Distressed Timeshare Sales in DVC?

[sullymaan]

One of the selling points that was made to us during our purchase was that the resale value was high because DVC had first right of refusal on any resale contract and that they typically would never let the pricing slide to any lower than 88% of the prorated remaining value left in the contract...has that changed? Is Disney matching or are there significant discounts to be obtained buying DVC resale points right now? I'm in SSR and would love to double my points for half the cost...

 

[Chuck S]

One of the selling points that was made to us during our purchase was that the resale value was high because DVC had first right of refusal on any resale contract and that they typically would never let the pricing slide to any lower than 88% of the prorated remaining value left in the contract...has that changed? Is Disney matching or are there significant discounts to be obtained buying DVC resale points right now? I'm in SSR and would love to double my points for half the cost...

I guess it depends upon how they figure the remaining value.

You can occasionally find SSR resales at extremely reasonable resale prices, and DVC will occasionally let a "cheap" resale pass ROFR while exercising ROFR on a more expensive contract. I would just keep checking the resale sites and bid on a reasonably priced contract,the worst that would happen is that Disney takes it away from you.

 

[bookwormde]

On occasion resale fall to as low as 60% of currnet price on certain resorts, but that is the exception.

bookwormde

 

[JBx3]

I am not sure of exact answers but wonder the same. I am sure it is all a sign of the times, as Disney cash flow shrinks down , I am sure they do less excersising of ROFR. On the other end, DVC owenrs who may have financed or are concerned of the economy may be attempting to dows size the "luxury" part of their finances, so it is kind of a perfect storm? I am not thrilled seeing AKL down to $80.00 but on the other side if you are a buyer, it is sure a good time!

 

[JBx3]

One of the selling points that was made to us during our purchase was that the resale value was high because DVC had first right of refusal on any resale contract and that they typically would never let the pricing slide to any lower than 88% of the prorated remaining value left in the contract...has that changed? Is Disney matching or are there significant discounts to be obtained buying DVC resale points right now? I'm in SSR and would love to double my points for half the cost...

Also looking to do the same, and just about double our points thru resale ! Not sure if we are smart or just nuts!

 

[LouisianaDisneyFan]

One of the selling points that was made to us during our purchase was that the resale value was high because DVC had first right of refusal on any resale contract and that they typically would never let the pricing slide to any lower than 88% of the prorated remaining value left in the contract...has that changed?

The answer to this definitely depends on what is used to calculate the remaining value. Take a look at BWV for example. It opened in 1996 at a price of $62.75/point. Those original owners have enjoyed vacations for 14 years now and the contracts expire in 2042. (I'm still a bit unclear if these were 45-year contracts initially with an "extra year" for the earliest owners or what... since that only adds up to 46 years...) Anyway, using a very simplified calculation that isn't adding in time value of money, you can figure that the pro-rated value of 1 point is roughly $1.40/year. Multiply that by how many years are left on the contract and then take 88% of that... and you come up with a rough estimate of what you were promised as a resale value (in this case, with the remaining 32 years on the contract, a resale price of $44.80/point). To any of us, that price would be a great find, but still assures a reasonable risk on the investment to the original owner.

Other than in the case of SSR, resale prices aren't reflecting a decrease in value... they are reflecting that some resorts have ticked off a significant portion of their contract time.

 

[sullymaan]

I guess what I am wondering is if the nominal price is dipping below that 88%...obviously the less years less, the less it will be valued at, but are they selling below the ROFR value because DVC simply doesn't have the assets to buy all the defaulting membership points?

Also, for the benefit of all, buying those older DVC memberships allows you to 'layer' your points...I think that most would consider their high use years to be when they have younger kids, so you can buy one of these older memberships at a significant duiscount due to their age, and have more points now and your point balance will gradually diminish over time...and since they are pooled, you could conceivably never stay in this resort at all, you are just paying for a cache of points that will just expire sooner...

 

[Chuck S]

I guess what I am wondering is if the nominal price is dipping below that 88%...obviously the less years less, the less it will be valued at, but are they selling below the ROFR value because DVC simply doesn't have the assets to buy all the defaulting membership points?

Well, using LouisianaDisneyFan's formula, they are selling well above that. So it really depends upon the figures you choose as a starting point.

 

[disneynutz]

I'm sure that Disney adjusts as they see fit based upon making as much money as possible.

The don't want to exercise ROFR on resorts that they can't sell immediately. They have some plan that tells them what to do. Exercise ROFR, sell the points directly, let Fidelity sell them, or turn them over to CRO for reservations. Obviously they make more money selling new resorts, that's why the Guides are pushing AKV and BLT.

Bill

 

[JimMIA]

I think it's important to remember that timeshare salespersons are going to put their product in the best possible light. With regard to the future resale prices -- or even Disney's support of ROFR -- DVC guides probably fall into two categories: 1) those who have no clue, but make wild statements anyway to make a sale, and 2) those who have no clue and admit they don't know, or just keep quiet. I would not pay any attention to anything a DVC guide said about resale.

Even more importantly, what has happened in the past (however you do the math) is certainly no predictor of what will happen in the future.

Traditionally, DVC resale prices have been artificially propped up by ROFR in order to ensure that the resale market did not affect DVC's ability to sell "new" memberships too much. Bookwormde probably follows those trends much closer than any of us, and I'm sure can give you a good history.

However...there are several factors which have changed over the last few years and the future may look different from the past.

One factor is obviously the recession and its effect on WDW generally and DVC in particular. Obviously, revenues and margins have declined because Disney has had to resort to significant discounting to get people into the parks. DVC has also had difficulty holding their price levels for "new" memberships, and especially in holding their prices for points they own at "sold out" resorts.

In addition, the recession has caused many families to either sell their memberships or simply let them go into foreclosure. That has glutted the resale marketplace with inventory and put great pressure on Disney's ROFR policy.

The recession is not going away any time soon, and in fact, many prominent economists believe it will get somewhat worse before it begins to get better -- mayge a LOT worse.

Another major factor is in recent years (especially since the opening of sales for SSR) DVC has relied heavily on financed sales of DVC memberships. Some estimates say 75+% of all "new" DVC sales were financed. Disney's finance arm has taken a beating with those financed sales, and has been forced to take many accounts back through foreclosure. Foreclosed memberships either go back to DVC or they go into the resale marketplace. Either way, they make the market glut worse and put downward pressure on resale prices.

DVC has also been forced to raise the financing rates to very high levels, which makes payments higher and purchasing via financing much more difficult.

Between ROFR and foreclosure, DVC probably owns far more points than they ever wanted to own and the economic situation makes that inventory difficult to sell and difficult to rent through CRO.

As a result of all that (and other factors), DVC has lowered its ROFR levels, and we have seen resale prices drop substantially over the last couple of years. BCV contracts that sold 3-4 years ago in the mid-90s are now in the high-70s to low 80s. BWV contracts have dropped from high 80s to low 70s. It may be that the resale prices were overvalued and they are just falling to where they should be, as LouisianaDisneyFan's analysis suggests. Or not.

In the last couple of years, though, DVC has experienced something for the first time -- substantially reduced levels of ROFR support than they have maintained previously. Before we apply the history of the past to the future, we need to guess what DVC may have learned from the last couple of years.

Has the drop in resale prices in the last few years really hurt DVC's new sales? I'm not sure it has -- in fact, I suspect it hasn't mattered much. If it has not adversely affected their sales, I'd expect them to continue to experiment with weak ROFR support and see at what level there is an actual effect on new sales. Lower the ROFR floor and the resale prices will continue to move lower.

To offer an answer to OP's underlying question, I think resale prices are currently much more attractive than buying direct and the variety of inventory is very good. I'm not sure this is a great time to buy DVC at all, but if you're buying, I would certainly look long and hard at resale.

 

[jarestel]

To offer an answer to OP's underlying question, I think resale prices are currently much more attractive than buying direct and the variety of inventory is very good. I'm not sure this is a great time to buy DVC at all, but if you're buying, I would certainly look long and hard at resale.

I would agree with your analysis. Perusing the latest resale listings, I see resale prices - in some instances - at the same levels as original purchases direct from Disney 7-10 years ago. Which throws a huge monkey wrench into the calculations of the "DVC as an investment" proponents. And as expiration dates on original contracts get nearer, one can only imagine resale prices will fall even further.

 

[JimMIA]

Which throws a huge monkey wrench into the calculations of the "DVC as an investment" proponents.

Well, I think most people who take a clear-eyed look at a DVC purchase would consider that idea a fools bet anyway. DVC is a luxury purchase, not an "investment."

 

[Tinkerbelljean]

I don't consider my DVC points as an investment, but value wise they have done better than my IRA/401K has over the time I owned my DVC points. Ouch! I don't know when I will be able to retire, but I do look forward to my Disney stays. I don't look forward to rebalancing my "investments."

 

[Dean]

One of the selling points that was made to us during our purchase was that the resale value was high because DVC had first right of refusal on any resale contract and that they typically would never let the pricing slide to any lower than 88% of the prorated remaining value left in the contract...has that changed? Is Disney matching or are there significant discounts to be obtained buying DVC resale points right now? I'm in SSR and would love to double my points for half the cost...

ROFR is for their protection, not yours. They can do with it as they see fit.

 

[LouisianaDisneyFan]

Disney makes the most money off of those owners who visit the parks, so it's in their best interest for those owners who want to sell (and are probably no longer enthusiastically spending freely in the parks) to be able to at a price the market can bear. Additionally, enthusiasm is great among new owners. Just look at those on Disboards who develop add-on-itis very soon after their first purchase, including us. It took 23 visits for us to make our first purchase in April. We're now adding on at Aulani. Would we have purchased Aulani first? No. But, to us, it made a great add-on. Having a lower minimum direct buy-in (as Disney has just implemented) and allowing market price for resales to more realistically reflect the true market can only serve to strengthen the program. Buyers who spend less purchasing a resale from an owner who's lost his/her Disney enthusiasm are likely to spend that saved money enjoying their new purchase, so Disney will net MORE $ on that property in the long run. AND, those new owners give Disney an enthusiastic and accessible market for adding on at new properties. When we get a call from a guide about new promotions, we feel "in the know" and like we are receiving great service. Of course, from the Disney side, those same calls can be viewed as a great sales call opportunity to a known Disney fan!

 

[dizfan]

Disney has added some very large DVC properties in the last 14-15 months.
Kidani opened May 2009.
BLT opened August 2009
THV opened in 2009.
VGC opened in 2009.
I don't know the total points in all of them, but just BLT and Kidani are over 12 million points.

Now they are also selling Aulani. Initial reports are 11 million points.

That's around 25 million more points that were added to the supply side of the equation. It's likely this diminished the need to use ROFR as often.