Resale pricing and ROFR...ignore if you don't like "future guessing" threads!

[Granny]

The question about how long it will take to sell out SSR got me thinking about resale pricing and ROFR. There is a 12 year difference in contract length between current DVC resorts and SSR (yes, I know SSR is current, but you know what I mean)!.

Right now, the existing DVC contracts have 38 more years on them. And of course SSR is 50 years. A lot of people might thing...38 years? 50 years? They're both a long time...what's the difference to me?

But at some point, it will be a major factor in deciding "new vs resale". At what point will that 12 year difference be so significant that Disney will no longer need to exercise the ROFR to prop up the resale market?

This is based on the premise that Disney primarily exercise ROFR to keep the resale market from undermining new sales.

I'm guessing that in about 10-13 years, Disney will abandon it's artificial propping up of the resale market via ROFR. That's because I think demand for resales for HH, VB, OKW, BWV, VWL and BCV will drop dramatically about then.

I mean, if someone is buying into DVC, the difference between a 37 year right to use and a 25 year is pretty significant!

Does anyone think the resale market will be propped up longer? Or that the values will diminish at all?


Just more food for thought. While some people don't like to think about 2042 and such, this is much closer in the future so maybe it will hit a little closer to home for some.


For the record, I really don't care about the resale values staying up...we have no intention to sell.

 

[vernon]

IMHO a more important factor is the hotel costs at WDW. WDW is almost unique as a vacation destination because of it's heavy "return visitor" factor, this makes timeshares a much more attractive buy and also much easier to value.

It's a different "time/value" calculation, but the overall support factor for both DVC timeframes still comes back to current prices at WDW hotels, most timeshares don't have such an easy reference point, in fact if anything the shorter tenure will be the easier of the two to calculate.

IMHO if SSR sells out reasonably quickly I think there will be another resort behind it to sell so it's likely that Disney will continue to act in the resale market to make sure it's own product is not undersold.

IMHO it's more accurate to put it in that fashion, saying that Disney is artificially supporting the resale market as in "Disney will abandon it's artificial propping up of the resale market via ROFR" is disengenuous. IMHO what would happen if Disney wasn't believed to be actively involved in the resale market is that resale prices would become more volatile, not necessarily much lower than it currently is, but you'd see a lot more "horse trading" and underhand tactics to try and get sellers to drop their price to "fire sale" levels. We have seen how people try to use these boards to manipulate rental points to a level that suits them, you'd see all sorts of garbage about how someone just "snapped up" points at say $25 a point, causing potential buyers ( both for resale and from Disney) pull out of sales to see if they can get a similar " bargain". Disney know it would be very damaging to their sales efforts for people to constantly dithering over what they wil do.

IMHO the resale value is not "artificial" but Disney's perceived support supplies a stability to the market and avoids damaging volatility for all involved parties.

 

[jarestel]

I agree that at some point ROFR will probably go away, but based on the simple fact that the price of most things goes up over time ( homes, cars, meals, etc... ) even if Disney does pull the plug on ROFR, the people who bought DVC early enough would still likely do "ok" if they ever wanted to sell. After all, it's still at WDW and that will always be an incentive to buy.

 

[dianeschlicht]

I definately see your point, Granny, and I have wondered about that too. My thought is that I wouldn't be enticed to sell as long as I have family who are interested in DVC. I will be in my 90's when it expires, and my "kids" will be in their 70's. Not sure we will care much one way or the other. I do expect that ROFR will go away in 10-15 years. I doubt there will be many resales after that point anyway....at least not among those of us who purchased in the first 10 years.

 

[DrTomorrow]

I always thought that Disney's ROFR - keeping up the point resale price - was done to support the price of points at new DVC resorts. So once Disney is out of the new point sales market, I'm not sure if they will continue to buy back points for resale only.

I do believe that inflationary increases of other WDW on-site options will help points keep their value - at least until we get a lot closer to the end of the contract lifetime.

 

[Dean]

Based on other RTU properties, I'd expect the prices to start to ease down (or initially quit going up) at about 28 years or so. In part I also believe it will depend somewhat on ROFR issues. What will happen once the ROFR stops is that the prices will become more variable. There are already major bargains out there but their not realistic due to the fact DVC will buy them back. I turned down a BWV 200 pt contract offer from a private individual in Oct or Nov at $54 pp due to this issue. Actually I told the guy I'd do it as long as he transferred a whole years worth of points to me during the initial process. That way if DVC bought it, I had the 200 points either way and for free if DVC took it. This was the same guy I'd had a contract bought back by DVC at the same price a year and a half earlier. The first was through a broker and at the time he'd agreed to sell me the second contract at the same price pp then he changed his mind before any paperwork was done. He somehow tracked me down and called me. But I never heard back from him so I guess he didn't want to go that route. I have no interest in funneling contracts to DVC.

 

[Canadian Tom]

Hello: Maybe I'm just simple, but the price is determined by the buyer and seller before Disney has ROFR. Do you really think that Sellers and buyers attitude towards price would change without ROFR. I know I would buy if and only if there is value in the deal for me. So, it is more important that those thing that affect the value of DVC continue. If you think about it, Disney had to add 10 years to SSR to make it more inviting because of the demand for resales. I think, the price of resales should be increasing over the next few years because of the restricted supply and the rising demand for the 11 month booking window. Supply and demand drive the equilibrium price, not Disney. In fact, I would say the resale price would increase as soon as Disney stops selling points.

 

[Granny]

Thanks to all for your great comments and insight.

Vernon...maybe the use of the word "artificial" isn't correct...I was just referring to anything that hampers the free market from setting prices without restriction. I agree with you and Dean that DVC resales would become more volatile and certainly more vulnerable to influences such as the economy and such.

Using the price of WDW resorts is also an interesting fact. I think it's a good point that as long as people think they can get their DVC investment back in a few years based on resort pricing, then that helps justify the price Disney charges for new construction points.

It seems to me that at some point, whenever that is, that Disney won't want to continue to accumulate points through ROFR at the "DVC1" resorts. And while people are very happy to purchase a 38 year contract, I'm not sure that they would be so thrilled to purchase a 20 year contract with a 32 year one as an option for a relatively small upcharge.

DrTomorrow...my assumption is also that Disney is in the ROFR business to keep the resale prices up to support new DVC resort sales as well. But at some point, there will be a large downward pressure on resales as they get closer to the end of their contract life, and I can't see Disney buying tons of contracts.

Canadian Tom...I often see posts on the DIS boards about people adjusting their offers to a higher price in hopes that it will clear Disney's ROFR. So yes, I think that ROFR does influence the resale market negotiations even today. See Dean's example for Exhibit A. But you could very well be correct in your theory about demand continuing to rise.


I appreciate all the comments and discussion. Obviously, it's all conjecture at this point, but for some twisted reason I find it interesting, even though I don't really care about the "market price" of my vacation investment.

 

[HookdonWDW]

I think that the two things that will really drive this are whether or not DVC is still selling new properties, and prevailing costs of onsite resorts.

When a lot of people start looking at DVC, they are thinking of buying something so that they can enjoy family vacations while their children are little. I don't think that many of us realize how great DVC really is until we actually own (hence all of the add ons). For those families, the extra years (37 v. 25) probably won't compete with the thought of getting a contract for a substantial amount less than the price DVD is selling current contracts. Many go for resales now because of a $10 - $15/point difference. If the margin were $30/$35, people would flock to resales, and DVD would lose sales. I just don't see DVD allowing this to happen.

I think what might be more likely, is that we will see the sales price of DVC start to stabilize, and they will stop raising the $/point. In the last couple of years, the price has risen almost 20%. I don't see DVC being able to maintain that kind of rise in selling price 10 years from now.

Then again, I originally thought that 200 points would be PLENTY for our family.

 

[spiceycat]

you are talking real estate - what is the most important thing is real estate - location!!!!

no I don't think at least for few years (i would put in closes to around 15 years before the end of the contract ) - that DVC will lose value - of course - lose value based on what - the new contracts definitely - but the old ones were sold at $52 to $62 a point -if would definitely have to lose alot of value for the prices to get that low.....so I am betting on lose of value in the year 2027 (if I am still alive) others are saying 2014....that is not far - so I would think we all will still be around then.

besides - most DVC members don't really want to part with their points - I don't see this changing - when they die or get to old to go - then the younger generations might sell!

kept in mind that Disney is not going to let the DVC resort lose value - they want something they can use in 2042 - not something like the DI that has to be completely torn down before it is usable....

Both Hilton and Marriott have learned from DVC to use their buy back options too - so those resort are increasing in value too - no even if DVC stops selling - which I can't see - they are making money - lots of it - when DVC new sales stop making money - then I can see them cutting back. at present no way.

 

[SSRex]

Something I have not yet seen in this discussion is the idea that as long as there are waiting lists of current DVC owners wanting to do add ons, how can Disney lose money on buying back points.

If they exercise the ROFR for some BCV points at $74(?) and then turn around and sell them to someone on waiting list at $84(?), haven't they made some pretty easy money? Am I missing some point or is it that simple?

At what point, number of years remaining, will current owners stop adding on to the existing resorts (prior to SSR), any guess?

Thanks,
Rex

 

[Granny]

At what point, number of years remaining, will current owners stop adding on to the existing resorts (prior to SSR), any guess?

Rex...I think you are asking pretty much the same question that I started out with. At what point will demand for DVC1 resales start to really diminish?

My guess is still somewhere about 13 years from now.

Of course, if Disney sells out SSR and doesn't build a new DVC resort before then, all bets are off.


While Disney can make a small profit on exercising ROFR and reselling, my guess is that they don't make much money doing it unless there's at least a $15-20 spread as to what they can turn and sell it for.

 

[tjkraz]

Originally posted by SSRex
If they exercise the ROFR for some BCV points at $74(?) and then turn around and sell them to someone on waiting list at $84(?), haven't they made some pretty easy money? Am I missing some point or is it that simple?

Closing costs.

On a resale, the BUYER would normally pay closing costs. But when selling points direct, DVC would pay the closing costs.

Let's say we have a contract with 150 points. To use your numbers, DVC exercises ROFR at $74 per point. That's $11,100 in expense. Now let's assume that DVC has three individuals waitlisted for 50 points each. That's revenue of $12,600 at $84 per point. Gross income would be $1500.

But, DVC essentially has to pay closing costs FOUR times:

1. To buy points via ROFR
2. Sell to member #1
3. Sell to member #2
4. Sell to member #3

Even at a low number of $300 per close, you've got another $1200 in expense there. Add in other DVC administrative costs and they probably don't even break even on the resale.

DVC is probably content to break even or take a small loss on ROFR contracts because it is in their best interest to keep that gap narrow betwen resale prices and new (SSR) prices.

However, I have to wonder if the number of contracts on which DVC is exercising ROFR isn't getting smaller. With so many knowledgable brokers involved in the resale market, they can advise their clients as to the sort of offer that needs to be made in order to pass through ROFR. With the current popularity of BCV and VWL resales, I think many people would offer an extra dollar or two per point rather than risk losing the contract and having to start over again.

 

[tjkraz]

Originally posted by Canadian Tom
Hello: Maybe I'm just simple, but the price is determined by the buyer and seller before Disney has ROFR. Do you really think that Sellers and buyers attitude towards price would change without ROFR.

I think that would largely depend upon whether they continue to build DVC properties or not. If DVC decides there is no longer a market for a new property, the existing point inventory may actually start to appreciate. As people discover the program and it's benefits, they may have to pay a HIGHER price to get in.

But, if they do continue to build the resorts, there will probably be some fluctuations on the resale market--particularly for the older and off-site resorts. BCV and VWL will probably always be popular due to the small size. But prices at the other properties may dip a bit. Right now you've got timeshare brokers telling prospective buyers "you need to offer at least XX if you want to get the contract through ROFR." If that obstacle is removed, there will be more bargains to be found when owners are desperate to unload their DVC.

Disney had to add 10 years to SSR to make it more inviting because of the demand for resales.

I don't know that they HAD to add the additional 12 years in order to sell SSR, but it certainly didn't hurt. Really I think this move had more to do with the size of the resort than anything else. Some people here think it could take as long as 10 years to sell-out SSR. If so, those new contracts wouldn't be looking so attractive in 2014 with only 28 years remaining.

I think, the price of resales should be increasing over the next few years because of the restricted supply and the rising demand for the 11 month booking window. Supply and demand drive the equilibrium price, not Disney. In fact, I would say the resale price would increase as soon as Disney stops selling points.

Guess I should have read all the way to the end before I said the same thing above.

But you're exactly right about supply and demand. Some resorts will always be higher via resale, ROFR or not.

 

[disneyberry]

i don't have a whole lot of input on the resale price speculation, but i do agree with what spiceycat mentioned... real estate value is usually strongly influenced by location.
assuming that the theme parks continue to be at least adequate for the next 37+ years (big assumption here), BCV, BWV, and VWL will all continue to be in prime locations that would be in high demand. so one would think that there would still be a lot of interest in buying those resorts on the resale market.

anyway, i did want to bring up something i was thinking about:
how despite the retail price increase to $89/point for SSR, the older resorts continue to sell for the old price of $84/point. it's probably a given that the retail price of SSR will go up again soon... maybe by the end of this year? do you all think the older resorts will still stay at $84 then? and it's also interesting to me how DVC continues to offer MB for add-ons at the older resorts. at least i have heard of a few recent reports of people getting MB... i thought that MB wasn't offered for add-on points off the waitlist? hm.

oh, and i wanted to add that i believe the DVC1 resale market already reached it's highest peak exactly 1 year ago. that was when you could hear stories about Disney exercising ROFR on offers as high as $74! that was the best time for owners to sell. now i've only monitored the resale market for 1 year... but i gotta say that the number of resale listings out there is amazing right now. resale supply has gone up, and as expected, the price has gone down at bit.