Resale restrictions and sale prices analyzed

[ELMC]

Y'know, I'm really trying not to take offense at this statement, and having a very difficult time. I did not sit at home entering data from 500 deeds last weekend in an attempt to "manufacture evidence". I did it to try to answer a question. There's a difference. I don't know if you think it's not possible to objectively use data to investigate a question, or whether you think it's impossible for me to do so. Either way, I categorically disagree with that idea.

I did not know what I was going to find by looking at these numbers. I thought there was a chance that the price really wouldn't change much before vs. after the restrictions. I thought there was a chance that the data set would be too noisy to show anything.

But neither of those things happened. Instead what I see is clear, unambiguous evidence that the restrictions lowered the value of resales by what to me is a significant amount. I'm still mystified as to why people think otherwise, or that the restrictions don't really have an effect on the resale price. If they don't have an effect on the resale price, they aren't working. If they aren't working, then Disney isn't even getting any value from them. I prefer to think Disney is trying to make money rather than thinking Disney is just being petty.

It doesn't really matter much to me; I bought after the restrictions were added. But if they add more restrictions, I am going to be extremely disappointed. Heck, I'm already disappointed. I thought Disney was trying to run a better timeshare than the rest of the industry. Of course, that's not a super-high bar to get over.

I think that there is a difference between data and the conclusions drawn from that data. Would you prefer that I called your conclusions sloppy? I don't know you so I obviously don't know what you are and are not capable of. But several times I have pointed out that your ROFR analyses were fatally flawed because they did not account for banked points and therefore true contract value, and you have not addressed these comments. So yes, I am challenging your analyses and the conclusions that you have drawn from them. I apologize if that is offensive to you.

I think that the fluctuation in prices prior to the restriction date was a function of supply and demand. When the restrictions kicked in, the demand was reduced and the prices lowered. So I will agree that restrictions had an effect on the market, but that is different than saying restrictions lowered prices.

A similar event happened in March when DVD announced that it was going to increase direct prices across the board. This led to massive increases in sales in the period of time leading up to the price increase date. Would you then say that price increases lead to increased sales? I don't think you would, because much like your analysis with restrictions, that statement doesn't tell the full story. There continue to be many factors that contribute to resale price fluctuations. To try to isolate the cause to one variable is an oversimplification. I agree with you that the upcoming restrictions had an effect on resale prices. I just don't agree with the weight they played or even necessarily the effect.

As it stands, the restrictions are still in place and resale prices are now higher than at any point in time shown by your graph. How does your theory explain this?

 

[bighoo93]

I think that the fluctuation in prices prior to the restriction date was a function of supply and demand. When the restrictions kicked in, the demand was reduced and the prices lowered. So I will agree that restrictions had an effect on the market, but that is different than saying restrictions lowered prices.

If it's different (and I'm not sure it is), it sure ain't much different.

 

[ELMC]

If it's different (and I'm not sure it is), it sure ain't much different.

So then how do you explain today's resale prices being so high? They're restricted.

The point I'm trying to make is that these analyses are based on quantifying and graphing human behavior and psychology. It doesn't work.

 

[bighoo93]

So then how do you explain today's resale prices being so high? They're restricted.

What do you mean "so high"? What would the price be if they weren't restricted? How do you know it wouldn't be $3 higher than it is right now?

The entire point of the analytical approach was to look at a discrete time point so that other factors that drive price were not likely to be significant. Of course the price isn't going to be stagnant for several years just because there are now restrictions! Correlation is not causation, but that's also a lazy phrase if you can't come up with a better explanation for why it was not, in fact, the cause.

But you don't even seem to think there is one. You believe that adding the restrictions lowered demand and this caused prices to drop. Seems to me that was the point, so I'm surprised that you say you disagree, when it sounds an awful lot like agreement to me.

 

[dmunsil]

But several times I have pointed out that your ROFR analyses were fatally flawed because they did not account for banked points and therefore true contract value, and you have not addressed these comments.

"Fatally" flawed? Sigh. OK. To each his own, I guess.

I have not "addressed" your comments because I didn't think there was anything to address. It's self-evidently true that I don't have that data and can't take it into account, and it's self-evidently true that the information is useful anyway. I didn't realize you expected more.

What do you want me to do? Not post the data? Not gather it? What?

When the restrictions kicked in, the demand was reduced and the prices lowered. So I will agree that restrictions had an effect on the market, but that is different than saying restrictions lowered prices.

Nope. Not different at all. You are saying the same thing I am saying. We agree.

A similar event happened in March when DVD announced that it was going to increase direct prices across the board. This led to massive increases in sales in the period of time leading up to the price increase date. Would you then say that price increases lead to increased sales?

Absolutely. Yes! Disney raising prices will raise demand for resale, which will raise resale prices. I can't imagine why you would think I would think otherwise.

If I'm unhappy that Disney lowered the resale value of people's contracts by adding the restrictions, shouldn't I be happy that Disney raised the resale value of people's contracts by raising direct prices? In fact, that's one of the things I've been turning over in my head for the last few weeks.

There are lots of perfectly legit things that Disney can do to lower or raise resale values, things that don't bother me at all. So I've wondered why the resale restrictions bug me, and I think it's really the differential treatment of different members. It absolutely makes Disney seem kind of petty, at least to me. Especially keeping resale owners from taking the member cruise and member-exclusive AbD trips - that seems actively mean-spirited.

There continue to be many factors that contribute to resale price fluctuations.

Again, we agree.

To try to isolate the cause to one variable is an oversimplification.

Again, agreement, I think. Obviously there are many factors to pricing in any open market like DVC, just as there are for pricing of houses, used cars, etc. But that doesn't mean you can't try to isolate one of the many factors and try to figure out how big that factor is.

As it stands, the restrictions are still in place and resale prices are now higher than at any point in time shown by your graph. How does your theory explain this?

Well, first, I don't have some kind of complete "theory" of DVC pricing. The extent of my "theory" is that the restrictions lower demand for resale, and this causes the price ever since they were added to be lower than it would be if the restrictions were not in place. I don't know the magnitude of the effect as of this moment, but I think looking at the effect at the time the restrictions were put in place gives us a ballpark idea of the size. So yes, I do think that if the restrictions on resale were lifted I'd expect resale prices to rise in the neighborhood of 10%. That's not some kind of hard, take-it-to-the-bank number, but it doesn't seem crazy, based on the price history. If the price went up less than 5% I'd be surprised, and if it rose more than 15% I'd be surprised.

All of this is an attempt to answer questions; ones that I tend to think other owners have. I can't figure out why you seem so upset about it. Should we not attempt to answer questions? Should we not look at data? What?

 

[dmunsil]

I have a slightly more nuanced view. They aren't necessarily intended to affect the resale price. Indeed, DVC would probably prefer that resale prices be higher, not lower---lower prices make resale contracts more attractive for people intending to use them for DVC lodging.

It's not clear to me, because lower prices lower Disney's costs for ROFR exercises, so if they see a good business in buying up contracts via ROFR and selling them for more money, I suppose they could also see value in suppressing the resale market somewhat by other means.

No matter what Disney does, the direct market is going to be much, much larger than the resale market, at least until they stop building new resorts. And who knows when that will be? When they run out of land at WDW, they can build more around the globe. Paris DVC. Bermuda DVC. Hong Kong DVC.

Disney has the sales staff, the kiosks at the parks, massive direct marketing, etc. The very largest reseller, The Timeshare Store, has the banner ad on this page, and some Google ads, and not much more.

Instead, I believe they are intended to support direct sales. Supporting direct sales is not necessarily the same as discouraging resale purchases, because timeshare is a product that is sold, not bought, and the market is relatively opaque.

I take your point, but I also think no matter how you slice it, some people will care about the restrictions, and thus buy direct when they would have bought resale. It doesn't necessarily take many of these people to move the market. It's not a huge market to begin with. Have you looked at the raw sales numbers I posted covering the last 6 months? Disney is moving 4-5 times as many contracts as the resale market, and the total number of resale transactions is around 175-250 per month. If 1 person per day decides to buy direct when they would have bought resale, that would absolutely affect the average price.

Here's a link to the numbers of sales for third-party and Disney and some other stats:

http://www.disboards.com/showthread.php?t=3120984

That said, the restrictions probably do have some impact on the margins, because not everyone can or will do the work to evaluate their value. But, having watched many other timeshare systems go through the same thing, it's my opinion that resale prices are impacted more significantly by macroscopic changes in supply and demand.

Agreed about the size of the effect. Other factors are certainly larger. That doesn't negate the reality of the resale restrictions. Something that suppresses the price by, say, 10% is real even if other factors are moving the market around by 20% or 30% per year.

I'm curious about the other timeshare systems. I did go looking at the resale restrictions on some other timeshares, and was pretty amazed at what some of these companies get away with. Bluegreen in particular seemed just terrible as far as putting real restrictions on resales that affect your use of the core value of the timeshare. And they're supposed to be one of the good ones!

Do you have any insights from that market? Has anyone gone too far and faced blowback from their members?

At any point, some fraction of owners will be looking to sell for a variety of reasons: divorce, the kids outgrow it, change in financial or health circumstances, etc. All things being equal, the supply of resale contracts increases over time. Unless the supply of ready and willing buyers *also* grows over time, prices fall.

I totally agree that resale owners will increase over time, which makes me wonder what Disney's endgame is. When more than half of their owners have bought resale, what then? Do they think that isn't going to happen? Do they really not want to offer cruise exchanges in the first place, so this is the first stage of removing them altogether? I can't see why Disney would want to have a two-tier ownership. That can't be good for word of mouth.

It's certainly not in Disney's interest to develop that pool of ready and willing resale buyers, and so you can see where this ends eventually.

I really can't. Where do you see it going?

 

[chateau]

I bought for the sole purpose of staying at my resort. None of the perks are worth anything to me so I place no value on them. The restrictions are just a reduction in perks and no one shouldn't be buying DVC because of a perk since Disney can remove a perk from a direct buyer as easily as they can remove it from a resale buyer.

Precisely. That being said, we did take; into account to buy prior to or after restrictions and did cave to pressure of wanting contracts with none. We also caved to "Price Increase!" pressure recently and bought before that deadline too.

 

[dbs1228]

Precisely. That being said, we did take; into account to buy prior to or after restrictions and did cave to pressure of wanting contracts with none. We also caved to "Price Increase!" pressure recently and bought before that deadline too.

We bought 2 resale SSR before the restrictions just sold 1. I wanted to sell the other since THV are now more points, and DD's just do not like it (bunk beds do not work for them anymore) BUT I also realize I have 160 points bought resale relatively inexpensive as far as DVC goes, its paid for, and has NO restrictions. I do not see myself trading out for cruises ect... but I also plan on gifting my DD's some of our contracts which will maintain no restrictions and will be around until 2054, and 2060. The restrictions would NOT stop me from buying resale but you could say it is making me think twice about selling what I already have.

 

[Brian Noble]

lower prices lower Disney's costs for ROFR exercises,

I suspect that's the tail that wags the dog; nice, but not the driving factor. The base cost to build new is lower than even current resale prices, as suggested by Tim K., and documented by other developers. In other words, it is more profitable to build new than to re-acquire. The typical figure in the industry for percentage of sales prices that are development costs are 20-25%. Resale has to fall to that point to be competitive with stick-built resorts.

It is also possible that marketing "old" resorts is harder than "new" ones, though that's just a guess. Maybe a good guess though: each time the last several resorts have been announced, there is a wave of current owners here on DIS that gets fired up about buying.

Has anyone gone too far and faced blowback from their members?

Not in any great numbers. There are always the disaffected few, but most of the larger timeshare developers have ownership bases that are generally satisfied with the product.

The most drastic I can think of is Diamond---they are structured much differently than DVC. In DVC, the resorts are legally part of the club, and anyone who owns at the resort is also a member of the club unless the resort withdraws. In Diamond, the owners at individual resorts are members of club, not the resorts, and the governing documents are written such that membership in the club does not transfer with a sale; they have to have a new qualifying purchase to re-enroll a resale interest. Otherwise, any resale buyer gets only access to the underlying resort (or, in some older cases, a smaller resort group.) But, Diamond still sells, and did well this most recent quarter. Here's an overview of the Diamond system; it grew as a patchwork of smaller systems that were acquired over time, so it is complicated, but not that hard to grasp: http://tugbbs.com/forums/showthread.php?t=64609

Even so, the question you ask is a little misguided. Current members are not as important to the developer as new purchasers---unless those current members will also buy from the developer. The developer's first concern is to sell new timeshares. Servicing existing owners is also a nice source of revenue, but not dominant. There is some good reason to keep existing owners happy, because they are less expensive to market to for new sales---they already understand what timeshare is. But, you probably can't convert a resale owner to a developer purchase unless the price spread is small, so it would be okay to the developer for the resale owner to be somewhat less happy than the developer-only buyer.

That can't be good for word of mouth.

This belies a fundamental misunderstanding of the timeshare sales process. The people contemplating a purchase here on DISboards are not representative at all of the typical buyer. This gets back to my fundamental point: timeshare is not bought, it is sold. Most buyers when they sign have only the faintest idea of what timeshare is generally, and even less of an understanding of DVC in particular. Word of mouth does not play into it. These people are on vacation, sign up for a tour, and are offered the ability to bottle that magic that they feel to "enjoy for a lifetime at today's prices." That's it. In most systems, informed buyers very quickly conclude that resale is clearly a better value, and so the developers are left to sell to others. But, because the product generally is not well understood, and it is sold but not bought, most potential buyers are not necessarily well-informed.

Several other systems have *much* larger spreads between resale values and developer prices, and usually more substantive (but still economically "meaningless") differences between qualified and unqualified purchases, but still do very strong tour flow and volume-per-guest. The fact that resale values tanked or that resale owners have fewer perks is not a material bar to sales. And, to the developer, that's really all that matters.

Where do you see it going?

The pool of contracts available on the secondary market will have a long-term upward trend, because the owner base is always growing. In other words, the supply will be constantly growing. There must also be some mechanism for growing the pool of willing and able resale purchasers; without that mechanism, prices must fall. Disney won't develop that market, and it remains to be seen if the resale brokers, sites like DIS, etc. will fill that gap.

This is fundamental to timeshare markets generally. DVC fares a little better, because there is more market information available to a buyer, but because there is not much "natural demand" for timeshare, there is still downward pressure. Some of that decline, of course, will be due to the RTU nature of the contracts, but not all of it.

 

[wdrl]

To the OP's credit, he is the only one who has tried to offer objective evidence measuring the affect of restrictions on the resale market. As the data is graphed in Post #1, it appears that resale prices from BWV did indeed drop after the implementation of the restrictions in March 2011.

I think its unfair to call the methodology used in the study "fatally" flawed. The study used the limited amount of data that could be measured. Sure, variables such as whether a deed is stripped or loaded, the size of the deed (whether its a 25-point deed or a 500-point deed), and whether the buyer or seller pays closing costs or MFs may influence price. But who is to say that these variables were not consistent throughout the study period, resulting in a neutral impact on the final results?

Bottom line, I think the OP's findings are not inconsistent with the hypothesis that resale restrictions resulted in a drop in resale prices.

Having said that, I still believe the DVC resale market is terribly inefficient. Offhand, I can't think of many commodities that have so many irrational influences that come into play in determining their prices.

Time and again, we read on the Disboards that exchanges are not worth it and that people have no intentions of using them. Yet, I suspect some of the very people who place no value on these exchanges will use the resale restrictions as an excuse to drive the price lower. It makes no sense for someone to offer $5 or $10 less because a resale deed has restrictions if they have any intention of making an exchange. Since a resale deed is useless to them, they should not even be buying the deed at any price.

I don't subscribe to the idea that since the restrictions forced some people out of the resale market, there must be less demand for resales and, therefore, lower resale prices. In a truly rational market, that may be how it plays out. But in the DVC resale market, irrational as it already is, its highly questionable that the number of buyers has dropped. As the DVC membership grows, the number of people who are active in the resale market also grows.

More importantly,the potential supply of resale deeds has increased greatly over the last few years. Since 2007, AKV has sold over 42,000 deeds; BLT has sold almost 36,000 deeds since 2008; and SSR has sold about 12,750 deeds just since July 2010. Even the 'classic' resorts have more deeds today than in the past. When OKW started in the early 1990s, the average deed was over 200 points. In the last 12 months, the average OKW deed sold by DVD was only 96 points. This huge increase in DVC deeds has resulted in a much larger supply of resale deeds which, in turn, can influence resale prices.

I find dbs1228's latest comment an interesting example of how so many factors can influence the resale market. If some members are holding on to their unrestricted deeds because of the restrictions, then who is to say that the restrictions aren't bolstering the market by keeping some supply off the market? Confusing, isn't it?