How to calculate value of stripped contracts

[Scotch]

After reading this board on and off for a couple of years, we've -- okay, really just "I've" -- decided to buy a DVC resale as soon as we sell one of our other timeshares and free up the money. We'll be looking at a small contract, e.g., 100 points, for use at DVC resorts every other year. I check the various resale ads regularly, and one type of ad always troubles me when it comes to figuring out how much to offer: the totally stripped contracts. For example, a Wilderness Lodge May use year 100 points contract with no points until May 2006 asking $76 a point. In such a case is it practical to make an offer that asks seller pay the 2005 m/fs since they haven't been assessed yet and the pre-paying any amount would just cover an estimate? Do sellers even do that? Or do folks just offer much less than they would for a contract that has the 2005 points and have buyer pay the m/fs when they come due? And if the latter option, how do you value the inability to use any points without borrowing until May 2006? Or is it better to avoid such contracts in the first place?

Would appreciate hearing the experiences of those who purchased stripped contracts via resale. Thanks.

 

[JoeCathyAngelina]

You need a minimum of 150 points to be a DVC member; contracts less than that are add on contracts to points and a membership you already own.
Disney calculates point/contract value for Right of First Refusal (ROFR) by several variables including: resort demand, availability, years of use remaining on the contract, number of points and several other factors.
Some people pay more than the seller is asking or wants to avoid Disney's ROFR.
The bottom line and basic question is, What's the DVC membership worth to you?

 

[DisFlan]

You only have to start with 150 points if you originally buy direct from DVC. You can buy a smaller resale contract as your first purchase. We did.

 

[CarolMN]

Originally posted by Scotch
...(snip).....one type of ad always troubles me when it comes to figuring out how much to offer: the totally stripped contracts. For example, a Wilderness Lodge May use year 100 points contract with no points until May 2006 asking $76 a point. In such a case is it practical to make an offer that asks seller pay the 2005 m/fs since they haven't been assessed yet and the pre-paying any amount would just cover an estimate? Do sellers even do that? Or do folks just offer much less than they would for a contract that has the 2005 points and have buyer pay the m/fs when they come due? And if the latter option, how do you value the inability to use any points without borrowing until May 2006? Or is it better to avoid such contracts in the first place?

Would appreciate hearing the experiences of those who purchased stripped contracts via resale. Thanks.

I have no direct experience so consider that when you evaluate my answer, LOL.

As you know, everything in a resale contract is negotiable, so yes, buyers do make offers that specify the seller will pay maintenance dues.

Unless I was in a HUGE hurry, I would never agree to pay maintenance on points I didn't get to use.

In this case, I would offer the per point price that seems reasonable and then estimate the 2005 dues. (Probably use last year's amount increased by the same rate as 2004 increased over 2003). I'd specify in my offer that the estimated amount of 2005 dues would be deducted from the per point price because the points due in May 2005 were not available. If possible, I'd have the broker write it up in just that way so it would be easy for Disney's ROFR people to see why the price per might be less than otherwise expected.

I certainly wouldn't avoid such contracts if the number of points, use year and resort met my criteria. For a stripped contract, I also would be especially sure NOT to offer more than it was worth. If I lost it to Disney, so be it! They have deeper pockets than me! But I am one that would be willing to wait - IMHO, there's always another contract to consider. If you are in a big hurry, then you may be willing to pay a premium to get the contract past Disney.

Hope that helps a little - my main point is that you should offer what you would be willing to pay and see what happens. The seller can refuse or counter offer. Without knowing Disney's ROFR criteria (which apears to change frequently), you can only guess at what the rock bottom price might be. So I'd go with what I thought was fair and hope for the best. Remember - there will always be other opportunites!

Good luck!

 

[JeffPort]

Disney's ROFR policy makes stripped contracts a really bad deal for the buyer -- you should try to avoid them. The problem is that the missing points significantly lower the value to the buyer (even if the seller picks up the maintenance fees for the missing year), but Disney won't let the buyer negotiate a price low enough to compensate for the missing points. In making its ROFR decision, Disney doesn't seem to put much weight on the current point status -- just on the bottom line cost to assume the contract. (Many people on this board surmise that Disney is able to use "developer's points" to make the contract whole and resell it with all points intact.) In any case, since the going price right now is in the mid $70's (plus closing costs and maintenance fees), the best a buyer can do is try to get a contract through at a couple dollar discount, as Disney is currently taking most contracts in the $70-$72 range. That's not nearly enough to compensate you for the lost points. (Figure that it costs $10 per point to rent equivalent points from an existing member.)

Conversely, contracts with "banked" points are a true bargain for a buyer. Those contracts essentially provide you with a free year's worth of points, and the seller usually picks up the cost for the corresponding (already paid) maintenance fees for the banked points. To purchase a contract with banked points, the buyer usually only pays a premium of $2-$4. Not bad at all for a treasure chest of points on day 1 of your DVC membership.

Good luck with your search. Try to be patient and watch all of the broker sites every day. Eventually, you will see something close to what you are looking for -- but be sure to jump on it immediately. Good contracts can go quite quickly.

 

[Dean]

Subtract about $6 pp plus any maint fees from the pp price you deem reasonable and that should give a ballpark figure. Though part of the problem is that the only contracts you may find that fit your other criteria may be stripped contracts. Each contract must be looked at individually though to come up with a fair value.

 

[tamu91]

I also think stripped contracts are not a good deal and perhaps a waste of your time. All contracts have to pass ROFR and it seems like $/pt along with maintenace cost issues are the primary focus with DVC. Even if you offer $5-$6 less than what the seller is asking for and the offer is accepted by the seller, chances of contracts passing ROFR at $70 are not so good these day, IMO.
Contracts with banked points offer a way to offset your overall price so I'd say that's the way to go if you're looking at resale.

 

[Scotch]

Thanks for your well reasoned advices re stripped contracts.