Developers use 'try before you buy' tactic to induce luxury home buyers

New York

WHEN San Diego residents Marty Smith and Tracy Park realised they'd soon be empty nesters, they began an international hunt for a beach house.

"I had been travelling to the Caribbean for 20 years, but it wasn't until I saw a show on TV about Placencia that I even considered Belize," says Mr Smith, 53, the founder of RMS Capital Solutions, a direct lender to California real estate investors.

The couple did some online searches, found a development that looked promising, then made a call to one of the agents they'd seen on television.

"It turned out he offered a four-night 'discovery tour' to a new place called Itz'ana, so we booked it," Mr Smith recalls.

The couple's April 2016 stay included a jungle tour to see jaguars, river tubing, and a romantic dinner on the beach. They spent their nights in a temporary waterfront bungalow, 75 feet from the Caribbean.

"After that first dinner we made a deposit on a 3,375-square-foot two-bedroom with two pools," Mr Smith says. The house will be built on precisely the same spot where they spent those first nights.

"Try before you buy" was once a persuasion tactic employed almost universally by down-market timeshare agents. Now, in a second-home market awash in inventory, developers are using it to induce buyers.

Tina Necrason, vice-president for residential at the hotel management company Montage International, has worked in timeshares, fractional ownership, "and every sort of second-home venture imaginable", she says.

She says that before the housing bubble burst, affluent families would buy mountaintop homes site unseen because there wasn't a lot out there.

"But now wealthy people are starting to think of these resort properties as long-term investments for their families. Even the kids have a say," she says. "They have lots of choices available around the world, and they can take their time in making a final decision."

At the Montage Kapalua development in Maui, where homes go for US$1 million to as much as US$20 million, Ms Necrason's team will arrange four-night stays that range from US$500 to US$2,000 per night and might include cultural heritage tours, luaus, private dinners, and spa treatments.

She estimates that more than half of those who come for a trial stay become buyers.

"For this crowd, time is precious," Ms Necrason says. "We feel that if they can make this commitment of time, they are serious about buying."

Because all these developments target high net worth individuals, sales teams often charge hefty fees to ensure prospects are legitimate.

"If you don't charge anything and you don't vet, you get what we call 'speeders', since they speed right past the sales gallery," says Greg Spencer, chief executive officer of Timbers Resorts, a developer and operator of residence clubs around the globe.

His company launched a "guest visit" programme in November at Timbers' Kiawah Island, where guests can stay for US$1,200 a night.

Similarly, the Rosewood hotel Las Ventanas al Paraíso in Los Cabos, Mexico, implemented a "try before you buy" programme for its beach villas a year ago.

"We always say that seeing is believing," says Frederic Vidal, the hotel's managing director. "And with so many other beautiful private residences available for purchase around the world, having buyers stay can show them how we are different."

Mr Vidal doesn't extend a special rate; guests pay at least US$6,900 per night (breakfast included), typically staying for three nights. The bill, which can include spa treatments and dog-walking services, is deducted from the sale price. (Engel & Völkers Snell Real Estate in Cabo handles the logistics.)

Seven homes, ranging in price from US$2.7 million to more than US$7 million, have sold through this "test-drive" programme.

"People who have stayed tell me that they've never seen this type of service for that price. It's a good value and a good investment," Mr Vidal says. "The concept is basic, but it works."

Without a variation on such a programme, developers say, it would be impossible to get buyers through the door.

"We are completely surrounded by national forest, so it's not an area you may have seen unless you went whitewater rafting," says Jeff Heilbrun, executive vice president and director of sales at the Snake River Sporting Club in Wyoming.

He doesn't have exact numbers, but of the 45 or so transactions he's overseen in the past two years, about 20 per cent of the buyers stayed before they bought - and since there's no hotel nearby, staying on-site is really the only option.

The club charges from US$400 to US$1,600 a night, depending on the type of residence. Existing homes and homesites sell for US$800,000 to US$3.25 million.

Meanwhile, Mr Smith's house will be ready to move in in May. Until then, they've been going down a half-dozen times a year.

"It's easy to get there, it's easy to get home, real estate taxes are almost non-existent," he says. "All things we wouldn't have known had we not visited ourselves." BLOOMBERG