Aside from the obvious, there are two major differences between traditional real estate ownership and resort vacation ownership. First, traditional real estate is a necessity item and vacation ownership is a luxury item. Second, in traditional real estate, the consumer seeks the product, and in timesharing, the consumer is enticed to the product. These two facts alone allude to the difficulties of selling timeshares.
In traditional real estate, there is both a primary market where the residential or commercial developer takes the risk of marketing and selling; and a secondary market where the individual owner bears the burden of marketing and selling. Owners in the secondary market often choose a real estate professional for assistance. These two markets comprise the total traditional real estate marketplace. Both are clearly understood, accepted within the industry and readily accessible to the consumer.
Traditional real estate is usually a local (neighborhood) market and has a distinct marketing advantage over the timeshare market. According to the National Association of REALTORSÆ, the most effective medium for selling homes is an inexpensive yard sign on the seller’s property. This is not an option when selling timeshares because the resorts do not allow it. Typically, purchasers of residential real estate preview the property. This option is not always available to timeshare purchasers because many resorts refuse to cooperate with reselling owners and brokers. Due to the discretionary nature of vacation ownership, leisure is the motivation not necessity, as with traditional real estate.
When qualifying traditional real estate buyers, the buyers generally want a certain subdivision or a certain part of town. Timeshare buyers usually have several generic vacation choices such as snow skiing in Colorado, the beach in Cancun, or a golf course at Hilton Head. This is a much harder sale to consummate… and for a lot less money.
In traditional real estate, the two biggest complaints by sellers are (1) the price was too low and (2) it took too long to resell. Timeshare is no different.
There is a growing demand for a viable timeshare secondary market. Lifestyles change, children grow up, people divorce, encounter financial hardships or just get tired of their timeshare and want to sell.
Today, the timeshare industry is older and larger, with more timeshare owners. Even though the market has matured, many resort developers choose to ignore and leave to chance the resale difficulties faced by their owners.
If the owner’s resort offers no resale program, there are very few options remaining for the owner to resell the property. As in traditional real estate, timeshare buyers often presume that they will have at their disposal a secondary marketplace.
More than half of U.S. timeshare resorts have no on-site resale program. The same resorts offer no resale program whatsoever and many advise against the use of other programs.
From the 1970’s (when the timesharing industry was still young) through today, owners find themselves in the predicament of wanting to sell their units but having few choices to do so. Many timeshare resorts are simply not equipped to handle resale services for their owners; and neighborhood real estate offices have neither the expertise nor the desire to enter this specialized field of real estate. In the beginning, the only option available to owners was to sell it by advertising it themselves or give it away to a friend or relative.
It is literally cost prohibitive for the consumer to advertise timeshare property in the manner necessary to get crucial national and international media exposure. The cost to advertise in USA Today with a minimum four-line, four-day classified ad is $1,136.
Credible Resale Services
In many instances, without timeshare resale specialists supporting the secondary market where individual owners can operate, resort foreclosure can be the end result. Projects must rely upon the owners paying maintenance fees to support its operations once the developer sells out the resort. A strong resale market is essential to the timesharing community. In order for the industry to thrive, timeshare owners must have access to credible outlets through which they can resell their property.
The ability to resell is critical for the industry to prosper. Today, there are several suitable timeshare resale assistance options available to timeshare owners.
Some of the more pro-active developers and Home Owners’ Associations (HOA’s) have resale programs available on site to accommodate their owners who want to sell. However, only about 40% of resorts offer on-site resale services. Most on-site resale service programs are not independent of the resort. The resort subsidizes such programs. The HOA on-site reseller may obtain free inventory to sell (repossessions and foreclosures) — thereby pocketing not simply a commission but the entire sales price. These on-site resellers receive the marketing advantage of access to renters, exchangers and those owners who desire to sell. Many on-site resellers require that the HOA provide office space, utilities and a high visibility location. Regrettably, this ìmarketing advantageî is actually paid for by the individual owners’ maintenance fees.
It creates a conflict of interest when a timeshare broker sells on his own behalf and at the same time, takes listings from owners.
A few real estate offices located near some of the timeshare resorts also offer resale services. These offices generate their income from the traffic going to and from the resort.
These two programs (on-site at the resort or in close proximity thereto) sometimes work but do not satisfy the demand. They can be credible, and they may produce some results. Sadly, they are limited to only certain resorts and certain locations. With the majority of U.S. timeshare resorts offering no on?site resale program, there is a huge unserved market.
Timeshare Reselling: Itís A Global Market
The international broker specializing in timeshare offers timeshare consumers resale assistance that corresponds to the global nature of the business, regardless of the location of the resort, the buyer or the seller.
To further illustrate the widespread geographical reach of timeshare, multi-state and international exchange programs are considered to be the number one motivating factor in new sales purchases. Following is a typical resale scenario: A resident from Canada buys a Florida timeshare property from a resident of California who also owns another timeshare located in Colorado that he purchased from a resident of New Hampshire. This sale scenario does not even address the residences of the other ten or twenty potential buyers that were solicited to effect this one sale.
The above example shows the interstate nature of the industry and the need for brokers operating on a national and international plane.
High Resale Marketing Costs
High marketing cost is one of the underlying problems associated with both timeshare resales and new sales. It is estimated that the marketing costs alone are over 40% of the new sales price paid by the consumer. Individual timeshare owners and the general public have a negative perception of these inordinately high marketing costs. This is one of the reasons developers elect not to become involved with resales. Timeshare buyers are not aware that the marketing costs are so high ñ until they try to resell their units. The developer’s 40-50% marketing costs on a $10,000 new timeshare sale often exceed the resale price.
The resale dilemma is further magnified by a sales technique commonly used by resort developers at the new sales table. Following is an example of this technique, referred to as ìthe drop.î The salesperson initially presents the property for $15,000. To increase the urgency for the consumer to buy, a manager is brought in to offer it for $10,000 ñ today only. This common practice increases the buyer’s motivation to purchase because it infers that the property is worth much more than the buyer is paying. This inflated perceived value of the timeshare, created by the developer’s sales team, is a tremendous problem throughout the industry.
The reality is that the owner’s false perception of the high market value of his property coupled with non-recoverable high marketing costs (which results in a lower resale price) has produced an almost untenable position for the timeshare owner wanting or needing to sell. The consequences of this reality are (a) the developer does not want to confront the owner with a resale program because the owner has become aware of the original distortion, and (b) without developer support or broker pooling of ownersí funds through registration fees, the traditional commission-only program does not work for the independent, non-subsidized secondary market.
Once an owner makes the decision to sell, the owner actually becomes a competitor with the developersí new sales in the open marketplace. Many developers view resales as unwanted competition and tend to avoid the entire resale issue. The developers have arbitrarily created a distinction between the new unit sale and the resale unit — when in most cases the only difference is the price the consumer pays. All timeshare units are new only the first night of the first ownerís stay. The next morning, the unit is no longer new. Vacation timeshare ownership is either deeded, right-to-use or club membership, which entitles the owner to the exact same product whether it is new or a resale. To limit competition for their new sales, the industry itself has developed programs and hybrids of the original product to inhibit resales outside of their resort network.
One means of inhibiting competitor resales is by penalizing the timeshare owners. This is accomplished by making the points and rewards programs non-transferable from the current owner to the new owner if sold by the individual owner or a broker. Bonus points and rewards are special benefits commonly associated with giving up use rights in exchange for hotel accommodations, rental cars or airline miles– similarly offered on credit card purchases or airline frequent flyer usage programs. These points and rewards programs generally are not published or recorded. They are, however, essential use aspects and benefits that may only be deemed transferable when sold through the developer. Unfortunately, the original purchaser typically misunderstands this major issue. These secret limitations are a source of ever increasing consumer complaints.
Often the developer creates policies that hinder an owner trying to resell through an independent broker. For instance, it would be illegal for a traditional real estate condominium project or subdivision to prohibit a bona fide owner from receiving his CC&Rs (Condominium Covenants and Restrictions) if he were reselling his property. In timeshares, this type of hindrance to resales is widespread.
Any Timeshare Developer with a negative attitude toward resales is a large part of the resale problem.
Timeshare Value Factors
As in traditional real estate, the desirability of a property for sale as well as the supply and demand for that property weighs heavily on timeshare valuation. However, this is where the similarity ends between traditional real estate and interval ownership price assessment. In traditional real estate, it would be difficult to find two similar properties where one sold for almost half the price of the other. Two houses located next door to each other, both in similar condition and size, and both built the same year by the same builder would not sell for $50,000 and $100,000, respectively. In the timeshare resale market, this scenario is common.
Standard comparative market analysis appraisal techniques can be questionable for timeshare, and there is currently no bank bluebook for timeshares.
Timeshare properties have value factors unique to the industry. These factors (e.g., season availability; exchange benefits; extraordinarily high marketing costs; types of ownership; area and project amenities; etc.) are unrelated to traditional real estate
Purchase value is determined by the following factors: (a) What a buyer is willing to pay and what a seller is willing to accept. (b) Seller inducement or motivation to sell (e.g. divorce, death of family member, financial hardship, or just being tired of using the unit, etc.) (c) An auction format that encourages buyers to bid against one another.
A good auction format is one that includes special sales incentives for its agents. These incentives help promote the highest marketable price, which in turn helps to prevent price erosion.
Since the resale market is diverse and the result of individual negotiation, it is impossible to predict the sales price of any specific interval.
If owners are limited in their options for resale assistance, it will literally feed the price erosion problem. Sellers can end up with their backs against the wall as a result of fruitlessly attempting to sell the unit themselves or trying to sell through an Internet bulletin board. These bulletin boards or advertising websites may provide a price list, photograph and general description of the property, but not the other essential services (e.g. consulting, negotiations, contracts, etc.) These bulletin boards and advertising websites actually increase price erosion and do not offer the consumer the professional assistance needed to complete negotiations. Procuring prospects is only one step in facilitating a sale. Contracts have to be prepared, escrow must be held, and ownership must be transferred and properly filed to assure the new ownerís usage. A licensed resale broker specializing in timeshare resale can represent the seller and perform all the services needed in a proficient manner.