One of the most critical parts of the exit process is determining the resale value of your unit. This is because the resale value can have a material impact upon the financial outcomes for both parties.
In most retirement village residence contracts, the resale value must be agreed in writing between the village operator and the exiting resident. Residents with contracts that split capital gains should obviously be more engaged around the resale value proposed by the operator. If you don’t have a contract that contemplates capital gains, then happy days, you really don’t care what the resale value is.
Determining the resale value
The village operator will propose a resale value for your agreement as part of the exit paperwork. You can agree to the proposed value or you can negotiate higher or lower.
Why would you pitch for a lower resale value? If you don’t get any share of capital gain (or loss) on resale under your contract, then you should seek a lower price so the unit sells faster.
How does the village operator arrive at the resale value?
Villages are constantly turning over units. On average, an operator can expect to resell around 10% of the units in the village annually: an average-sized village of 200 units would be selling 20 per year, or just under two units per month. This means the operator is always in the market, speaking with potential buyers and receiving feedback on pricing. Some operators even have regular independent valuations carried out on their units.
Unlike a vendor in the residential housing market, village operators are not necessarily always trying to push the maximum price possible. Remember that village operators are aligned with you in wanting to sell the unit as quickly as possible. Despite what you may read in the media, there is ZERO incentive for the operator to have a vacant unit. Accordingly, operators may prefer to keep prices on the low side in order to achieve a quicker resale.
In my experience, you can always push operators a little higher on their pricing than the first proposed resale value. If they push back however, it is usually with good reason.
There are more insider tips and tricks around pricing retirement village units and the impact on your financial outcome in my ebook – read more about that HERE.
What happens if you cannot agree on the resale price?
Occasionally, the exiting resident and village operator are unable to agree on a resale price. Most often this is because the exiting resident is seeking a price that is higher than what the village operator thinks is achievable for a timely sale.
The typical approach from the village operator in this situation will be to try the higher price for a period of time, communicate buyer feedback, and adjust the price in consultation with the exited resident.
There are situations however, where the exited resident’s expectations are so far removed from reality that agreement simply cannot be reached. In this event, the solution is to seek an independent valuation (usually with the cost split 50/50, or in the same proportions as the split of the new resale value) from a specialist retirement village valuer and use that valuation as the agreed resale value. You cannot use an appraisal from a local real estate agent (note these are NOT considered valuations) as they simply don’t understand the nuances between retirement village units and freehold property.
The last word
There are very few specialist retirement village valuers in Australia and it is expensive (typically around $5,000) to purchase a one-off valuation for single unit. Your best option is always to try and reach agreement with the village operator.
Suggested next read: What happens when you leave a retirement village?