Management Rights – the Question: Is the market moving forward?
The year 2011 has been to say the least a very different market, the moving dollar, lack of tourism numbers,
uncertainty of our economy let alone the world economy, a decline in general buyer interest and the list goes on.
If we dissect the year point by point with an honest unbiased approach, we will all come to our own assumptions based on exactly how we were affected, that is if we were affected at all. The following is based on another successful 12 months of listing and selling. Not all contracts of sale where based on the normal, verification, due diligence, finance and body corporate or owners corporation approval. In fact more like a moving pendulum. The points listed below are what can happen and only represent a percentage of the current market, unfortunately a very large percentage.
Listing your management rights for sale
Each and every management rights, be it holiday, corporate or permanent have their own stand alone value. No across the board multiplier or years purchase factor should be utilised when factoring the true market value of a particular property.
Geographical location, size of business, quality of residence, agreements, net profit, ease of operation and the ability to on sell the business at a future date are all important factors. The past 12 months have proven once and for all that all intending purchasers need to be commercially adjusted when exploring our unique industry. I personally see many management rights of high value change hands, the majority of these sell and settle mainly due to the approach taken by the vendor and purchaser all driven by the acting broker negotiating the various facets of each sale.
Valuations: This has now become a touchy issue in some sales; valuers by nature are conservative and we are seeing many examples of complete inconsistency and large variations in valuations based on their comparison to other settled contracts. No arguing, supply and demand are the normal deciding factor in the industry multiplier ‘years purchase factor’.
We are seeing more and more sales that are highly negotiated between two willing parties; negotiation is on a confidential basis and based on various commercial rational. If one of these sales is subject to a valuation, I strongly suggest that the vendor and the purchaser sign a confidentiality agreement with the valuer prohibiting this valuation being used for any purpose other than the sale involved. The reason being is that too often these valuations are used as a comparable and more than often as the benchmark for the next occurring sale. I recently had seen a valuation report using a management rights sale that had not settled.
Financiers: Beware of certain ‘honeymoon’ offers by the various banks including free valuations and remember nothing is free. We see management rights being sold by ‘receivers appointed’ these are generally the result of the ‘honeymoon’ ending in divorce. It seems the normal for financiers to ask for an updated accountants report every 12 months and followed by a fresh valuation. Some of the valuations I have been privy to are inconsistent with industry sales and are based on so called comparisons that are at times not giving a true picture of the settled sales that have occurred.
Summation: When selling, do so with dedication to your sellable management rights. Utilise confidentiality agreements, have your broker totally qualify that your buyer is just that – a buyer not an information gatherer. Purchasers do your homework and remember your negotiated contract of sale should be confidential between you and your appointed industry experts, borrow sufficient funds to enable you to have a high living standard. As a purchaser your aim is nurture your new acquisition into a resaleable asset based on what you intend to sell at your time of exit.
The market is moving forward, excellent prices are being achieved and the majority of industry associates are helping take the management rights to the next phase.
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