Forth Bridge Corporation - Timeshare Information

Buying

Buying a timeshare is like anything else. There are different ways to buy, from different sources, and each method has its own costs and benefits. As a knowledgeable buyer, you can save a significant amount of money and preserve your assets.

There are two market channels where you can buy a timeshare – the primary channel where the developer of the resort sells his inventory for the first time to the first owner, and the secondary market known as resales where those individual owners resell their timeshares to other people. It’s analogous to buying a new house from a developer vs. buying an existing house in an established neighborhood or buying a new car from a dealership vs. buying a used car from the guy down the street. Each channel has its own set of costs, and that cost structure dictates the price levels for each market channel.

When the developer builds a new resort, he has a lot of debt, no customers, and no income, but he does have cash outflow required to pay his employees and operating expenses. So his goal is to sell his timeshares as fast as he can to get the cash flow started and retire his construction loan, then generate funds to pay his employees. He launches a fast-moving, aggressive marketing blitz, signs on a bunch of hotshot sales people, and starts attracting prospective buyers. “Come into my parlor,” said the spider to the fly! They will have a cadre of street runners whose job is to get you into the sales presentation. These people work very hard and are friendly, yet aggressive about their work. They’ll approach you when you get off the airplane, while you’re walking down the street, and even when you’re eating dinner in a nice restaurant and invite you to take a tour. They’ll offer you a nice buffet breakfast, tickets to a local attraction, dinner in a fine restaurant, a T-shirt, or whatever it takes to get you into the presentation. And often, you will be enticed by the giveaways, and you figure there’s no obligation and you can always say, “No, thanks,” and get up and walk out. Little do you know that you’ve just signed up for the high-pressure sales pitch of your lifetime.

So you show up at the appointed time and place, determined to survive, take the goodies, and escape. First you eat, and your hostess, always a pretty girl, asks you questions about yourselves, your interests, your interest in timeshares, your experience, your income, and other information that will be of enormous help to the sales person whom you’ll meet later. After your meal and your second cuppa Joe, this young lady will take you on a tour of the resort and point out all the attractions, the facilities, the beautiful model unit, and she will extol the virtues of the resort. After your walk-about, she’ll deliver you to the sales room. Sometimes you’ll watch a video, and then you’ll meet your salesperson. Exceptionally friendly, well-dressed, well-mannered, male or female, young and older, these folks have one trait in common – they are all exceptional sales closers. That’s how they earn their living; they only get paid if they make a sale, so they have to be good at it. And you thought you were going to walk away easily, eh?

After a few more questions, the salesperson will begin his pitch, all the while looking for your reaction and trying to gauge what turns you on so he can tailor his presentation for maximum effectiveness. If you say you want to exchange your timeshare, he will assume you’ve already sold yourself on the idea, and he’ll emphasize exchanging. If it looks like price is more important, he’ll sell you on the reasonableness of his prices. If you balk at the first price, he will all of a sudden come up with a “foreclosure” that you can buy for a few dollars less. On and on it goes. Every time you say “No,” he raises another benefit and tries again. And again, and again, until he convinces you. And then you sign on the dotted line to spend $15,000 - $30,000 for a one-week timeshare. And the funny thing is, you feel like you got a great deal!

All goes well for a time. You feel quite self-satisfied and smug, secure in your ability to work the salesperson and get the best deal. Until you talk to a friend who says, “You shoulda bought a resale for half that price.” And your heart sinks like a stone.

Resales are the other market channel, and that’s where the bargains and really good deals can be found. Remember all that sales effort the developer had to go through to sell his inventory? All that costs a small fortune, and when you buy from the developer, you help pay for all of it. At least 50% and sometimes up to 70% of the price you paid goes toward paying the salesperson, the pretty girl, the admin staff, the cost of the office, the brochures and videos, the advertising, your breakfast, the giveaways, the bird-dogs on the street and at the airport, etc. The rest is the actual value of the timeshare. But in the resale market, it’s one person selling his timeshare to another person. The seller doesn’t have all that overhead. So resale prices should be no more than 50% of the resort’s price. Then as individuals compete with each other to sell their timeshares, the only way they can compete is by lowering the price. So resale prices tend to hit the market at the 50% level, then go down from there as individuals compete on the basis of price. At some point, they level out and a viable, stable market price range is established.

“Wait a minute!” you say. “I see prices on the Internet near the resort prices, sometimes even higher. What about those?” Good question! Now call those people and ask them how many offers they have for their timeshare and you’ll find out the answer is “Well, none.” So what gives?

One part of the developer’s sales pitch is that you’d better buy today because the prices will be higher next time. And that may be true, but he’s talking about HIS price, based upon HIS costs, and HIS costs go up every year as HIS employees get pay raises, the taxes go up, and commodities get more expensive. But those are not a reseller’s costs.

A reseller’s only cost may be to advertise the timeshare if he sells it himself, or a broker commission if he sells it through a resale broker. And either way, a reseller’s cost will be much lower than the developer’s cost. Bottom line is, if the timeshare was originally purchased from the developer, the owner will lose at least 50% of his money when he resells it. You know the old adage that a new car depreciates 25% as soon as you drive it off the lot? Well, in timeshares it’s about 50%.

When you see those higher prices on the Internet, you can be sure that the seller doesn’t understand the concept of two market channels. He believed the developer’s sales person who told him his purchase would appreciate in value. Or he figures he bought it for $20,000 and has used it for a few years, so it must be worth at least $18,000 now. Well, it just ain’t so. It doesn’t matter what the owner wishes or believes it’s worth; the market will determine the selling price. Knowledgeable buyers will not pay resort level prices for a timeshare resale. And now that you’re a knowledgeable buyer, neither will you!

OK, now you know how to shop for a timeshare, so where do you find these resale bargains? Well, if you search the ‘net, you can locate lots of web sites dealing with timeshares. Some are magazines like Timesharing Today, www.tstoday.com. Some are timeshare owner group support sites such as the Timeshare User’s Group, www.tug2.com. Some are advertising web sites that charge people a fee to place a “For Sale” ad. And some are real estate brokers who deal in timeshares. In all 50 U.S. states, you are required to possess a real estate license to sell timeshares. The advertising sites do not provide broker services, don’t do title searches, deed registrations and closings, or protect your money. Full service brokers do, so I recommend you go through a bona fide, licensed brokerage for your own protection. You can check them out with the Better Business Bureau in the state where they are licensed and also with the state’s Real Estate Commission. If you’re talking to someone about buying a timeshare, ask them for their broker number. If they won’t provide one, hang up the phone. After all, it’s YOUR money you want to protect.

When you buy a timeshare resale through a broker, it’s basically the same as buying a house. The process is governed by the same laws, regulations and industry standards. You should expect full disclosure of all the material conditions of the timeshare, meaning the week number, floating weeks or points, the maintenance fee, the term of ownership, the unit size, and any restrictions that may affect your use of the timeshare. The seller is NOT required to disclose his reason for selling, how much he originally paid for the timeshare, how long it’s been on the market, or other things that don’t relate to the property being offered for sale.

You should expect the broker to collect a deposit when you sign the purchase contract, and the deposit should be paid into the broker’s escrow account and held there pending completion of the closing. It should not be paid to the seller directly; the seller gets paid at closing.

You should expect the broker to act in a manner that is fair to both the seller and the buyer equally. The broker may not do anything that might work to the detriment of either party, and he and all his salespersons and employees must uphold this neutrality. Their duty is to the transaction, not to either party.

You should expect the broker to present your purchase offer to the seller in a timely manner, present the seller’s response to you in a timely manner, and work diligently to resolve any negotiated issues.

Do not expect the broker to tell you things such as:

A.	How long the timeshare has been on the market.
B.	How much the seller paid for it.
C.	How much the seller would be willing to accept.
D.	Why the seller is selling.
E.	What financing terms the seller will agree to accept.

Even if the broker happens to know the answer, he is prohibited from telling you. Conversely, he may not tell the seller:

A.	What price you may be willing to pay.
B.	Your motivation for buying.
C.	What financing you would accept.
D.	Any other information you request be kept confidential.

The transaction broker is there to assist the sale and purchase, and to protect the interests of both the seller and the buyer equally.

The typical timeshare resale purchase goes something like this:

You locate the broker’s web site and find a listing you like, then you contact the broker for more information. He gives you the details on the listing – maintenance fee, deeded or lease, length of the lease, special views or locations, weeks available, asking price, information on any banked weeks, and any financing and inducements being offered. Once you’re satisfied, you decide to buy the timeshare.

You may pay full asking price or you may make an offer. Just be aware that the seller will have to pay a commission to the broker, and the lower the asking price is, the less room he has to negotiate. The seller may also still owe money from his original purchase from the developer, and he’s already losing 50% of his original purchase price. You can’t get blood from a stone, as the saying goes.

The broker will prepare a purchase contract and transmit it to you for your signature. He may send it by E-mail, fax, snail mail, or some combination, whatever works for you. You sign the contract and either fax it or mail it to the broker. You will have to provide a deposit either in the form of a credit card authorization or a check. A credit card is cleaner, because the broker has to cash any check he receives. If your offer is not accepted, he has to return your deposit, and he has to wait up to two weeks before your check clears before he can send your money back to you. But the credit card charge can be immediately reversed.

The broker will review your offer and if it’s in order, he will contact the seller to present the offer. If the seller accepts, the contract will be faxed or mailed to the seller for him to sign and return, your deposit will be taken, and you are now in a bona fide contract to purchase real estate. Of course, the seller may reject your offer or negotiate with you through the broker until agreement is reached.

All resale contracts should have a cooling-off period, usually 7 to 10 calendar days, during which time you may cancel the contract with no penalty. This is a state requirement intended to protect you as the buyer from being pressured into buying something you may have second thoughts about. But on the 11th day, you are in an enforceable contract. If you default, you could be sued by the seller and the broker to enforce the contract. And if you think about it, it’s actually worse than it sounds! Suppose you live in New York, the broker is in Florida, and the seller lives in Minnesota. You could find yourself defending two law suits in MN and FL, even though you live in NY. You’d have to hire lawyers licensed in the other states to defend a losing cause. Not a good scenario. Oh, and if you lose and a judgment is entered against you, for sure it will also affect your credit rating. Again, not a good idea.

So, it’s now Day 11 and you have a deal. Things will be quiet for a few weeks while the title agency performs a title search to ensure the seller has clear title and determine if the seller still owes any money from his original purchase or has unpaid maintenance fees due. In about 3-4 weeks, you will receive a closing statement in the mail, explaining the cost items you will be paying such as the balances of the purchase price, the current maintenance fee and the closing costs. You have to sign this document before a notary and return it with your payment.

Then you won’t hear anything for a longer while. During this time, the title agent is completing the paperwork, notifying the resort of the transfer of ownership, registering your deed, disbursing the money, and completing the closing. Once it’s done, you will be notified by the broker, and you will now be the owner-of-record. You can begin to use your new timeshare!

All in all, it’s a pretty clean process. It does take some time, depending upon where all the participants are located, how quickly the seller and buyer do their paperwork, how quickly the resort processes the transfer, etc. The closing process can be done in 6-8 weeks in some places, and in other locations it can take 6 months.

As the buyer, you will have a closing cost to pay, similar to when you buy a house. You will pay for the title search, the deed registration, any fee charged by the resort, transfer stamps, etc. All the things that are done for your benefit. Closing costs can run anywhere from about $400 to about $1,800, depending upon location and resort fees. The title search portion is the tiny part and ancillary fees from the resort are the largest part of the closing costs.

Ready to buy your first timeshare? You know to buy a resale to save money, and you’re familiar with the process. All you need is to locate a reputable broker.