Ask RedWeek / May, 2016

Are timeshare developers deliberately hampering the resale market?

I have been interested in buying at Disney Vacation Club, and the resale prices are more attractive than buying direct. But, I just saw an announcement that Disney was withdrawing privileges and amenities for people who buy Disney timeshares on the secondary market.What's this all about? Is it common?

To answer this question, RedWeek consulted several established real estate brokers who specialize in timeshare resales around the country. We also talked to attorneys who frequently represent owners in disputes with timeshare companies over contract issues. Finally, we contacted brand name timeshare companies, most of whom did not want to talk about these issues.

Answer: Sad to say, Disney and most major timeshare developers — if not all — deliberately discriminate against resale buyers by adopting various policies that depress resale prices and restrict the usage rights of people who purchase timeshares on the resale market. These policies, our experts said, are designed to boost retail sales by making resale purchases more cumbersome and less attractive. They also complement the Right of First Refusal (ROFR) policies that virtually all developers exercise, when desired, to buy back valuable properties that are submitted to them for approval on the resale market.

Examples of Resale Restrictions

On April 4, 2016, Disney changed the "incidental benefits" that are available to resale buyers. Purchasers who buy Disney points on the secondary market will not have access to membership "extras," including Disney Club discounts on dining, shopping, exclusive events, and members-only special offers. Five years ago, Disney unilaterally denied resale buyers' access to Concierge and Disney Collection reservations as well as the Disney Cruise Line, Adventures by Disney, and select Disney resorts.

As we have reported in the past, Marriott charges resale buyers of Destination Points a minimum $3,000 in transfer/conversion fees ($2 per point, minimum 1,500 points), plus a $300 "education" fee. People who buy legacy Marriott weeks on the resale market are not allowed to join the Destination Points Club (unless they buy additional points from Marriott) and may not convert their annual timeshare into Marriott Rewards points, which are used for hotel stays. Secondary market buyers can use their Marriott weeks or exchange them... or use RedWeek to rent them out.

Diamond Resorts, according to the realtors we interviewed, has the most restrictive procedures in the industry, including an often lengthy waiting period to approve a potential resale (could take several months, compared to less than 30 days for Marriott). Secondary market buyers are limited to using their week at their resort, but otherwise have no access to Diamond's club and internal exchange network without buying a Club membership directly from Diamond. With Diamond points, in addition to paying the owner for the purchase, resale buyers are subject to "base standard assessment" fees just to make use of their purchase, and will also need to buy a "Club" membership to access any resorts outside of their designated collection. These additional fees can cost a resale buyer hundreds of additional dollars.

Diamond and other brand-name timeshare companies make no apologies for their restrictions on resale purchasers. To them, it's just a good business practice to prop up retail sales. Diamond, in fact, according to its annual reports and statements from executives, cites a healthy and liquid resale market as a threat to its retail program. Moreover, Diamond prefers to add inventory to its club collection by buying up delinquent intervals (at desirable locations) through foreclosure and tax sales. That's far less expensive than buying back intervals from existing owners. The company then puts the foreclosed intervals back on the market at retail sales prices. Diamond also accepts give-backs or voluntary surrenders from some owners.

Is the Disney Change Likely to Affect Resale Purchases?

Disney officials issued the following statement in response to RedWeek's request for explanations about its resale policies.

"Disney Vacation Club's direct purchase benefit, which started in 2011 and expanded in 2016, is designed to provide a premium advantage to those Members who purchase directly from Disney. Members who have purchased directly from Disney have told us they appreciate the special offers and exclusive experiences that come with their Membership."

Ironically, Disney's decision to take away more privileges and perks from resale buyers probably won't hurt many owners' ability to sell their intervals, because Disney timeshares tend to draw the highest rankings and resale prices on the market. Restrictions imposed by less popular brands, however, can directly impact the ebb and flow of the resale market. Anything that decreases the value of a resale, especially in a market that is saturated with more sellers than buyers, hurts sales.

Be a Savvy Resale Buyer

There's also another factor — and it may offset the negative impact of restrictions on resales. Many resale buyers tend to be existing owners who are more experienced than first-time buyers. In general, they know what and where they want to buy another timeshare. Their goal is to pick up another timeshare at a bargain-basement price because they intend to use it. Bottom line, they are buying on price, not the discretionary amenities that developers offer to first-time buyers.

In our review of resale polices, we found that every major timeshare company imposes some restrictions on secondary market purchasers. Some are rather benign (such as banning conversion of timeshare club points into hotel hospitality points) while others, such as Marriott's conversion fees, are extremely financial.

Still, the bottom line for smart resale buyers is always this: Do you want to pay a minimal amount for a stripped down timeshare interval at a great resort, or pay $20,000 to $30,000 for the same interval, plus all the perks and first-day incentives, at a resort's timeshare presentation?

For More Information on Resale Restrictions

About the author

This answer was provided by RedWeek's Chief Correspondent, Jeff Weir. Jeff is a California-based journalist who has covered California, Congress, and the White House. He also has roots in Silicon Valley, where he directed public relations and marketing programs for high-tech companies. He is also a timeshare owner and member of RedWeek.com.

Leave a comment

    2 Comments

  • Avatar for eileenh115
    eileenh115
    Oct 11, 2016 (1 year ago)

    What are the rules for Westgate properties?

  • Avatar for thep9
    thep9
    May 06, 2017 (6 months ago)

    Good article. Experienced all these issues with my resale. Yet would not do it different.