Lesson 2. Buying Your Timeshare
Timeshare purchases can be divided into purchases of “new” units (bought from the resort developer) and “resale” units (bought from any party other than the developer, such as an owner, a timeshare reselling agent, or a homeowners association).
A. Developer sales
Developers are the entities that create timeshare projects by building the resort (or by converting an existing resort) and selling the units to buyers. Developers run the gamut from poorly financed, marginal operations to well-known travel and leisure corporations such as Marriott, Hilton and Disney. Many of the early developers of timeshare projects were marginal operations, and contributed to the bad image of timesharing.
After completing a timeshare project, the developer conducts a sales and marketing program to sell the units. Sometimes the developer handles both project development and sales. Other times, the developer will arrange for a company that specializes in timeshare sales to market and sell the intervals to buyers. To interest people in attending a sales presentation, the sales program usually includes financial incentives to people who attend sales presentations. The incentives typically include items such as gift certificates, discounts on accommodations, or other amenities.
Timeshare sales and marketing costs can easily be 50 percent or more of the developer’s sales price. You may be surprised that sales and marketing costs could be so high, but a good timeshare project can easily support these costs. For example, consider that a developer can probably build and furnish a two‑bedroom condominium unit in most parts of the United States for about $150,000 per unit. By dividing the unit into 50 one-week intervals and selling each interval for an average price of $10,000, the developer will have gross sales $500,000 per unit. If the developer spends half this amount marketing the units ($250,000 per unit), the construction cost and sales and marketing cost together will total $400,000, leaving $100,000 net income per unit.
B. The resale market
As mentioned previously, a resale occurs when a non-developer owner of a timeshare week sells that week to another party. Sellers include private individuals, brokers that carry timeshares in an inventory, and resorts or homeowner associations that have acquired timeshare units at their resort. Some resorts have on-site resale agents who accept listings from owners who want to sell their timeshare units.
There are a variety of reasons why people sell timeshares they own, including deaths, divorces, financial emergencies, changes in personal vacation habits, and, unfortunately, people finding out that timesharing does not work for their lifestyle.
1. Prices for resale units
When most people initially try to sell a timeshare they bought from a developer, they don’t realize that the resale value of their timeshare is only a fraction of the price they paid to the developer. As was indicated in the above discussion of developer sales, 50 percent or more of a developer’s sales price represents the cost of the developer’s sales and marketing program. A private individual can’t do the same things a developer does to stimulate demand for their week. Generally all a private individual can do is try to let possible buyers know that they have a week they would like to sell, and see what price the market will bear. Because there are many more people trying to resell their timeshares than there are people looking to buy them, the resale market is generally a buyer’s market. As a rough guide, resale prices more closely reflect the cost of the unit absent the sales and marketing program, or roughly 50 percent of the new sales price. Resale prices for a few timeshare units have held above this level; these are usually top quality resorts in locations with high demand and limited supply. In many cases, these resorts also operate repurchase programs to maintain higher resale values. Conversely, some timeshare units are essentially worthless.
Because there is no central clearinghouse for resale prices, you often cannot estimate a resale price based on past sales. Lacking historic sales data, you should simply recognize that the value of a resale unit is whatever price a buyer and a seller agree on. In some cases, a broker who is active in sales at a given resort may have some information on resale prices. Although sales price information for deeded properties will usually be collected by a local agency as part of the deed recording process, unless you live near the deed recording office you will not easily be able to review these records. TUG also has a historical sales database, containing data provided by TUG members, that may be useful.
You may be able to get some guidance from listings of similar units that owners are trying to sell. In looking at these listings, you should consider that if a unit has been adequately publicized but has not sold after five or six months, the unit is probably overpriced. The implication of this is that most advertised prices you will see for resale units are too high.
