Apartment goodwill is a real estate transfer of rights transaction which takes place when the property is still under construction and can be a good option for both those who want to buy and for those who want to sell the property before handing over the keys.
But, as not all that glitters is gold, this is a risky operation, which depends on a few variables to guarantee a good deal, including the percentage of property appreciation, the demand for the purchase of the premium, and for the buyer, the offer and price of available premiums.
In this content, we explain all the scenarios of buying or selling the apartment premium and how to find good opportunities without falling into market pranks. Come with us!
What is Apartment Goodwill?
It is the assignment of rights to property still in the plant or under construction. In other words, the sale of the “apartment premium” is basically the process in which a person who bought the property directly from the construction company wants to “resell” it to another buyer during the construction period.
In this transaction, the best possible scenario for the seller is to gain from the appreciation of the apartment on the floor plan. In the worst case, in which the owner needs to sell the property due to financial needs or does not find demand for the unit, the buyer is the winner, who has the opportunity to acquire it at a price below the market.
Speak up, Aurelius!
Technically, the terms to designate a good and a bad deal with the ”goodwill sale” are different. That’s because the word goodwill means – roughly – gain, interest, increase over the initial value.
That is, the “correct” would be the sale of goodwill, with appreciation, and the sale of discount, when there are no gains on the initial amount.
But in the day-to-day real estate market, all operations are called “goodwill sale”, whether with loss or gain for the seller. Here’s the tip.
How Do Buying and Selling Goodwill Work?
Basically, as the initial owner has a contract signed between him and the construction company when the sale of the goodwill is agreed, he informs the construction company of the sale of the unit, and this, in turn, is the one who will pass on the assignment of contractual right for the new buyer.
Upon payment of the entire amount already invested in the property, in addition to the other costs involved in the goodwill, the new owner will be responsible for the contract and the remaining balance of the property.
You can already see that this type of business has advantages and points of attention for both sides, right?
That’s why now, the text will be divided into profiles to facilitate the analysis of scenarios both for those looking to buy the goodwill and for those who want to sell it, either out of necessity or for investment!
For those who buy the apartment premium
Buying the premium on an apartment can be a good solution for those looking for a specific apartment which no longer has units for sale by the developer or has an even more specific interest: a unit that has already been purchased by someone else.
In addition, the buyer may also find a premium with a value below the market price of the apartment. This usually happens when sellers are in financial trouble and need to sell the goodwill urgently to cover personal expenses or because they are no longer able to pay the property installments.
Another factor that can help buyers when negotiating is the fact that there are still many other apartments available directly from the builder in the same building, which is a risk for the seller.
But be aware: these are not easy opportunities to find, after all, the price is very attractive and the sale usually happens quickly. If you are looking for such an offer, beware!
Oh, and that also includes not getting carried away by “miracle offers”, as it can, in reality, be a fraud. The tip here is not to skip the steps to verify the reliability of the offer and ensure that all documents necessary for the safe purchase are at hand. After all, it is better to risk losing a “super offer” than exposing yourself to financial loss through fraud.
Those interested in buying a premium must pay attention to the value of this transaction, which usually requires that a large part of the costs be paid in cash. Among the costs that make up this amount are: the discharge of the amount already paid by the first buyer plus the appreciation of the apartment (if any), the percentage of the realtor, and the assignment of rights, paid directly to the construction company.
What is Included in the Amount Charged for the Premium?
Understand the costs that make up the final value in the purchase of the goodwill of an apartment:
- what had already been paid by the first owner up to the time of sale of the goodwill;
- the valuation of the property, which is the profit that the owner wants to make from the sale;
- the assignment of rights that varies from 1% to 2% of the updated value of the contract or, of the outstanding balance, according to what the construction company establishes;
- the realtor’s commission, which is around 5 to 6% of the property’s value
From the purchase of the goodwill, the new owner also assumes the outstanding balance of the property under the payment terms detailed in the purchase and sale agreement.
How to Evaluate the Available Premium Offer
Is it worth buying the premium instead of another apartment directly with the builder? Is the seller’s offer attractive? Is there a prank on her?
To answer these questions and make a real check-up of the proposal, be sure to follow these steps:
- See how many installments have already been paid and their value; calculate the total amount invested by the first buyer;
- Compare that to the amount he’s asking for the premium without considering the fees involved in the purchase, such as the realtor’s commission and key money. This way, you will be able to understand the real value that the seller should profit from the sale of the goodwill;
- Know how many installments must still be paid to the construction company, if any, in addition to the balance to be paid after the delivery of the keys;
- Get a quote from the builder for how much it would cost if you buy a similar apartment in the same building;
- Add all the values and compare with the value of the construction company. If it is similar or below, the price is probably consistent
For those who Sell the Apartment Premium
The best scenario for those who want to make money from the sale of the apartment premium is to buy the unit during the real estate launch, that is when it is still a “novelty” for the local market.
Thus, the investor maximizes the income with the business, buying the unit at the lowest price on the market and having the profit on the valuation that, depending on the stage of the work, can vary between 15% to 40%.
The best time to sell the premium can vary a lot, but investors in this type of operation usually look for one of two: sell a few months after launch or sell close to delivery of the apartment keys.
1- Buy at Launch and Sell a Few Months Later
In this case, the positive point is that the goodwill seller has invested little money in the payment of the installments. In other words, the disbursement was small, and even so, there is the possibility of making a significant gain.
The risk here (almost a prank) is that this operation is practically only profitable when there is much higher-than-average demand for the enterprise. In the vast majority of cases, it is very difficult to be able to sell the goodwill immediately after launch and still make a profit, as the costs of brokerage and assignment of rights are proportionately very high.
Some high-risk investors try to do this operation even though they don’t have the capital to pay off the property’s installments after the first few months of launch.
But we warn that this can generate a snooze: if you cannot sell the premium at a price much higher than what you bought, the investor will have to sell for a price below the initial amount, culminating in a capital loss, or worse: if no buyer is found, the seller will be forced to cancel the purchase, generating a loss of up to 50% of everything he has already paid to the construction company.
2 – Buy at Launch and Sell a Few Months Before the Keys are Delivered
There is usually a jump in real estate appreciation close to handing over the keys, as there is a high demand from buyers looking for ready-to-live-in apartments.
Planning the sale of the goodwill for that moment reduces the risk of loss of capital in the business, as it is rare that an enterprise in the key delivery phase does not have a substantial volume of interested buyers.
Even close to handing over the keys, depending on the economic moment and the dynamics of the local market, it may not be easy to sell the premium. Therefore, it is important that the seller is financially prepared to also pay off the post-key installments in case this happens, or else he will be exposed to a very high risk of loss.
Fundamental Tips for those who Want to Invest in Goodwill Sales
Make sure you have the resources to pay off the apartment installments if you can’t sell the goodwill. This avoids the risk of backfire when it comes to goodwill as an investment;
- Calculate very well all the costs involved in buying and selling the goodwill. They are significant and can generate substantial losses if not considered (see detailed calculation later);
- If you missed the launch of a particular venture and want to profit from the sale of a premium, be “cold-blooded” and look for another apartment in launch to buy. So you don’t miss one of the moments of the biggest jump in property valuation;
- Look for projects with characteristics that favor a high demand; this increases your possibility of selling at a higher price.
Types of Ventures most Suitable for those who Want to Invest in Goodwill:
Remember that one of the key points to profiting from the premium is that there is high demand for the units. There are some types of projects that, due to the characteristics of the local market and the behavior of buyers in general, have a more solid volume of demand. Between them:
Studio Apartments or a Maximum of 2 Bedrooms
Smaller apartments have a lower value and many people/families need this type of property. Escape from high standard and luxury apartments. If you want to invest a higher value, buy 2 or 3 apartments of a lower value instead of a high standard.
Developments in Locations that are already Valued
Avoid investing for the sale of goodwill in locations that are still “promises” of development. It may be that they take time to appreciate, and this can become a “cucumber” for those who want to sell the premium.
In addition, we recommend that you watch out for traits that can make a plant less salable. Some of these factors are: units of a summer apartment without a view of the sea, apartments on very low floors, and apartments without a balcony, among others.
Always think about the characteristics that the average population considers essential for that type of apartment, and don’t buy a unit without them being present. This is not to say that the other apartments cannot be a good opportunity, but they will invariably have less demand and will become more complicated to monetize with a premium.
Calculation of Costs for Investment with Apartment Premium
- Brokerage fee at the time of purchase of the apartment – which should be included in the calculation, especially if you are thinking of selling the goodwill shortly after launch;
- Cost of assignment of rights, which varies from 1% to 2% of the updated value of the contract or of the outstanding balance, as determined by the construction company;
- Brokerage fee at the time of sale of the goodwill of the apartment
Where to Find Apartment Goodwill?
You can find goodwill available to sell on an ad platform or directly on specialized real estate websites, such as Tajarat Properties. If you are looking for an apartment in Pakistan, check out Blue World City!