Showing posts with label real estate brokers. Show all posts
Showing posts with label real estate brokers. Show all posts

Channel Partners: An Emerging Trend in Real Estate


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!


---------- Thanks for reading RealT Horizon J ----------

Transacting & Using your Real Estate Asset


After a project is constructed, it is time for actual transactions and possessions to happen. There are various intricacies involved in these seemingly simple stages. Let's see how.


Transactions


The sell and purchase transactions in the real estate sector follow several innovative methods. More often than not, builders initiates the transaction process much before the actual project is constructed - as soon as from the concept stage. Just to have a better picture of this look at the following chart:




The above chart is a snapshot of one of the prevalent schemes that builders follow for selling off the constructed property. This process of interval payments ensures that ready supply of funds is available with the builder which can be used to service the operational costs of the project.

Usually the process of transactions is carried out by:
1. Brokers
2. In-house marketing
3. Word of mouth publicity

Out of the above 3 channels, brokers are the most prevalent and considered-effective means of carrying out transactions. In Indian scenario, especially, brokers form an integral part of the real estate value chain. Although they are the most convenient means of sell/purchase of properties but having brokers in the transaction process gives rise to a plethora of additional costs for both the parties - buyers and the sellers.

Of course having brokers for this process reduces the time-to-possession and do not divert builder's attention from his main job, but if some other effective channel can be devised for this process, we are sure that a lot of costs can be saved in every project - nearly to the tune of approximately 5-10%!


Usage


As already discussed by us in our first post - Understanding the reality in RealT – Generic Real Estate Value Chain, usage can be divided into following 3 categories, depending on the nature of use.


There are different norms and procedures for acquiring the possession of all the above mentioned categories, but more or less the underlying process is the same.


Ending Notes: With this post, we have completed an eagle-eye view of all the phases of value chain which are involved in any, literally ANY, real estate project. We will now cover various topics which we think will be benefitial for a first-time investor in understanding how one can make money here ;-)


----- Till then, Keep reading RealT Horizon :-) -----


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