Future of DVC Resale Prices

[Brian Noble]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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.

Did that help the OKW values or not?

 

[nickspace]

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]

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]

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]

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]

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

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.

 

[Dean]

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.