediate funding of Operational Costs: The builder uses the underwriting amount to fund his immediate cash requirements. This is similar to funding by booking amount, the difference being that the percentage of cash is relatively small.
- Guaranteed sell of the property: By partnering with the CPs, the Builder ensures that his property will be sold. He no longer has to worry about the marketing and promotional activities. Even if the CP is unable to sell the property in the specified time, the Builder easily gets the interest amount by penalizing the CP.
- Better than Broking: Using CPs is better than relying on the brokers. This is because of the fact that brokers have no liability to sell the property, whereas CPs have!
- Free Promotion: Suppose that a CP has underwritten 50 units out of total 100 units constructed by the Builder. Now, to sell those 50 units, the CP will carry on promotional activities by conducting events, advertising etc. But in this whole process, the Builder is getting benefit of free publicity of remaining 50 units as they fall under the name of same project.
These and several other benefits have made Channel Partners a hot topic in emerging markets. Also, it is noteworthy that this trend is picking up pace quickly in Tier 2 cities. RealT Horizon is glad that our vision of development in the Tier 2/3 cities is getting much air!
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