Value of Extended Contracts

[Dean]

The other approach would have been to market the extension as a separate contract. If they had gone that route, DVC would have been prohibited from offering the extension to current owners living in many states, provinces and countries due to local timeshare sales laws.

I wholeheartedly agree the price was waaaaaaay too high and that DVC should have been much better organized when it came to the extension. But on the topic of how they approached it, I have a sense DVC was in a no-win situation.

As I also noted, it was a no win. My interpretation suggests if they extended the current DVC resorts, they automatically extended all current owners. The only ways around this that I can see is to wait until it ends then sell it again, to have a voluntary opt in and hope for the best or to do what they did or do it for fee. However, as I noted, I don't see they have the legal authority for the SA so they were truly stuck. Likely their best option would have been to actually have a vote of the membership altering the rules specifically for the extension that changed it where it was not an automatic extension if the ground lease was extended. This would have required that 60% of the membership approved it. Actually it may be more complicated than that as it likely is 60% of each unit and 60% of the units but I'd have to review the POS language to be sure. Overall the best scenario was to just extend it for free and give an opt out. That way they have everyone on board as a paying customer, avoid the predictable legal actions and challenges, satisfy the POS and the actual dollar loss is relatively small. They likely could have done so without even creating new deeds if they had chosen to.

0 points X $15 = $3450. That isn't that big a sum of money, really. We also don't have to get the full 15 years out of the extension to get good value of out this $3450 extension.

Actually as a lump sum or even financed over 10 years it is a large amount of money ($60K in 30 years at 10%) for a benefit over 30 years out. In addition you are assuming the risks of fees and ownerships for a resort that will be over 50 years old at the time.

Certainly extending is going to look better than paying Rack Rates. The discount off of RR is why we all chose to buy DVC in the first place.

But that's part of the rub. That's not necessarily true and when you factor in fees, it's very likely not even close to being true. There's a very good chance that it'll be more expensive to own than to rent for cash for the same or similar accommodations in 30 years. It's a gamble, plain and simple. In addition, if things work out to not be so rosy that some people walk away, the remaining members have to pay the extra in maint.

 

[M-I-C-K-E-Y]

Perhaps some extended their contracts for their children (after we're all too "achy" to make the trip to WDW, there's always kids & grandkids some day).

 

[Dean]

Perhaps some extended their contracts for their children (after we're all too "achy" to make the trip to WDW, there's always kids & grandkids some day).

Again, that makes a number of assumptions all of which may not true. That the value will be there in 33 years, that the group in question will want to go to that resort or system, that they can afford the trips and the ownership and that they are at least as well off or better with the extension that just investing the money. The truth is that for many, none of these assumptions are likely to be true. Ultimately this is a MUCH larger gamble than is a current ownership. IMO even accepting a free extension has significant risk.

 

[BostonDisneyKid]

As an OKW owner, another factor in my decison making process was that I assumed many, possibly even a majority, would opt not to extend (for many, individual reasons). So with that being a possability, I consided on January 31, 2042 when all those contracts expire and the resort then looses all those members and funding of the annual dues, then what happens on Feb 1, 2042? The resort, OKW, will still need to function and be mainatined but will only have a fraction of the funds to do so. So then what happens? Who picks up the shortfull in operating costs? Do OKW owners with 2057 contracts take on this burden alone? Do all dvc members share equally to subsidize OKW? Do they shut down a percentage of the buildings, facilities, services, staff by some sort of ratio equalled to that of the expired contract holdings to reduce the operating costs? Do they start selling contracts that begin Feb 2, 2042? At a minimum, OKW will require operations and funding through Jan 31, 2057 but who is going to pay for it?

I had started to ask MS accounting these questions and ended up speaking with many different people within the corporation, but none whom I spoke with could answer my questions with any certainty. Many had speculated as to what might occur but no difinitive answers were ever provided to my questions. Maybe I just had bad luck in who I was speaking with and I never got to the right person/people who could answer these questions... so I stopped asking as the cost factor ($15 per point when I felt the value was closer to a value of $4-$7) was reason enough for me to decline the offering.

Does anyone know what happens Feb 1, 2042 regarding the funding/costs of OKW?

 

[tjkraz]

As an OKW owner, another factor in my decison making process was that I assumed many, possibly even a majority, would opt not to extend (for many, individual reasons). So with that being a possability, I consided on January 31, 2042 when all those contracts expire and the resort then looses all those members and funding of the annual dues, then what happens on Feb 1, 2042? The resort, OKW, will still need to function and be mainatined but will only have a fraction of the funds to do so. So then what happens? Who picks up the shortfull in operating costs? Do OKW owners with 2057 contracts take on this burden alone? Do all dvc members share equally to subsidize OKW? Do they shut down a percentage of the buildings, facilities, services, staff by some sort of ratio equalled to that of the expired contract holdings to reduce the operating costs? Do they start selling contracts that begin Feb 2, 2042? At a minimum, OKW will require operations and funding through Jan 31, 2057 but who is going to pay for it?

OKW should continue to operate independently. The points will continue to exist and someone will have to pay the respective dues--either members holding those points or DVD if the points reverted back to them.

Owners at other DVC resorts should not have any obligation toward funding OKW.

They COULD shut down buildings and reduce staff as you suggest. But that shouldn't impact the ownership of folks who chose to extend. They will still have to maintain buildings and services in proportion with the points owned by members beyond 2042.

 

[DVCGeek]

This thread has brought out a LOT of things I never considered as being issues with an extension. I'll definitely have to think at LEAST twice if I ever get offered one; sounds more and more like it would be better for me personally to NOT extend (for the potentially massive increase in dues if nothing else from resort age related assessments for repairs and updates) and buy into a different resort at some point, resale or otherwise, assuming I'm still Disneying in 2060!!! But, if I'm alive I hope and plan to be...

 

[LIFERBABE]

For those currently selling extended contracts, they are losing big time. They just invested $15 per point last year and they are not recouping that on the current resale market. I know situations change, but it was throwing good money after bad.

To me, extending our OKW was not feasible because the only way to benefit was to keep the contract to enjoy those last 15 years. That meant a loss of liquidity and therefore flexibility if we were ever in a position to sell, we would lose money on the extension without realizing any benefit unlike our current points which deliver now.

DVC devalued the $15 extension from the word go with their pricing. If they cant sell a 2057 contract with a $15 spread, then why do we think we can?

 

[Chic]

I'm thinking that once the original 2042 contracts expire, DVC will begin selling another round of 50 year contracts for the resort. The new contracts should be priced much lower. Why? The people who bought the original contracts have already provided the funds to cover the cost to build OKW. In other words, Disney can now sell something that doesn't cost them any revenue to build. The maintenance fees will cover upkeep for the resort but whatever DVC chooses to charge per point will be 100% profit. It's a winning situation for both parties. Even though the resort will be 50 years old, the low price tag will be an incentive for people to buy, especially since they will still have the option to stay at one of the newer DVC resorts at the 7 month booking window. I'm sure the resort will still be in excellent condition regardless of its age. Look at the Polynesian. It's almost 40 years old and still as good as new.

 

[tjkraz]

I'm thinking that once the original 2042 contracts expire, DVC will begin selling another round of 50 year contracts for the resort.

The ground lease has already been extended to 2057. They would have to pass another extension to 2092 if they want to market 50-year contracts. But that second extension would again apply to everyone and create a similar set of problems to what we have now.

The new contracts should be priced much lower. Why? The people who bought the original contracts have already provided the funds to cover the cost to build OKW. In other words, Disney can now sell something that doesn't cost them any revenue to build. The maintenance fees will cover upkeep for the resort but whatever DVC chooses to charge per point will be 100% profit. It's a winning situation for both parties.

You are giving Disney waaaaaay too much credit in thinking that they will discount the product simply because it cost them less to produce. In fact this entire thread it testimony to Disney's unwillingness to do that.

Here you've got three pages of posts demonstrating how the extension was really only worth $5-8 per point....and yet Disney chose to sell it for $15. Disney didn't have to pay a dime for OKW construction to extend the ground lease, and still they chose a price point that was at least double its true economic value.

 

[PurpleTurtle]

Wow. After reading this I'm even happier that I did not choose to extend. This all happened in concurrence with my dear father, the owner of our OKW points, passing away, and so I had to make all of these quick decisions on all of this stuff. Very difficult time, but I'm glad to know that I probably made the right decision for all of us.

 

[Chic]

Here you've got three pages of posts demonstrating how the extension was really only worth $5-8 per point....and yet Disney chose to sell it for $15.

In my book, it was still a good deal. The extension allows 15 years of vacations for the price of 1 year at the cash rack rate.

 

[LIFERBABE]

Here you've got three pages of posts demonstrating how the extension was really only worth $5-8 per point....and yet Disney chose to sell it for $15.

In my book, it was still a good deal. The extension allows 15 years of vacations for the price of 1 year at the cash rack rate.

In the words of the famous philosopher Sir Wimpy ""I'll gladly pay you Tuesday for a hamburger today".

 

[M-I-C-K-E-Y]

Again, that makes a number of assumptions all of which may not true. That the value will be there in 33 years, that the group in question will want to go to that resort or system, that they can afford the trips and the ownership and that they are at least as well off or better with the extension that just investing the money. The truth is that for many, none of these assumptions are likely to be true. Ultimately this is a MUCH larger gamble than is a current ownership. IMO even accepting a free extension has significant risk.

A number of assumptions? The one opinion I stated was that some may be extending their contracts for their kids, for future use. I am absolutely certain that a large number of DVC owners look forward to future generations utilizing their points, regardless of any value analysis.

Let's not judge our fellow DVC owners by living by their hearts, rather than their heads...

 

[Dean]

A number of assumptions? The one opinion I stated was that some may be extending their contracts for their kids, for future use. I am absolutely certain that a large number of DVC owners look forward to future generations utilizing their points, regardless of any value analysis.

Let's not judge our fellow DVC owners by living by their hearts, rather than their heads...

Fair enough, some likely did it for emotional reasons rather than financial judgments. Still, they created a liability and risk for those loved ones as well as a potential benefit. There's a good chance they didn't do them any favors, it will take quite a while to know for certain.