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nickspace
05-29-2009, 03:24 PM
What do you think DVC contract prices will look like in 10-20-30 years? How will that impact DVC as a whole?

CarolA
05-29-2009, 04:12 PM
This is not a popular view but I expect that in the long term we will see a BIG decline. Right now prices are kept artifically high for timeshares by Disney's ROFR. If there are very few years left on the contract I don't expect Disney to keep "defending" the property and why would someone pay a lot of a short term ownership?

Mtnman44
05-29-2009, 04:45 PM
They are fixed term leases so the market value on the current crop of properties is guaranteed to go down over time.

stefanospops
05-29-2009, 05:09 PM
They are fixed term leases so the market value on the current crop of properties is guaranteed to go down over time.

Even Disney is careful to advise you that this is not to be treated as an investment, meaning points will depreciate over time.

JimMIA
05-29-2009, 05:49 PM
This is not a popular view but I expect that in the long term we will see a BIG decline. Right now prices are kept artifically high for timeshares by Disney's ROFR. If there are very few years left on the contract I don't expect Disney to keep "defending" the property and why would someone pay a lot of a short term ownership?
I think Carol's right.

As a matter of fact, I think they are necessarily letting ROFR slip quite a bit right now because of the economy. If the lesson learned from this year's experience is that their sales don't suffer much, I'd look for them to continue to relax ROFR until they see a negative effect on their "new" sales...which might not ever happen.

Nobody knows what resale prices will be a few years from now, but much lower-than-now prices certainly would not surprise me. We purchased DVC with the attitude that our initial purchase price was gone, never to be seen again. I think in a few years, people who expected to get 70-80% of their purchase price back will be in for a rude awakening.

alamode
05-29-2009, 06:27 PM
If anyone knows how to make money it's Disney. I can see new sections to existing resorts propping up interest (like SSR's treehouses), contract extensions like OKW, and future resorts both within Disney and in other key tourist places (like Hawaii and Washington DC). While the economy is currently lowering prices (I just sent in a contract for SSR today at $69/point), the economy is cyclical, and once Disney sees an uptirn coming, I'm sure they'll find many new ways to help us DVC members part with our money.

AKV707
05-29-2009, 06:33 PM
Clearly with the end date for each contract, the resale value will ultimately decline. I do also think that when the economy improves, Disney will exercise rofr again more frequently and in the short run, prices will increase.

With the end dates of BLT, AKV, and GCV, those values will take longer to decline.

Of course DVD could always offer extensions on more of the 2042 properties. Who knows.

JimMIA
05-29-2009, 06:49 PM
While the economy is currently lowering prices (I just sent in a contract for SSR today at $69/point), the economy is cyclical, and once Disney sees an uptirn coming, I'm sure they'll find many new ways to help us DVC members part with our money.I really doubt that DVC cares at all whether we get any of our money back. They care about profit. The only reason why they exercise ROFR is to maintain a more narrow gap between new prices and resale. If the incentive ever goes away, you'll see big differences in ROFR practices.

I can think of at least three circumstances which would cause DVC to either to reduce ROFR levels, or abandon ROFR entirely:

They build as many WDW DVC properties as they can, and therefore no longer need to support the WDW prices. They could simultaneously reduce the home resort booking advantage to one month, but keep the 4 month advantage at properties they were still selling or had just sold out. In that scenario, there would be little advantage to owning at WDW.
Their experience during this downturn tells them that ROFR is not really necessary -- that new properties justify their own high prices without ROFR support.
As we get closer to 2042, ROFR simply gets to be too much of a burden because they can't resell ROFR'd points for enough to make the process worthwhile.

DisneyWalker44
05-29-2009, 06:53 PM
If the lesson learned from this year's experience is that their sales don't suffer much, I'd look for them to continue to relax ROFR until they see a negative effect on their "new" sales...which might not ever happen. Disney's sales aren't affected by the price of contracts on the resale market. Just on the number of owners who choose to sell.

Opie100
05-29-2009, 07:43 PM
I always thought that ROFR was a way for Disney to make money vis-a-vis arbitrage selling to people on the waiting list (at a higher price). Am I wrong?

TammyAlphabet
05-29-2009, 07:47 PM
If points get really cheap, people will buy them just to exchange out for cruises.

Dean
05-29-2009, 07:48 PM
Disney's sales aren't affected by the price of contracts on the resale market. Just on the number of owners who choose to sell.Not necessarily true else there would be no reason for ROFR. DVD will sell more retail contacts if they can convey that the savings resale is relatively small comparatively and if they create uncertainty whether a given contract will pass ROFR. Certainly there is an inherent value with DVC that will prop up values to a degree. What ROFR does from a buyer standpoint is preclude the fire sale situations that we see with many timeshares.

This issue of value later in the contracts has come up a number of time. Based on length of contract, most RTU timeshares start to tail off when you get under 30 years. That decline is normally steady and gradual with no remaining value once you're within 2-3 years but it depends on specifics such as residual payments that may be pending. There have been a number of people on DIS that have argued prices would be much higher than expected due to the price of Disney rooms. I understand the logic but don't agree with it for the most part due to the uncertainty involved, maint fees and the closing costs. How many people have we seen that haven't bought DVC when it clearly made sense for them, they simply couldn't pull the trigger to buy or take the chance on the long term.

nickspace
05-30-2009, 07:34 AM
Disney's sales aren't affected by the price of contracts on the resale market. Just on the number of owners who choose to sell.

Excellent point!

nickspace
05-30-2009, 07:42 AM
There is also the issue of a person's life span. I think that Disney strongly took this into consideration when they initially planned out DVC. I know that when my SSR contract expires I will either be expired or only a few years away from heaven. By that time my contract will be winding down and it will not be an important issue for me. I will be close to 90 years old at that point.

As for my HH contract, which I am waiting to pass rofr, I pray that I will still be active when that expires.

DisneyWalker44
05-30-2009, 08:37 AM
Not necessarily true else there would be no reason for ROFR. DVD will sell more retail contacts if they can convey that the savings resale is relatively small comparatively and if they create uncertainty whether a given contract will pass ROFR.

If 100 people are selling their DVC contract, that's 100 contracts Disney won't sell out of inventory. Disney won't lose more than 100 sales even if resale prices plummet. Nor can Disney keep from losing the 100 by propping up resale prices. At best, Disney can ROFR a contract which means they lose one less sale to resale. But they now have one more contract to sell, so it doesn't help them sell inventory at all.

Resale prices are set by the size of the market. Not the other way around. There are many reasons Disney uses ROFR. Trying to stop the loss of sales to resale isn't one of them.

Dean
05-30-2009, 09:10 AM
If 100 people are selling their DVC contract, that's 100 contracts Disney won't sell out of inventory. Disney won't lose more than 100 sales even if resale prices plummet. Nor can Disney keep from losing the 100 by propping up resale prices. At best, Disney can ROFR a contract which means they lose one less sale to resale. But they now have one more contract to sell, so it doesn't help them sell inventory at all.

Resale prices are set by the size of the market. Not the other way around. There are many reasons Disney uses ROFR. Trying to stop the loss of sales to resale isn't one of them.Not necessarily. Not everyone who buys resale would have bought retail without the option of resale. And the very differential between resale and retail keeps some people out of the market for retail even if they don't buy. Certainly if there are only 100 contracts for sale, people can only buy 100 contracts at that time but there will be another 100 next month.

ROFR isn't about making money on the resale but about keeping the differential to a manageable level and to create uncertainty, both effectively driving a portion of those looking at resale to retail. Without these goals, there is no reason for ROFR. It's certainly not in any way for the owners protection. No doubt it's a method of competing with themselves and that is the downside if they do buy buack. For DVC, the resale price over the years has been determined mostly by market forces about half the time and by ROFR mostly about half the time. Right now we're in a period where it's somewhat in between but more market forces as DVC has not been buying up contracts as readily or at the same prices as before. Plus they have more high demand options for sale (BLT, AKV) compared to when it was mostly SSR.

DisneyWalker44
05-30-2009, 09:36 AM
Not necessarily. Not everyone who buys resale would have bought retail without the option of resale. But if we accept this scenario, then low resale prices actually help Disney. If there are 100 owners who want to sell, and prices are low enough to attract 50 bottom feeders, that takes 50 units off the resale market. Now instead of losing 100 sales from people willing to buy retail, Disney can only lose 50.

Certainly if there are only 100 contracts for sale, people can only buy 100 contracts at that time but there will be another 100 next month. And that's how many contracts Disney loses. Doesn't really matter what the price is. Right?

ROFR isn't about making money on the resale but about keeping the differential to a manageable level and to create uncertainty, both effectively driving a portion of those looking at resale to retail. But Disney can't drive people away from the resale market. If 100 people need to sell their contract, then there will be 100 contracts sold. Disney can't prop up resale prices to eliminate those sales. If Disney tries to prop up prices to pull in the resale buyers, what are the resale sellers going to do? Shrug their shoulders and say, "oh well, I guess I won't sell." No, they'll just lower prices until they sell.

Market equilibrium forces are powerful. If 100 people need to sell, prices will be driven to whatever level is necessarily to clear the market. ROFR can't make that go away unless Disney wants to buy up every contract (which doesn't do them any good.) By creating some extra demand, Disney can nudge the equilibrium price a bit, but that's about it.

Dean
05-30-2009, 10:02 AM
But if we accept this scenario, then low resale prices actually help Disney. If there are 100 owners who want to sell, and prices are low enough to attract 50 bottom feeders, that takes 50 units off the resale market. Now instead of losing 100 sales from people willing to buy retail, Disney can only lose 50.

And that's how many contracts Disney loses. Doesn't really matter what the price is. Right?

But Disney can't drive people away from the resale market. If 100 people need to sell their contract, then there will be 100 contracts sold. Disney can't prop up resale prices to eliminate those sales. If Disney tries to prop up prices to pull in the resale buyers, what are the resale sellers going to do? Shrug their shoulders and say, "oh well, I guess I won't sell." No, they'll just lower prices until they sell.

Market equilibrium forces are powerful. If 100 people need to sell, prices will be driven to whatever level is necessarily to clear the market. ROFR can't make that go away unless Disney wants to buy up every contract (which doesn't do them any good.) By creating some extra demand, Disney can nudge the equilibrium price a bit, but that's about it.I don't think we're far off our thinking but simply talking fine points here. There are those that would not buy except for the lower resale prices, we'll agree these do not affect DVC's retail sales directly though they still could indirectly. I think you're assuming that all contracts offered for sell will actually sell retail which is not true. There are many who never list due to info including the lower prices compared to what they paid, some contracts simply don't sell and a certain percentage will be bought ROFR which prevents at least one resale buyer each time, likely more because of behavior modification involved. I think you far underestimate the power of ROFR when used aggressively and DVD has used it aggressively at times, the rest of the time it simply prevents fire sales. Westgate has used ROFR to the point where many resale companies have refused to even list their units by insisting they get a sales commission as if they had listed them and by forcing ROFR rights where none legally existed.

Actually I think DVD CAN drive people away from resale with ROFR and it's uncertainties as well as draw them away by offering incentives, easy financing, comfort and likely the largest weapon, that many don't even know the resale option exists until they've already made up their mind. Certainly there are a lot of other weapons DVD could employ, the largest group of which would be related to not allowing resale members access to certain perks that are above the contractual obligations.

Given you don't think ROFR has much or any long term affect on retail sales or prices and it seems we agree they don't really make any money on those ROFR options purchased, what do you feel the purpose of ROFR is?

DisneyWalker44
05-30-2009, 11:11 AM
I think you far underestimate the power of ROFR when used aggressively and DVD has used it aggressively at times, the rest of the time it simply prevents fire sales. Westgate has used ROFR to the point where many resale companies have refused to even list their units by insisting they get a sales commission as if they had listed them and by forcing ROFR rights where none legally existed. I was actually thinking through such a scenario. Disney could just ROFR every contract until all the major DVC resellers are out of business. They could get around market forces by destroying the market.

Given you don't think ROFR has much or any long term affect on retail sales or prices and it seems we agree they don't really make any money on those ROFR options purchased, what do you feel the purpose of ROFR is? 1) People like it; they think it protects their investment. It doesn't matter whether it has as big an effect as people think. As long as people believe it does, it makes owning DVC more attractive.

2) It provides for an orderly resale market. While I strongly believe equilibrium forces set overall market prices, it can be messy. Disney/ROFR greatly smooths things out and ensures that most trades happen within a fairly narrow band. An orderly secondary market makes DVC more attractive.

3) This is minor, but Disney needs points for various reasons. ROFR is a good mechanism to get them.

Dean
05-30-2009, 11:26 AM
I was actually thinking through such a scenario. Disney could just ROFR every contract until all the major DVC resellers are out of business. They could get around market forces by destroying the market.

1) People like it; they think it protects their investment. It doesn't matter whether it has as big an effect as people think. As long as people believe it does, it makes owning DVC more attractive.

2) It provides for an orderly resale market. While I strongly believe equilibrium forces set overall market prices, it can be messy. Disney/ROFR greatly smooths things out and ensures that most trades happen within a fairly narrow band. An orderly secondary market makes DVC more attractive.

3) This is minor, but Disney needs points for various reasons. ROFR is a good mechanism to get them.Could they fund such a move to corner the market given the dollars involved, I doubt it. Also, buying them all up wouldn't kill the resale market, if anything it'd increase it. They'd have to make it onerous as did Westgate to actually kill the market and the fall out for them has likely been far worse than if they'd simply smiled and waived. It has hurt them in so many ways that you could not have imagined. It's actually advantageous to a resale agent to have ROFR because they get double commissions often (on the ROFR and on the replacement one). Interesting approach though. I think in number 2 your saying much the same thing I have been saying, that it's perception as much as the reality. Thanks for an interesting conversation, it's good to have someone willing to discuss the nuts and bolts of some of the nuances involved, there aren't many here willing or interested in doing so and what I prefer to do over the frilly stuff that generally comes along.

arthur06
05-30-2009, 12:30 PM
IMO, as Disney keeps adding more properties, the price will fall. The fewer the properties the more Disney would protect the exclusivity of the DVC. And, in the early years there weren't nearly as many resales. The more owners, the more resales.

Once the initial purchase is made, why does it matter to Disney who pays the MF's? Disney is in the market to mass produce a DVC to as many owners as possible.

One of the biggest reasons I bought DVC (I bought resale), was that I knew if I ever wanted to sell it, there would be a buyer. Even if I have to be cheap, and Disney snatches it up, it still sells.

Dean
05-30-2009, 07:23 PM
IMO, as Disney keeps adding more properties, the price will fall. The fewer the properties the more Disney would protect the exclusivity of the DVC. And, in the early years there weren't nearly as many resales. The more owners, the more resales.

Once the initial purchase is made, why does it matter to Disney who pays the MF's? Disney is in the market to mass produce a DVC to as many owners as possible.

One of the biggest reasons I bought DVC (I bought resale), was that I knew if I ever wanted to sell it, there would be a buyer. Even if I have to be cheap, and Disney snatches it up, it still sells.We haven't seen evidence of your first point. I would concur that off property options carry that risk far more than those at WDW/DL. Numbers available at a given resort will affect prices somewhat as will size of the resort, price paid by the seller, maint fees and RTU expiration. Thus far we haven't seen overall numbers alone affect the issue but I'm sure in the extremes it would but I think we have seen lower demand locations (SSR) affect price to a degree. Each and every resale contract that is actually sold is one that could have been a retail purchase so each one is a loss. The dues don't go to DVD but rather to DVC and if they have non performing contracts, it's the members that pick up the tab, not Disney or DVD itself. DVD could care less other than as it affects the overall press and health of the system.

Goofy DVC
05-30-2009, 09:09 PM
I guess I like to dumby things down. The entire ROFR process is about one thing and one thing only. Economics 101: The laws of SUPPLY AND DEMAND.To me, that rule answers all the questions about ROFR.

AKV707
05-30-2009, 09:37 PM
Jumping in with a few points as I see them.

I agree that ROFR gives us the perception of some value security. It is mentioned by guides at the time of an initial purchase, and even though a new buyer is not thinking about selling, rofr gives them some comfort that what they are spending will not evaporate too quickly.

It is in Disney's interest to exercise rofr when needed. As Dean has said, it can help to drive more traffic to a direct purchase rather than a resale. But if resale prices fall far below retail as they are now, it makes the buyers decision to go resale easier. For example, buying OKW direct is $101 per point. OKW resale is around $70 per point. A $31 difference. Clearly the market is driving the price. But when the economy improves, isn't it in Disney's business to use rofr to push the resale prices higher? They are likely making almost no money right now on direct add ons at the "sold out" resorts because the difference in price is so huge.

So I do believe that as the economy improves they will once again use rofr more often.

As an AKV owner, with no interest in BLT, I am interested in eventually a BWV add on. We love the F&W and we love the BWV. So, wouldn't DVC and my guide prefer I buy from them? Provided I found a resale contract in my UY with the right amount of points, right now there is no reason to buy direct.

Since people will not always be solely interested in new properties, I think DVC will use rofr to make the convenience of a direct purchase, where you can get your use year, the exact number of immediately available points, and easy financing (if you want it) attractive even at a higher price than resale.

Without rofr, they will convince almost no one to buy an older resort directly. That would have to be an income loser at some level.

Dean
05-30-2009, 10:22 PM
So I do believe that as the economy improves they will once again use rofr more often.Certainly, no doubt there are some economic realities here. It takes money to absorb those points by buying ROFR and I said earlier, DVD is actually competing with itself on the sales side when it does so. I'd estimate the spread has to be around $20 a point for them to break even if $$$ alone were the issue, it's not as I pointed out earlier. However, it's much easier to absorb a contract you can sell again in a couple of weeks as a sale that wouldn't have happened otherwise than 10 you may not be able to sell for a year or two or even more at a resort you have a lot of inventory at. Don't you think you can buy a GM car from certain dealers right now very cheaply.

gkrykewy
05-31-2009, 10:22 AM
In the short (post-downturn) to medium term, I would expect resale prices of sold-out resorts to increase at least at the rate of inflation; higher if cash rooms rates increase at a faster pace. In the very long term as contracts approach expiration, obviously values will decline significantly.

This assumes that broader events (such as energy shocks) don't endanger the entire WDW operation.

WilsonFlyer
05-31-2009, 11:02 AM
If points get really cheap, people will buy them just to exchange out for cruises.

I don't recall seeing anyone respond specifically to your post.

Remember that DCL is not DVC and they set (albeit negotiate to an extent since everything inside Disney proper is certainly incestual to an extent anyway) the exchange rates for points to cruises. Same is true for on-site non-DVC hotels. They won't allow exchange rates that effectively kill their own cash business.

We have already seen points trade-outs increasing over time. This trend will likely continue (with adjustments for economic conditions) and the curve will likely increase with respect to cash dollars to cruise points.

Remember that these trade-outs were never promised to you long-term. Expect them to disappear completely as we near the end of the lease terms due to the overall value loss to the entity allowing trade-in.

This whole concept of an expiring lease on a timeshare is going to be interesting to watch transpire as we approach lease ends and not just because of resale prices. There are a lot of things that will be impacted. Has any company actually been through lease expiry or will Disney be the first? (Dean, all?) Hmmm...

I suspect that Disney's intent was to always continue to extend the contracts indefinately (and to milk dollars for it over time) to keep any of the above from happening but after what was apparently somewhat of a debackle over the OKW extensions, it is my opinion that Disney is going to have to figure out a way to extend the leases and make sure that virtually everyone is a taker, even if that means extending them for dues only or some very insignificant charge.

Fortunately (and intentionally, I'm sure), Disney has learned early on what not to do (OKW extensions). My bet is they are hard at work on a second plan even as we discuss this. ;)

AKV707
05-31-2009, 12:40 PM
Fortunately (and intentionally, I'm sure), Disney has learned early on what not to do (OKW extensions). My bet is they are hard at work on a second plan even as we discuss this. ;)

Interesting point. I do think they will attempt to extend the 3042 contracts. I also agree that they have to do it better than OKW. It will be interesting. IF they don't, imagine what could happen.

DisneyWalker44
05-31-2009, 01:25 PM
I suspect that Disney's intent was to always continue to extend the contracts indefinately Another option would be for Disney to slowly start buying back most of the contracts.

I honestly think Disney doesn't know what it's going to do. The world, Disney and DVC could all be very different 30 years from. Until they see how things are going, they can't know what the best option is.

Disney knows they are going to have to do something. It will be chaos to have the whole think come to a sudden stop - one day working, they next day gone. But they can put this on the shelf as something to start thinking about in 2035 or so (conveniently, when done of the current DVC bigwigs will be there.)

DisneyWalker44
05-31-2009, 01:26 PM
I do think they will attempt to extend the 3042 contracts. Not me. A thousand and fifty years is enough for any resort :)

arthur06
05-31-2009, 02:07 PM
There was a post earlier today by DVCMike with a link to an Orlando Sentinel article that said DVC's profit for fiscal year was $190 million.

Disney knows what they are doing. It is far to large for Disney to just sort of wing it. Disney has a plan, whether it works or not is a different story. They are expanding outside of WDW, so those results are still to be determined.

I would suspect that many/all of the 2042 resorts will offer an extension. If Disney decided not to offer extensions on those properties there will be a lot of "homeless" owners out there. Disney IS the draw for central Florida. I know that if Disney wasn't there, I would have never been there. And, if the 2042 resorts were to go away, then there would just be some other timeshare step in to try to get your money. And, we all know Disney wants your money.

The more ambitious Disney gets with future projects, the more I feel "safe" with my decision to purchase. Regardless of what DVC does, I know myself, wife, and kids will have a lifetime of memories.

CarolA
05-31-2009, 02:19 PM
There was a post earlier today by DVCMike with a link to an Orlando Sentinel article that said DVC's profit for fiscal year was $190 million.

Disney knows what they are doing. It is far to large for Disney to just sort of wing it. Disney has a plan, whether it works or not is a different story. They are expanding outside of WDW, so those results are still to be determined.

I would suspect that many/all of the 2042 resorts will offer an extension. If Disney decided not to offer extensions on those properties there will be a lot of "homeless" owners out there. Disney IS the draw for central Florida. I know that if Disney wasn't there, I would have never been there. And, if the 2042 resorts were to go away, then there would just be some other timeshare step in to try to get your money. And, we all know Disney wants your money.

The more ambitious Disney gets with future projects, the more I feel "safe" with my decision to purchase. Regardless of what DVC does, I know myself, wife, and kids will have a lifetime of memories.

How can we be "homless" owners? In 2042 my "ownership" goes away. I won't be an owner.

I don't expect more extensions. Those who tried to sue etc over the last one because Disney had to comply with Florida law proably saw to that LOL!

Even if they do, I won't extend so... poof!

CarolA
05-31-2009, 02:22 PM
I guess I like to dumby things down. The entire ROFR process is about one thing and one thing only. Economics 101: The laws of SUPPLY AND DEMAND.To me, that rule answers all the questions about ROFR.

I don't agree.

As a general rule the laws of SUPPLY AND DEMAND on timeshares say that prices DROP like a rock. ROFR creates an "artifical" base price IMHO and if it's gone then we go to true supply and demand and then we know... until it goes away we don't.

You can look at the Marriott properties. Some of them have a ROFR and some don't. Pricing on resale is higher on those that do..... Same "product" and should be same "supply/demand" (in some cases these products are very close to each other for example)

Brian Noble
05-31-2009, 03:50 PM
Carol, you can't generalize from other systems to Disney, because each is different. Starwood hasn't used ROFR for years (or doesn't have it, depending on the resort), yet quality Starwood properties in high-demand/low-supply places maintain respectable resale prices. Properties in overbuilt locations with lots of competing options haven't.

You can look at the Marriott properties. Some of them have a ROFR and some don't.
My take is different---prices are lower on properties that Marriott doesn't exercise. But, those properties are primarily older, and in locations where better options exist. Sometimes, those better options are newer Marriott properties. Still looks like supply/demand to me.

I've read a couple of economic analyses of ROFR. The value is generally to the rightsholder, not the person who bargains away the right---in other words, Disney wins at the expense of the seller. Effectively, the rightsholder is exempt from having to competitively bid, and that depresses prices slightly comapred to what they would be if Disney had to bid competitively. The fact that ROFR prices are "known" limits that effect somewhat, and if information about Disney's bid price were perfect and public, the effect would go away (because then they'd be competitively bidding again.)

What ROFR does do is ensure that Disney gets first crack at any transactions at below-market prices that arise due to the inefficiency of the market. It doesn't increase prices if the market is efficient. It also increases efficiency in an inefficient market (exposing the transactions to a new bidder) and that does tend to increase prices somewhat.

But, the positive effect of ROFR to the seller is only to the extent that it makes an inefficient resale market more effecient. As time goes forward, and these markets are easier to establish and information about them becomes more widely known, any positive *or* negative effect goes away, and the price settles at its supply/demand equilibrium.

DisneyWalker44
05-31-2009, 04:36 PM
As a general rule the laws of SUPPLY AND DEMAND on timeshares say that prices DROP like a rock. Huh? I don't see the supply and demand logic that would give timeshares magic propertics that cause resale prices to fall like a rock.

Not all timeshares drop like a rock. When the do, it's some combination of

- rules that make resales less valuable
- high pressure sales techniques that get people to pay a lot more than the timeshare is worth in the first place.

Absent that, there is no reason for timeshare prices to collapse just because they are a timeshare. If the management company treats retail and resale owners the same, and sells the timeshare for a fair price in the first place, the timeshare should retail a reasonable amount of value.

CarolA
05-31-2009, 04:57 PM
Huh? I don't see the supply and demand logic that would give timeshares magic propertics that cause resale prices to fall like a rock.

Not all timeshares drop like a rock. When the do, it's some combination of

- rules that make resales less valuable
- high pressure sales techniques that get people to pay a lot more than the timeshare is worth in the first place.

Absent that, there is no reason for timeshare prices to collapse just because they are a timeshare. If the management company treats retail and resale owners the same, and sells the timeshare for a fair price in the first place, the timeshare should retail a reasonable amount of value.


And don't you think that in 15 to 30 years the value of a Disney "original" end use time share has a "reason" to collapse. As in "you are buying an expiring asset. I expect by the last five years you won't be able to GIVE the things away!

DisneyWalker44
05-31-2009, 05:36 PM
And don't you think that in 15 to 30 years the value of a Disney "original" end use time share has a "reason" to collapse Collapse? No.

I expect resale prices to gradually go down as we get closer to 2042.

nickspace
05-31-2009, 06:13 PM
There was a post earlier today by DVCMike with a link to an Orlando Sentinel article that said DVC's profit for fiscal year was $190 million.

Disney knows what they are doing. It is far to large for Disney to just sort of wing it. Disney has a plan, whether it works or not is a different story. They are expanding outside of WDW, so those results are still to be determined.

I would suspect that many/all of the 2042 resorts will offer an extension. If Disney decided not to offer extensions on those properties there will be a lot of "homeless" owners out there. Disney IS the draw for central Florida. I know that if Disney wasn't there, I would have never been there. And, if the 2042 resorts were to go away, then there would just be some other timeshare step in to try to get your money. And, we all know Disney wants your money.

The more ambitious Disney gets with future projects, the more I feel "safe" with my decision to purchase. Regardless of what DVC does, I know myself, wife, and kids will have a lifetime of memories.

Great Thought!

nickspace
05-31-2009, 06:17 PM
And don't you think that in 15 to 30 years the value of a Disney "original" end use time share has a "reason" to collapse. As in "you are buying an expiring asset. I expect by the last five years you won't be able to GIVE the things away!


I do not agree because that all depends on what Disney does in the period leading up to that time. I am also sure they will offer add on's before we get to that point.

Dean
05-31-2009, 06:30 PM
If the management company treats retail and resale owners the same, and sells the timeshare for a fair price in the first place, the timeshare should retail a reasonable amount of value.But that's the rub. Few companies treat resale owners the same and actually none sell for what would be a truly reasonable price up front and that includes DVC at the present time, IMO. Certainly companies like Disney, Marriott, Hilton, Hyatt, Westin and the like come the closest overall; one can argue which ones do better overall. There are many reasons and much of it is lack of knowledge and understanding of the product by the masses and inflated prices by the development company (not management company). There is a wide spread from those companies I mentioned above to many of the rest as a generalization.

Brian Noble
05-31-2009, 09:05 PM
Not all timeshares drop like a rock. When the do, it's some combination of

- rules that make resales less valuable
- high pressure sales techniques that get people to pay a lot more than the timeshare is worth in the first place.
There's a third reason: the resale market is horribly inefficient, in an economic sense. Not many potential purchasers understand it well, and that limits demand---selling into this small demand is a tar pit for any but the most valuable weeks.

Timeshare is generally an impulse purchase---few people make deliberate decisions about purchasing, and almost no one does this for their first purchase. The average first-time purchaser also knows very little about resale, and even those who already own often have little or no idea that the resale market exists.

The spread between developer and resale prices seen in most current developments would largely disappear tomorrow if timeshare purchasers were a more educated lot. Note that that doesn't mean developer prices would collapse to resale---rather, they'd meet a lot closer to the middle. Developers wouldn't have to spend the enormous sums of money on marketing to get people to understand the product, reducing their costs. At the same time, larger exposure of the resale market to the buying public necessarily increases resale prices.

As to whether that ever happens...well, your guess is as good as mine. But, right now, we are living in a gilded age from the resale buyer's perspective. There is an enormous supply of high-quality intervals available for purchase, and there are more, not less, in the current economic climate. I wish I had the time to make use of more of them, but I've probably got one week too many.

arthur06
05-31-2009, 09:39 PM
Timeshare is generally an impulse purchase---few people make deliberate decisions about purchasing, and almost no one does this for their first purchase. The average first-time purchaser also knows very little about resale, and even those who already own often have little or no idea that the resale market exists.

My mother fell into this trap on her last vacation. Her and my step dad went to San Francisco in March. On that trip they bought Shell Vacations (don't know anything about them). They paid $8500 for what they got. I looked on ebay after she told me, and I could get more then what they got for $1 + closing costs. All my mom could talk about was "what a great deal they got". $400 Visa card, a SF Bay Cruise, a 2 day on/off bus tour of SF, and $100 worth of Fisherman's Wharf gift cards.

I love my mom, but she is a sucker when it comes to purchases like this. Completely clueless, no clue about the actual value, no understanding of a timeshare system, ect.

I know that it will become my problem when she feels overwhelmed and unsatisfied with what they bought. Then the bitter realization of her purchase being basically worthless.

I really don't care if my Disney TS ever yields a resale return. I feel like I was knowledgeable, educated and informed when I purchased. I studied for close to a year. We travel to Disney regularly and if all I get is years of Disney vacations, thats fine with me.

DisneyWalker44
06-01-2009, 07:55 AM
But that's the rub. Few companies treat resale owners the same and actually none sell for what would be a truly reasonable price up front and that includes DVC at the present time, IMO. It think Disney's prices are pretty close to reasonable right now. I just did an add-on. New points from Disney made as much economic sense to me as resale. If we assume the resale market is fairly priced, I think it retail market is too (or at least pretty close).

JimC
06-01-2009, 08:16 AM
But that's the rub. Few companies treat resale owners the same and actually none sell for what would be a truly reasonable price up front and that includes DVC at the present time, IMO. Certainly companies like Disney, Marriott, Hilton, Hyatt, Westin and the like come the closest overall; one can argue which ones do better overall. There are many reasons and much of it is lack of knowledge and understanding of the product by the masses and inflated prices by the development company (not management company). There is a wide spread from those companies I mentioned above to many of the rest as a generalization.

Dean, I attribute that spread to the solid reputations those top tier companies have already earned in the lodging/leisure markets -- they simply do not want to risk their reputations with poor offerings. Would you agree?

The top tier may cost more to buy and own, but there is less risk as well.

Mtnman44
06-01-2009, 12:49 PM
When there are more for sale than people buying, the price is going to go down. That fact that DVC excercises ROFR does not change this. DVC cannot ROFR more contracts than they can reasonably expect to resell or otherwise convert to revenue. Hence, even with ROFR, demand influences the price.

I think we've seen even the ROFR threshold pushed downward. Contracts are passing in the $70's where a year ago that would have been unheard of.

jana
06-01-2009, 03:39 PM
While the current slowdown is hitting the resale ( and primary) market a little, the long term price is going to be directly affected by the future price for Disney hotels as much as( IMHO more than) what similar timeshare products are being sold at.

DVC is almost unique in the timeshare market because there is an immediate and obvious pricing equal (disney hotels) . Whether or not people want to use in 1,2 or 3 bedrooms is a matter of individual preference, however a studio to a hotel room is easy to equate. Now if there is no inflation in the US ( or hotel rates) then obviously the value of resales will decrease because the cost of the equivilent hotel rentals will decrease as years drop away.

If in 2030 say hotel rooms at moderates are $600 a night (not a stretch with moderate inflation) . A stay inferior to a 10 day DVC stay is a $6,000 cost ( a delux stay is going to be $10-12k minimum). 12 years at 6k a yr is $72,000 . Dues cost by then (given history) may be around per year $2000-2500 so 12 yrs of dues 24,000-30,000 . Makes a difference in costs of 42-48,000 . What percentage saving will people need to make DVC worthwhile? I would say $20k still looks reasonable.

Another point to this is that one of the fears/concerns over "in perpetuity" timeshares is that there will be , at some stage, be major reassessment/rebuild costs. If you buy a 30-40 year old Timeshare you run a very real risk that next year ( or some time soon) you could get a large reassessment fee and have the choice of paying it, or losing whatever you put in to buy it. With DVC fixed end date that shouldn't be an issue , making it less of a gamble. Supply and demand is a powerful motivator, but so is risk and reward. If the reward is a $30,000 saving with virtually zero risk it looks a good bet. By contrast an "in perpetuity" Timeshare with the risk of a $50-100k+ reassessment fee doesn't look so rosy.

IMHO what many people overlook is that generally people price "value" of any timeshare purchase to current ( next 10 years ) costs. In order to calculate a future value of a timeshare it is necessary to also calculate what the cost of similar accommodation will be at the same point in the future. As long as dues fees are less than 50% of the cost of a similar stay at a Disney hotel there will be a residual value to DVC , the bigger the difference between dues and hotel cost the larger the value of a DVC contract

JMHO

nickspace
06-01-2009, 04:17 PM
My mother fell into this trap on her last vacation. Her and my step dad went to San Francisco in March. On that trip they bought Shell Vacations (don't know anything about them). They paid $8500 for what they got. I looked on ebay after she told me, and I could get more then what they got for $1 + closing costs. All my mom could talk about was "what a great deal they got". $400 Visa card, a SF Bay Cruise, a 2 day on/off bus tour of SF, and $100 worth of Fisherman's Wharf gift cards.

I love my mom, but she is a sucker when it comes to purchases like this. Completely clueless, no clue about the actual value, no understanding of a timeshare system, ect.

I know that it will become my problem when she feels overwhelmed and unsatisfied with what they bought. Then the bitter realization of her purchase being basically worthless.

I really don't care if my Disney TS ever yields a resale return. I feel like I was knowledgeable, educated and informed when I purchased. I studied for close to a year. We travel to Disney regularly and if all I get is years of Disney vacations, thats fine with me.

The great thing about buying resale is that it shakes out the true value of the product.

arthur06
06-01-2009, 04:54 PM
DVC is almost unique in the timeshare market because there is an immediate and obvious pricing equal (disney hotels) . Whether or not people want to use in 1,2 or 3 bedrooms is a matter of individual preference, however a studio to a hotel room is easy to equate. Now if there is no inflation in the US ( or hotel rates) then obviously the value of resales will decrease because the cost of the equivilent hotel rentals will decrease as years drop away.


JMHO

To me, more then the "equal" hotel, is the fact that a DVC timeshare comes with, albeit at an added cost, Disney. I am not super familiar with a lot of different timeshares, but any week in Orlando is a RED week in many systems. Nobody can compete with DVC, simply because of the location. Tell me any timeshare that will ever be as close to MK as BLT, Epcot as BWV & BCV, and AK as AKL. NONE!

Disney is the demand! There will never be an equivalent timeshare simply because of the Disney Parks.

To me, one of the biggest draws to a DVC was that they do expire. It was DW and I's choice to buy DVC, if my kids don't want it, it should be strapped to them for life.

If your family is a habitual Disney vacationer, then in approx. 7 vacations, it has paid itself off. Any value it may have after that point is icing on the cake!

jana
06-01-2009, 05:32 PM
Arthur I think you and I basically agree. Perhaps I didn't explain myself well enough. The "equal" I am talking about is that you can compare a Disney timeshare with a similar Disney hotel that has transparent pricing. Very few alternative timeshares have "regular rentals" usually they are discounted but come with the demand for taking a hard sell presentation. IMHO that heavy discounting/give away pricing lowers the perceived value of the product.

Again we seem on the same page, if people can see they break even in 4-6 trips there will, IMHO, be plenty of people happy to purchase DVC with 12 years left to run if it shows a good saving

littlestar
06-01-2009, 06:01 PM
To me, more then the "equal" hotel, is the fact that a DVC timeshare comes with, albeit at an added cost, Disney. I am not super familiar with a lot of different timeshares, but any week in Orlando is a RED week in many systems. Nobody can compete with DVC, simply because of the location. Tell me any timeshare that will ever be as close to MK as BLT, Epcot as BWV & BCV, and AK as AKL. NONE!

Disney is the demand! There will never be an equivalent timeshare simply because of the Disney Parks.



True - if you want to go to Disneyworld every year, the location is tops for visiting the Disney parks. And I think the theming of the DVC resorts is terrific. That's why we own DVC points (besides our other timeshares) to make sure that we can stay on property once a year.

But, when Disney ventures outside of the parks, they don't have an edge anymore. The quality is not quite up to some of the other major brands we've stayed at - like Marriott or Westin. It will be interesting to see if they can compete without the parks to fall back on.

Dean
06-01-2009, 06:32 PM
It think Disney's prices are pretty close to reasonable right now. I just did an add-on. New points from Disney made as much economic sense to me as resale. If we assume the resale market is fairly priced, I think it retail market is too (or at least pretty close).I think they are over priced by 20-30% at least but then I don't get the CM discount.

Dean, I attribute that spread to the solid reputations those top tier companies have already earned in the lodging/leisure markets -- they simply do not want to risk their reputations with poor offerings. Would you agree?

The top tier may cost more to buy and own, but there is less risk as well.I think there are many reasons. I personally think the reputation thing is overplayed. I think one difference is good business sense to have a good long term overall plan, not just sell using a boiler room and get out. And I think a large one is perception on the part of the buyer assuming they are getting more than they are because it's Disney, Marriott, etc.

When there are more for sale than people buying, the price is going to go down. That fact that DVC excercises ROFR does not change this. DVC cannot ROFR more contracts than they can reasonably expect to resell or otherwise convert to revenue. Hence, even with ROFR, demand influences the price.

I think we've seen even the ROFR threshold pushed downward. Contracts are passing in the $70's where a year ago that would have been unheard of.Chicken or egg question. DVC is not doing ROFR as much and there's the economy. IMO, the factors are about equal in effect and certainly are both related. We can argue which is the larger if we wanted.

IMO, there has always been minimal interaction and impact on DVC prices based on room prices. I think MOST people have overestimated this impact over the years. Certainly there is some impact but not that much.

nickspace
06-02-2009, 09:22 AM
What do you think DVC contract prices will look like in 10-20-30 years? How will that impact DVC as a whole?


These responses are all excellent but I don't think we have answered the original question. Where do you see the prices being at these time intervals? Will some resorts continue to fall while other resort hold their value? Maybe the original question was too broad so let make 2025 our constant. What do you think the resort values will be in the year 2015?

Brian Noble
06-02-2009, 10:02 AM
This is really hard to say---but, I'm guessing this also isn't your ultimate question. Are you trying to decide whether or not to buy? To add on? To sell now or later?

nickspace
06-02-2009, 03:06 PM
Clearly with the end date for each contract, the resale value will ultimately decline. I do also think that when the economy improves, Disney will exercise rofr again more frequently and in the short run, prices will increase.

With the end dates of BLT, AKV, and GCV, those values will take longer to decline.

Of course DVD could always offer extensions on more of the 2042 properties. Who knows.
:fish::fish::fish::fish::fish:

Did that help the OKW values or not?

nickspace
06-02-2009, 03:10 PM
This is really hard to say---but, I'm guessing this also isn't your ultimate question. Are you trying to decide whether or not to buy? To add on? To sell now or later?

No I already own at SSR and have a contract pending ROFR at HH. Eventually I would like a third contract but I really don't need that right now. I would like to have one nice contract for each of my three children to use as they get older.

I am just posing this question as a matter of interest and not really as a matter of concern. I find all the different ideas very interesting and beneficial to read... and fun too. :)

Brian Noble
06-02-2009, 03:38 PM
Did that help the OKW values or not?
Based on my quick skim of the completed ROFR numbers, extended contracts are not worth much more on the resale market---a little, but not as much as anyone paid. SSR is also selling at close to par with OKW at the moment. So, it looks to me as though expiration date is not being considered strongly by the market at this time.

Eventually I would like a third contract but I really don't need that right now.
I expect some recovery in prices in the medium term as the economy recovers. I expect some of the older resorts will continue to drop in the long term as newer and shinier resorts continue to get built---for example, I expect VWL may well take a hit as BLT starts becoming available in larger numbers resale. I expect there will eventually be a divergence between SSR and OKW-unextended, but I couldn't say when.

I also think Disney is going to have a tough row to hoe with Hawaii, and an even tougher one with National Harbor (assuming there are units there) and that resales at both might be pretty inexpensive.

nickspace
06-02-2009, 04:47 PM
[QUOTE=Brian Noble;32099322]Based on my quick skim of the completed ROFR numbers, extended contracts are not worth much more on the resale market---a little, but not as much as anyone paid. SSR is also selling at close to par with OKW at the moment. So, it looks to me as though expiration date is not being considered strongly by the market at this time.

So does this mean that if Disney offers extensions at other resorts it would not be worth buying the extension? I think this idea that Brian raises merits a new thread.

Mtnman44
06-02-2009, 05:32 PM
Unless it is handled and priced differently, it is NOT a good deal to extend contracts. I preached this as much as I felt appropriate back when everyone was discussing the OKW decision.

If you already own a resort, paying $15 per point now to add 15 years to the end of your contract is a bad deal financially. People that did extend did so for personal satisfaction or emotional benefit that they received in having a contract that lasted longer. They paid a huge price for that. Nothing wrong with that, people can do what they want with their own money.

I would consider it if the price were down in the $5 per point range...maybe.

5forDiz
06-02-2009, 05:59 PM
Agree with Mntman44.....if OKW extension was $5 per point we would have done it - DH in particular was put off with $15 per pt, said he would have agreed to $5 max with extension paid in installments over 12 months ~ so for a little more than double monthly MF charge it would get you extension ( DH felt that majority of OKW owners, even those who own rather large contracts would have opted in if it was done this way and it'd still amount to a win for DVD). Also, at same time extension was announced DVC's newest AKV is selling with 2057 expiration and SSR also with 2054 expiration (which is close enough to 2057) so I really don't understand how Disney thought $15 per point was going to be embraced :confused3

Believe me DH & I thought on the decision a long time because we truly love our OKW home & we thought about what it would mean for our kids too but, for our family, in the end we just couldn't make 'sense' (for lack of a better word) out of spending $15 per point to extend and it makes even less sense now in our humble opinions now that it is up to $20 per pt (or is it even at $25 now?) to extend. Like pp states, we decided we'd put $ we would have paid to extend to purchase additional points we can use now and in the near future.

I don't mean to sound like I'm being critical of OKW owners that bought extension, I'm not. Just saying what our thoughts and decision came to be.

:goodvibes

Dean
06-02-2009, 07:41 PM
So does this mean that if Disney offers extensions at other resorts it would not be worth buying the extension? I think this idea that Brian raises merits a new thread.We'd had such threads both in general and as it pertains to OKW. I think many of us felt like that $15 was too much, $10 per point was likely the ceiling for reasonable participation in an extension and to get a truly good turnout, more in the $5-6 range pp tops. Even with the high pressure tactic, it appears to be less than 50% opted in. The problem is they've set a precedent and their pretty much stuck with it. IMO, they didn't have the legal authority for a special assessment for such an issue. If I had still owned OKW at the time, we'd have found out for sure.

5forDiz
06-02-2009, 08:47 PM
We'd had such threads both in general and as it pertains to OKW. I think many of us felt like that $15 was too much, $10 per point was likely the ceiling for reasonable participation in an extension and to get a truly good turnout, more in the $5-6 range pp tops. Even with the high pressure tactic, it appears to be less than 50% opted in. The problem is they've set a precedent and their pretty much stuck with it. IMO, they didn't have the legal authority for a special assessment for such an issue. If I had still owned OKW at the time, we'd have found out for sure.


Isn't there a suit pending challenging legality ? seem to recall something like that; if so depending upon that outcome wonder how that will impact possible extension plans for other resorts :confused3

Dean
06-03-2009, 06:04 AM
Isn't there a suit pending challenging legality ? seem to recall something like that; if so depending upon that outcome wonder how that will impact possible extension plans for other resorts :confused3I hope so. I know there was a planned action about the dues issue but am not certain if there's an action about the SA issue which is my contention. Basically that the POS and other legal documents don't give them the right to levy a special assessment for this purpose. I realize it puts them in a catch 22 in that the way I read the documents, if they extend it otherwise, the act of extension itself would extend it for any member unless they opted out and maybe even then. Certainly if legal action on this specific issue would prevail and force DVC to extend for free if they extend, there's a good chance there will be no extension for other resorts but if they did, it'd likely be late in the game. There are benefits to DVC and Disney simply having more people as a member even if they don't get any direct income for the extension so I don't think a successful action total precludes extension.

jar
06-03-2009, 04:50 PM
Here's how I looked at it when I tried to run the math on buying a few years ago:

Today, the present value of the right to stay at BWV in 2043 and beyond is extremely little. Therefore, there is virtually no "discount" for the fact that it will expire then versus if it lasted beyond.

Over the next several years (figure 10-15 years), the value of the stays in 2043 and beyond will still be very modest in terms of impact on pricing. I would expect it to be more than offset by the higher price of comparable alternate accommodations that I'd be spending if not at DVC (since I've essentially locked in my price of accommodations already, except for maintenance, which is much lower than the cost of a room).

Therefore, putting aside the supply and demand of the resale market and the current economic state, the value to me of a DVC membership will rise in the near future since I'll benefit from a greater savings on the cost of a room relative to what I'm paying in MF as Disney raises its room rates. As we start to move closer to 2042, however, the increasingly fewer # of remaining stays under the membership will start to outweigh the inflationary rate for alternative accommodations and the value will drop until it reaches zero in 2042.

Of course, if you were not buying and holding but were trying to predict resale values, you'd have to factor in a number of factors that are completely unpredictable today, such as how many DVC resorts there will be in 15 years, what the economy will be like, how many resales are on the market, etc. But from a purely mathematical view of intrinsic worth, I believe that the value will increase in the near term, then plateau and gradullay fall until expiration.

nickspace
06-03-2009, 06:29 PM
But from a purely mathematical view of intrinsic worth, I believe that the value will increase in the near term, then plateau and gradullay fall until expiration.[/QUOTE]

This is not was has happened in the last few years why do you feel this downward trend will not continue in the near future?

popcorn::

jar
06-03-2009, 06:54 PM
The answer is because of market conditions, most particularly the drastic hit to real estate prices in the economy.

As I said, this is how I see the instrinsic worth rising then ultimately fall, not what market conditions would price a resale at. There are too many macroeconomic factors that influence that, as well as an imperfect market (a lot of forced sellers today, for example, along with hot new DVC properties that are causing people to want to sell their current resort), beyond what the actual worth to an owner would be.

I'm not a financial analyst, but you could certainly build a model that estimated the exact "worth" of a point for each year from today until 2042, or even in the past. You would take (i) the per night price of a comparable room today and adjusted each year until 2042 based upon historical Disney room price inflation, (ii) the projected MF for each year until 2042 based upon historical MF inflation and (iii) the # of points necessary for a test week (it can be any season). Then you would take the net present value of the future value received and MF paid for each remaining year until 2042. Again, that's not what the points would buy or sell for on the resale market, but that would give you the "true" intrinsic value. And I suspect that # is rising today and would continue to rise over the next decade or so before gradually falling to zero in 2042.

Dean
06-03-2009, 07:44 PM
The answer is because of market conditions, most particularly the drastic hit to real estate prices in the economy.Actually even before the downturn the few extended contracts that were listed were not at a full $15 difference. For one to come out ahead from a strict $$$ standpoint the spread will not only have to maintain but increase at a rate appropriate for the dollar investment. One can't legitimately argue use and enjoyment on something where there's no actual benefit for over 30 years other than the financial difference. I think it's clear that the market does not value those contracts at even $10 pp above non extended independent of the economic downturn.

jar
06-03-2009, 07:54 PM
Absolutely -- if you ran 2043 through 2057 (or whatever the extended date would be) through my hypothetical model, I would be very surprised if it were worth $15 in net present value today. I would not have purchaed the extension. But this only serves to reinforce the idea that 2042 expiration date does not have very much influence on value today and won't for some years to come.

Dean
06-03-2009, 08:47 PM
But this only serves to reinforce the idea that 2042 expiration date does not have very much influence on value today and won't for some years to come.I don't think one can successfully make that argument. Certainly there are several factors and overall demand of a given resort seems to currently be more important than expiration. However it seems clear that prices had stabilized and started to decline before the economic downturn. Other factors include the resorts DVC is selling retail, expiration, dues and several others. I think it's safe to say it's not a large factor for some situations but it's still an important factor. You've seen several of us that were big "buy where you want to stay" advocates that have changed out basic stance due to the current costs and spread to retail combined with the expiration issues.

DisneyWalker44
06-03-2009, 09:34 PM
A little bit of math geekery... Let's build a crude model of "fair" DVC price. Actual selling prices will be a bit higher or lower due to a number of "emotional" factors, but this should give us a very crude ballpark answer. Note that new resorts will have lots of emotional wiggle in the prices - but existing resorts sold on the free market should be somewhat close to the model price.

Owning a DVC point is worth about $5/year (points are worth $10 on the free market, less $5 for maintenance). So the fair price for, say, SSR, would be the present value of 5/year for the next 46 years. At 7.5% interest, that gives us $69/point. So the model isn't crazy.

Ignoring inflation of a minute, the fair price for a contract with 15 years left would be about $47.50.

If we assume inflation of 3%, and net investment earnings of 6% (pick different numbers if you like), the $15 purchase price will leave a hole of $122.21 in your investments in 2042. But you will have an OKW contract worth approximately 134.77.

Again, it's a very crude model. It can't tell us if $15 is the perfect price or not. But what it does say is that $15 isn't a *crazy* price - if you assume that DVC is still going to be as popular in 36 years as it is today. If it is, that $15 purchase will probably be looking pretty good.

Dean
06-03-2009, 09:59 PM
Owning a DVC point is worth about $5/year (points are worth $10 on the free market, less $5 for maintenance). So the fair price for, say, SSR, would be the present value of 5/year for the next 46 years. At 7.5% interest, that gives us $69/point. So the model isn't crazy. There is a fundamental flaw here. Owning DVC is worth AT MOST $5 a point THIS year using your thinking and this assumes you actually rent out your points. However it's a depreciating asset more than an appreciating one with a kicker, appreciating yearly fees. One cannot successfully, IMO, make the argument that DVC is worth $5 a point above fees every year for the remainder much less $5 a point plus inflation. Plus there are risks to owning and risks to generating that $10 a point figure, that risk has a dollar amount that must be assigned to it and subtracted out. Also, you cannot own AND get an investment return on the same dollars other than if you sell at a profit. The real value currently is likely closer to $3 a point when all is said and done using THIS model. Of course there are other models but they are essentially all user dependent but some are equally if not more applicable. One is the value of what you would have paid using rack rates, a fools comparison IMO. And then there's the model of what you actually would have paid had you not owned DVC, likely the BEST comparison from a dollar standpoint. Then there's the model of what you could have gotten by with paying for off site either cash or timeshares. IF one uses points for DCL, DC, CC and Adventures those points drop down to around $5-7 a point minus fees, with risks that's zero of a negative balance.

if you assume that DVC is still going to be as popular in 36 years as it is today. If it is, that $15 purchase will probably be looking pretty good.Not only that, which is a large assumption, it assumes that OKW will be as popular as it has been and IMO I think we've already seen it is not as popular now as it was 3 or 4 years ago. That could change with a good hard refurbishment but it'll take more than just replacing tiles, painting and replacing appliances over time for this trend to reverse.

jar
06-03-2009, 11:10 PM
A little bit of math geekery... Let's build a crude model of "fair" DVC price. Actual selling prices will be a bit higher or lower due to a number of "emotional" factors, but this should give us a very crude ballpark answer. Note that new resorts will have lots of emotional wiggle in the prices - but existing resorts sold on the free market should be somewhat close to the model price.

Owning a DVC point is worth about $5/year (points are worth $10 on the free market, less $5 for maintenance). So the fair price for, say, SSR, would be the present value of 5/year for the next 46 years. At 7.5% interest, that gives us $69/point. So the model isn't crazy.

Ignoring inflation of a minute, the fair price for a contract with 15 years left would be about $47.50.

If we assume inflation of 3%, and net investment earnings of 6% (pick different numbers if you like), the $15 purchase price will leave a hole of $122.21 in your investments in 2042. But you will have an OKW contract worth approximately 134.77.

Again, it's a very crude model. It can't tell us if $15 is the perfect price or not. But what it does say is that $15 isn't a *crazy* price - if you assume that DVC is still going to be as popular in 36 years as it is today. If it is, that $15 purchase will probably be looking pretty good.


This doesn't work at all. DVC is not a financial investment for most people, so you can't value it based upon the point rental value. For nearly everyone, the "value" of a point for a given year is what comparable accommodations would have cost if you weren't staying at DVC. Not rack rates, not off-site, but a comparable Disney resort at the best rates you could have booked, assuming that that is where you would have otherwise stayed. By my judgment, a point may well be worth $20, not $10, because if I weren't staying in the 12 point/night studio at BWV, I would have paid for a $240/night room there (which doesn't even take into account taxes). Subtracting the $5 MF and I'm left with a net value of $15 for my point this year.

I've been trying to chart how much value I get out of my DVC membership each year, and I do it by valuing the accommodations I stayed in (what I would have paid to stay there), subtracting the MF I paid that year and then discounting it back to the year of my original purchase (I paid cash so I use the cost of my home's mortgage as a discount rate figuring that if I didn't buy DVC, I could have used it to pay down the mortgage and thus saved the same % in annual interest as the discount rate I am using). I can then compare when all of my vacations add up to my total purchase price, using the same year's dollars.

DisneyWalker44
06-04-2009, 07:56 AM
There is a fundamental flaw here. First of all, it's a model, OK? It's not meant to be perfect. It's just there to give us some no-crazy way of guessing what a DVC contract with 15 years let on it might be worth. It not useful if you want to exactly know the fair price. But if you are just trying to get a vague idea, I think it better than nothing.

Owning DVC is worth AT MOST $5 a point THIS year using your thinking and this assumes you actually rent out your points. No, it doesn't assume you rent out points. I'm just putting a $ value on what a point is worth to an owner. What people are willing to pay on the rental market is just a proxy - the best one we've got.

However it's a depreciating asset more than an appreciating one with a kicker, appreciating yearly fees. It's a depreaciating asset because the number of remaining years are running out. I don't see any reason to believe that each year itself will be worth less. I think the value will grow at least as mush as the increase in fees.

And then there's the model of what you actually would have paid had you not owned DVC, likely the BEST comparison from a dollar standpoint Again, I think the best model of what something is worth is what people are willing to pay for it in a free market. I'll take that over any theoretical model any day of the week.

Dean
06-04-2009, 09:06 PM
A DVC point does not have an inherent value, only an inherent cost. It only has value in how you use it whether it be to rent it or use it. Even then that value may vary depending on what you compare it to as I was pointing out above. Resale prices only give you a current value and give you essentially no information for the future value. IMO the actual resale prices and rental prices will not keep track with the costs and if you adjust for inflation, WILL get less valuable comparatively every year over the long haul though for a given period you will see ups and downs, YMMV.

WDWFigment
06-06-2009, 08:43 AM
This doesn't work at all. DVC is not a financial investment for most people, so you can't value it based upon the point rental value. For nearly everyone, the "value" of a point for a given year is what comparable accommodations would have cost if you weren't staying at DVC. Not rack rates, not off-site, but a comparable Disney resort at the best rates you could have booked, assuming that that is where you would have otherwise stayed. By my judgment, a point may well be worth $20, not $10, because if I weren't staying in the 12 point/night studio at BWV, I would have paid for a $240/night room there (which doesn't even take into account taxes). Subtracting the $5 MF and I'm left with a net value of $15 for my point this year.

I've been trying to chart how much value I get out of my DVC membership each year, and I do it by valuing the accommodations I stayed in (what I would have paid to stay there), subtracting the MF I paid that year and then discounting it back to the year of my original purchase (I paid cash so I use the cost of my home's mortgage as a discount rate figuring that if I didn't buy DVC, I could have used it to pay down the mortgage and thus saved the same % in annual interest as the discount rate I am using). I can then compare when all of my vacations add up to my total purchase price, using the same year's dollars.

Your method of calculating doesn't work because it doesn't account for the time value of money. The stated comparison is arguably what lures people to Timeshares in the first place: "Save up to 70% by buying X time share".

Moreover, if you don't treat DVC as a financial investment, what means do we have of determining its FMV? People may not have the numbers in mind when they purchase, or may purchase for rationales more related to "pixie dust" than reason, but it's hard to quantify an intrinsic value in being an "owner".

BWV Dreamin
06-06-2009, 08:53 AM
Rental prices are determined by comparing CRO...rental prices in no way reflect the value or cost of a property.

Dean
06-06-2009, 09:17 AM
Rental prices are determined by comparing CRO...rental prices in no way reflect the value or cost of a property.Actually it is one way of looking at value and for those of us that occasionally rent, it is a very valid way. If you only rented, it'd be the best way.

jar
06-06-2009, 09:48 AM
Your method of calculating doesn't work because it doesn't account for the time value of money. The stated comparison is arguably what lures people to Timeshares in the first place: "Save up to 70% by buying X time share".

Moreover, if you don't treat DVC as a financial investment, what means do we have of determining its FMV? People may not have the numbers in mind when they purchase, or may purchase for rationales more related to "pixie dust" than reason, but it's hard to quantify an intrinsic value in being an "owner".

Of course it accounts for the time value of money. That is what is meant by saying that you need to discount back to the year of purchase.

A financial investment is one that you look to rent/sell in order to have a return on that investment. That's not what DVC is. The means of determining its FMV to an individual without considering it a financial investment is to look at the alternative cost you would pay if you didn't have DVC and wanted a comparable vacation. That's what my "model" would do.

WDWFigment
06-06-2009, 10:52 AM
Of course it accounts for the time value of money. That is what is meant by saying that you need to discount back to the year of purchase.

A financial investment is one that you look to rent/sell in order to have a return on that investment. That's not what DVC is. The means of determining its FMV to an individual without considering it a financial investment is to look at the alternative cost you would pay if you didn't have DVC and wanted a comparable vacation. That's what my "model" would do.

Perhaps I need to learn to read a little better. My mistake.

BWV Dreamin
06-06-2009, 11:21 AM
Actually it is one way of looking at value and for those of us that occasionally rent, it is a very valid way. If you only rented, it'd be the best way.

Well CRO will determine your rental ceiling not how much you can get for your property on the resales market. That's what makes resales a bargain.

Dean
06-06-2009, 12:13 PM
Well CRO will determine your rental ceiling not how much you can get for your property on the resales market. That's what makes resales a bargain.My reference was more to the rental prices affecting your value, not CRO price involvement. I'd agree that CRO prices and to a degree, any specials or discounts, will affect the potential rental price at a given time but it is a moving target.