# Valuing loaded and stripped contracts

Discussion in 'Purchasing DVC' started by Jasonkat, Nov 22, 2012.

1. ### JasonkatMouseketeer

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I've read through this section and I haven't seen this brought up. How do you value a loaded contract, regular contract, or a stripped contract?

Let's suppose you're looking at AKL, I've seen that the average sales price tends to be \$65 per point (somewhere on this site I saw that listed). How do you value these three types of contracts?

AKL 200 points July use year, 2013 400 points available, 2014 200 points available....

My assumption is that you take 200 points * \$65 = 13,000 but then you must assign a value to the 200 banked points, so if you can rent points for \$10 per point that means the banked points are worth 200 * \$10 = 2,000.

This gives you a fair value of \$15,000.

Regular example
AKL 200 points July use year, 2013 200 points available, 2014 200 points available....

My assumption is that you take 200 points * \$65 = 13,000 and then there's no more work to do because there aren't extra points.

Fair value of \$13,000

Stripped example
AKL 200 points July use year, 2013 0 points available, 2014 200 points available....

My assumption is that you take 200 points * \$65 = 13,000 and then you have to deduct an amount for "Renting" the 2013 points to make it equivalent to a regular contract. So if you can rent for \$10 you get 200 * \$10 = 2000. You deduct this \$2000 from the \$13,000 and you get \$11,000.

Fair value \$11,000.

The reason I'm asking is I made an offer for an AKL 250 point loaded contract (500 pts coming in 2013, 250 in 2014) at \$16,000 (\$64 per point). My offer was rejected. So I'm curious if I need to add a value to those banked points and how I come up with a "fair" offer for this contract.

3. ### z28wizDIS VeteranDVC Gold

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Your price sounds fair it could be the seller has a loan on the contract.

4. ### JasonkatMouseketeer

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They do have a loan, that was their excuse for needing their asking price. I just wanted to know if I was being fair or if I should raise my price due to the banked 2012 points.

I realize it comes down to whatever you're willing to pay is the right price but I want to make sure I'm not spending more than I should.

5. ### bighoo93Mouseketeer

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Jason, your approach is sound. The DVC resale market is not particularly sophisticated. The people at this site are probably an order of magnitude (or more) in tune with all things DVC and the going rates. I don't think most buyers/sellers really take this into account, at least not to the degree that they could. I think they see what other contracts at their resort are listing for, and they use a similar asking price. You should use your approach to identify better value contracts and you may be able to get a good deal. When we bought our contract recently, I already knew I wouldn't be able to use to the current year's points. So I rented them right away, and that income effectively dropped my purchase cost significantly.

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Try not to get too set on a particular contract. Another one will come along. Especially after the MFs come due, more people will start trying to sell their contracts.

7. ### joeyroseMouseketeer

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\$10/point is a reasonable value to attach to banked points IF YOU HAVE PLENTY OF TIME TO USE OR RENT (e.g., one year from closing date. if closing is within seven months before total expiration, i wouldn't value above the mf's. if expiring very shortly (e.g., two months), i would give them 0 value in an offer price. but, for me, i would make offers only on a loaded contract and try to get the banked points for \$0 additional. these points are why i would buy one contract and pass over many others.

8. ### DeanDIS Veteran<br><a href="http://www.wdwinfo.com/dis

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Just compare it to how many points you'd get if you were buying retail. Account for the points lost or restricted at around \$10 a point including maint fees. Significantly devalue or assign no value to MOST banked/borrowed/reservation points assuming you have enough time to bank any applicable points once you close.

Say for 200 points at AKV for a Feb UY, you might assign a value of \$60 a point if all current and future points are present, that's \$12K in the example plus closing. If none of the 2012 (current) points were present (or they had not been banked to 2013) you would deduct around \$2000 from the value of the contract. Realize that value includes maint fees so if you're not paying any fees for 2012, reduce that difference to around \$1000 or \$5 a point.

Also realize that maint fees are paid on a calendar year basis, not UY, so in a different example say Dec UY and no points until Dec, 2013, the fees paid in Jan would cover 11 months of the 2012 points and 1 month of the 2013 pts. Put another way, you'd over pay by 11/12 of the fees if you paid or reimbursed the fees in the Dec example. Realize is that most resale companies take the stance that if you get the points you pay the fees, but they're incorrect. You just need to know so you can adjust accordingly and take that into account because in most cases you'll be overpaying on the maint fees portion.

In your example and assuming the points are present as described (and you can use the 200 points there that are banked into 2012 and expire 30 June, 2013) I'd likely value the contract at.

\$60 a point which gives the following.

\$60*200=\$12000
Maint fees for 2012 \$5 (rounded)=\$1000
Maint fees due in Jan, 2013 = \$1000
closing costs \$500 roughly
I would assign at most \$5 a point for the 2012 points banked to 2013 because you're paying main fees to the tune of 18 months worth before you get any additional points since the fees due in Jan are for 6 months of the 2012 points and if you reimburse for the 2012 calendar year, you've ultimately paid the fees on ALL 2012 points and half the 2011 ones that only have 6 months remaining by the time you get closed. I would not add any additional value personally to the 2011 points banked into 2012 or at most, only a couple of dollars pp and that assumes you can use them yourself. I don't think \$65 is unreasonable but if you up your price there, overpay on fees and overpay on the value of the banked points, you've upped the price \$1500-2000 above the real value, IMO. Ultimately you'll have to decide it's value to you. You should be able to get say SSR for \$15 a points less than the \$65.

9. ### dvcterryDIS Veteran

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I have to agree with this. If you are just buying for the first time, you can take your time to find the right contract. Right price. A Use Year that works for you. Points-loaded, stripped. Contracts that can close immediately, others that cannot until after a certain date. The right contract is out there, if you take the time.

10. ### CarolMNDVC Co-ModeratorModerator

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IMO, fair doesn't really enter into resale transactions. Pretty much everything is negotiable. If the seller is willing to accept what you are willing to pay and Disney waives ROFR, then you have a good deal.

I agree with your approach for figuring out what you might be willing to pay. There's no right or wrong way to do that, and it's helpful to learn what others might do or have successfully done. But in the end, it comes down to what you are willing to pay and what a seller is willing to accept.

FWIW, I really don't care if a seller has a loan. That might be why they are rejecting offers, but it has nothing to do with the market price or what I am willing to pay. (I feel badly for them, but don't feel it's my job to make them whole).

Hang in there - finding the right contract and successfully purchasing it often takes patience. You may have to walk away from several contracts before you find the one that works for both parties. Good luck!

11. ### bighoo93Mouseketeer

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This is quite true, but you see sellers in all markets (housing in particular) don't seem to understand this. They will price their house too high because "they need to get that much for it", either because of their mortgage or the new house they want to buy, or something else. But none of it has anything to do with the market value of their property. They can choose not to sell it for less than what they want, but that really doesn't affect the market, and most likely buyers will move on to more reasonably priced contracts.

12. ### Deb & BillDVC-Trivia Contest, Apr-2006: Honorable Mention

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If you are buying a contract with no current points, divide the asking price by the number of years left on the contract. Subtract that amount from the asking price per point.

For example. You are buying BCV at \$65 a point. 30 years left on the contract. \$65/30 = \$2.17. So offer \$62.75 a point for the contract. Plus they pay the dues for the years points you are missing.

13. ### bighoo93Mouseketeer

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How did you come up with that formula?

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Logic

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LOL

16. ### Lizard ValleyMouseketeer

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Hi Jason,

I'm sorry your offer wasn't accepted...unfortunately, you may get a few more rejected offers. I believe that AKV is a little harder to negotiate (compared to SSR) because the sellers are more likely to still owe money on their contracts. But you should still be able to get a loaded contract for around 65\$ (or less!). I don't think that's unreasonable, it's average. Your offer was fair, don't feel like you need to be "fairer" because it was rejected. Keep offering and be prepared to get rejections, that's just how it is.

You'll get some great insight on pricing out a contract, and stripped vs loaded, by searching for posts by DougEMG. His information was extremely valuable to me, and should help you out greatly.

My take on loaded contracts vs stripped: My baseline for a loaded AKV contract would be 65\$/pt. I would then deduct 10\$/pt for each year that points are not available to use. So if it doesn't have (usable) 2011 banked points, then I would offer 55\$/pt. If it doesn't have 2012 points, then I'd offer \$45/pt. Will my offers get rejected?...most likely, but I may get a taker eventually.

Personally, I wouldn't even bother making lowball offers on current/stripped contracts. I'd hold out for the loaded ones and start at \$60/pt, hope it gets accepted, and be prepared to counter a counteroffer, to a maximum of 65\$/pt.

Another important factor to consider is the negotiation of ancillary costs (mf's and closing). If you agree to pay 2012 mf's, you're effectively increasing your cost per point by \$5.44. Closing costs will run you about \$500, so add another \$2/pt. These things are all negotiable. The less of these you pay, the better your deal. I wouldn't offer or agree to reimburse 2012 mf's at this time, and you're very likely not to be even expected to, as the sellers "should" have pretty much already paid them off. You may even be able to negotiate the seller paying the closing costs, though this is less likely. Perhaps you'd have some luck if your initial offer includes "splitting closing costs", and see where that goes.

A final word on "loaded contracts". I don't actually consider your 250AKL Feb UY; 2013-500; 2014-250 as "loaded". You still just have 2012 points (but banked into 2013). It would be loaded if it still had all (or most) 2011 points. When I look for a loaded contract, I'm actually looking for a contract that has 2 years' worth of points where mf's have been paid that I don't have to reimburse. As of right now, your best deal would be a Dec UY, with all 2011 points coming on Dec 1st 2012, plus 2012 pts. It would read as : Dec12-500; Dec 13-250. It's extremely unlikely you'd be asked to reimburse 2011 dues, and unlikely to have to reimburse 2012. Your next best would be Oct, then Sept, then Aug, and so on, going backwards.

Be careful: By the time you work back to a June UY with 2011 points: those 2011 would expire May 31st 2013. Assuming you find a contract NOW, and everything goes smoothly and you get your points in your account by the end of January (about 2 months), you're starting to get close to not being able to actually use them. Likewise, a Feb, Mar, Apr UY with 2011 pts would be just as if the 2011 points weren't there at all, as they would expire before or just after you get them.

And by the way, there is no such thing as a July UY (or Jan, May, or Nov).

Good luck, and let us know how it goes!

17. ### Deb & BillDVC-Trivia Contest, Apr-2006: Honorable Mention

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I suppose you offer someone who has banked the previous year's points into the current year (and you can use them) an additional \$10 a point on their asking price?

18. ### DougEMGDIS Veteran

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What interested me at the time was being able to compare one contract against another contract in order to determine which was the better deal and to determine how much I should offer and how to structure the offer (ie what to offer for \$/point, closing & MF).

19. ### bighoo93Mouseketeer

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No. My approach is probably a little different than yours, so I wouldn't offer someone more than their asking price.

I am willing, however, to ask \$100/point for my 250 point SSR contract, and I've already used the points for the current year. Based on your logical formula, you would offer me \$97.50 or so per point. Is that correct?

Asking price - (asking price / # years left on contract) = 100 - (100/42) = 97.62

20. ### Deb & BillDVC-Trivia Contest, Apr-2006: Honorable Mention

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Yes, if your asking price was logical. And it isn't for SSR. SSR has never sold for \$100 a point. You left out the logic.

Also, if you would never offer more than the asking price, why do you ask so much less than the asking price? Don't you ever consider the asking price as logical to begin with?

21. ### bighoo93Mouseketeer

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Actually, the current base price for SSR from DVC is \$110 per point. My ask would be a discount to that. Further, there are multiple resale SSR contracts for which the asking price is \$100 on the market right now. There is plenty of logic to that asking price.