ROFR - Has the resale market reached its bottom?

[Mick@Tink]

Maybe its just me, but it appears appears Disney has excercised it's right of first refusal (ROFR) more frequently. Do you believe the DVC resale market has reached its bottom? Is that the reason for so many ROFRs from Disney?

 

[Mickey'sApprentice]

We went with friends a few days ago to hear "the pitch" from DVC.

The guide said that Disney had been exercising ROFR more over the past 6 months.

I didn't buy it, but that is what we said.

 

[Sandisw]

I do think that Disney appears to be exercising ROFR a lot more recently. I have been monitoring the boards for over a year and the past few weeks seem to have had a high number of ROFR'd contracts.

It does appear that SSR has reached the bottom and that contracts passing are a few dollars higher than before. I seem to see more offers of $70 - $71 than in the past year.

VWL is running around the same price as it was last year when I bought and sold.

 

[silmarg]

I think the bottom was in the Summer of 2009.

Disney is certainly exercising ROFR more now that they were at any time in 2008 or 2009.

I am testing the ROFR edge at SSR. So far DVD has bought back 2 contracts that I agreed to buy. And I should find out about my 3rd in the next week.

 

[Jason@dvcstore]

Maybe its just me, but it appears appears Disney has excercised it's right of first refusal (ROFR) more frequently. Do you believe the DVC resale market has reached its bottom? Is that the reason for so many ROFRs from Disney?

I agree with Silmarg that the bottom has actually passed. I believe at one point The Timeshare Store, Inc.® had a few contracts pass ROFR at Saratoga Springs as low as $63 per point and now Disney is buying some back as high as $68 per point. In my opinion the market it is on the way up. Of course, with so many listings on the market it is difficult to convince buyers that the market is moving up. Despite letting them know about ROFR buyers still tend to make lower offers. Some sellers, of course, are accepting those offers and with Disney more active on ROFR more contracts are being bought back.

Jason

 

[RobDoc]

I believe that the "bottom" of the resale market is a moving target and subject to a lot of different factors. While we may have seen a momentary bottom I would expect that resale prices will see further lows as time goes on ... (think about what may happen in another 5-10 years as the expiration date for a number of resorts gets closer and what will resale rates be like in 2040 with many contracts expiring in 2042).

Enjoy the current "bottom" while you can, but expect more lows as time goes on.

 

[Jason@dvcstore]

I believe that the "bottom" of the resale market is a moving target and subject to a lot of different factors. While we may have seen a momentary bottom I would expect that resale prices will see further lows as time goes on ... (think about what may happen in another 5-10 years as the expiration date for a number of resorts gets closer and what will resale rates be like in 2040 with many contracts expiring in 2042).

Enjoy the current "bottom" while you can, but expect more lows as time goes on.

In my opinion that will only happen if Disney lowers the prices buying directly from them. Disney still sells all 10 resorts and since 1991 have always raised their prices even though the number of years remaining on the contract have gotten smaller. If Disney starts dropping the price buying directly from them then I would expect that to bring the resale prices to their bottom.

Disney will probably figure out a way to get buyers to buy resorts directly from them in 2040 at $278 per point even though the contract is expiring in 2042. They will probably have the list price at $378 but if buy right now price only $278. They will figure something out.

Jason

 

[cvjw]

I think that prices are higher now than in the summer. We purchased 3 contracts during the summer for great prices, and have been toying with the idea of buying a 4th right now. I have been watching the resale prices, and it seems that most of the contracts are selling for more now than they did when we purchased. Makes me glad that we bought when we did, but sad that I can't get that BWV contract that I want for the price that I want!

 

[RobDoc]

In my opinion that will only happen if Disney lowers the prices buying directly from them. Disney still sells all 10 resorts and since 1991 have always raised their prices even though the number of years remaining on the contract have gotten smaller. If Disney starts dropping the price buying directly from them then I would expect that to bring the resale prices to their bottom.

Disney will probably figure out a way to get buyers to buy resorts directly from them in 2040 at $278 per point even though the contract is expiring in 2042. They will probably have the list price at $378 but if buy right now price only $278. They will figure something out.

Jason

In my opinion, that will only happen if DVC is still using ROFR in 2040 and is willing to buy back soon-to-expire contracts. If we use OKW as an example, DVC can presently sell some contracts (all with the extra 15 years). Resales for those extended contracts do not seem to be commanding the additional $15 per point paid by the seller (TTS has one listed today at $60 per point - effectively pricing the original contract at $45 per point plus the $15 extension).

In 2040, OKW contracts sold thru DVC directly will still have almost 17 more years for reservations, while resales of unextended contracts will have less than 2 years. Do you really believe that resales for non-extended contracts will still be selling then at current (2010) pricing? I don't believe DVC will have any interest in using ROFR for those contracts in 2040 since they will already get them back on February 1, 2042 without any expense - and they already own the extension on all non-extended contracts.

What pricing would you advise for a seller today if he was listing a contract that expired on January 31, 2010 and wanted a quick sale? Do you believe DVC would exercise ROFR at that (or any) price? The same issues will be in play as we edge nearer to 2042. While it appears that the current resale market might have bottomed out all DVC contracts will eventually have zero value as they approach their expiration.

I hope you'd at least agree that on January 31, 2042 a non-extended OKW contract would be a tough resale at ANY price.

It will be an interesting process to follow - although I will not likely be around to see what happens in 2040.

Stay Tuned!

 

[bookwormde]

I think it is all a matter of how many points DVD is willing to inverntory. I would be surprised if they would go much beyond 30-75k (beyond new points).

If DVD moves back to the amount of ROFRing it was doing early last year the prices will go right back down and maybe farther.

bookwormde

 

[Jason@dvcstore]

In my opinion, that will only happen if DVC is still using ROFR in 2040 and is willing to buy back soon-to-expire contracts. If we use OKW as an example, DVC can presently sell some contracts (all with the extra 15 years). Resales for those extended contracts do not seem to be commanding the additional $15 per point paid by the seller (TTS has one listed today at $60 per point - effectively pricing the original contract at $45 per point plus the $15 extension).

In 2040, OKW contracts sold thru DVC directly will still have almost 17 more years for reservations, while resales of unextended contracts will have less than 2 years. Do you really believe that resales for non-extended contracts will still be selling then at current (2010) pricing? I don't believe DVC will have any interest in using ROFR for those contracts in 2040 since they will already get them back on February 1, 2042 without any expense - and they already own the extension on all non-extended contracts.

What pricing would you advise for a seller today if he was listing a contract that expired on January 31, 2010 and wanted a quick sale? Do you believe DVC would exercise ROFR at that (or any) price? The same issues will be in play as we edge nearer to 2042. While it appears that the current resale market might have bottomed out all DVC contracts will eventually have zero value as they approach their expiration.

I hope you'd at least agree that on January 31, 2042 a non-extended OKW contract would be a tough resale at ANY price.

It will be an interesting process to follow - although I will not likely be around to see what happens in 2040.

Stay Tuned!

In my opinion if we are talking 2040 then I think by then there will be 23 Disney Vacation Club resorts. There will be 337,000 members. There will be a consistent 2% of members trying to sell. The Timeshare Store, Inc.® will most likely have consistently 4,000 listings on the market.

With all the competition on the resale market Old Key West memberships that are expiring 2042 will have little or no demand. With little or no demand my guess is the price will be very small in order for someone to want to buy there. It might even be the case where no person actually buys those point but chooses to buy at one of the new resorts that ends 2080.

Jason

 

[Jason@dvcstore]

In my opinion, that will only happen if DVC is still using ROFR in 2040 and is willing to buy back soon-to-expire contracts. If we use OKW as an example, DVC can presently sell some contracts (all with the extra 15 years). Resales for those extended contracts do not seem to be commanding the additional $15 per point paid by the seller (TTS has one listed today at $60 per point - effectively pricing the original contract at $45 per point plus the $15 extension).

In 2040, OKW contracts sold thru DVC directly will still have almost 17 more years for reservations, while resales of unextended contracts will have less than 2 years. Do you really believe that resales for non-extended contracts will still be selling then at current (2010) pricing? I don't believe DVC will have any interest in using ROFR for those contracts in 2040 since they will already get them back on February 1, 2042 without any expense - and they already own the extension on all non-extended contracts.

What pricing would you advise for a seller today if he was listing a contract that expired on January 31, 2010 and wanted a quick sale? Do you believe DVC would exercise ROFR at that (or any) price? The same issues will be in play as we edge nearer to 2042. While it appears that the current resale market might have bottomed out all DVC contracts will eventually have zero value as they approach their expiration.

I hope you'd at least agree that on January 31, 2042 a non-extended OKW contract would be a tough resale at ANY price.

It will be an interesting process to follow - although I will not likely be around to see what happens in 2040.

Stay Tuned!

I would agree that if a resort is expiring January 31st, 2054 then the days that the price would hit rock bottom would be January 1st thru January 30th, 2054.



Jason

 

[Jason@dvcstore]

What pricing would you advise for a seller today if he was listing a contract that expired on January 31, 2010 and wanted a quick sale? Do you believe DVC would exercise ROFR at that (or any) price?

In my opinion the market at any time given time determines the price.

To keep it simple it would depend on the supply and demand for that property at that time. That is really the key to everything at any time. Buyers and sellers will come to an agreement at all times in the market. Sometimes at a higher price and sometimes at a lower price.

Jason

 

[Lawshark]

What bottom? It's artificial due to ROFR...not a real bottom. The fact that DVD can artificially inflate the market price due to their use of ROFR means that any "bottom" is artificial unless DVD simply opts to not use ROFR any more.

By using ROFR aggressively DVD can try to stop a fall in prices...if they use it enough and there remains a large enough pool of buyers to match the increasing pool of sellers and those buyers want a contract bad enough...then those buyers will put offers in at or above whatever "stop loss" point DVD has set for point value.

However...if buyers continue to bid down the pricing...daring DVD to ROFR the contract...and they do it enough...at some point it is DVD that is going to bow to market pressure. They do not have unlimited funds...at some point it will make economic sense for them to say "No more!" and stop laying out cash to ROFR contracts. At that point, prices will fall.

My guess is that things are going to get worse. I'm a real estate attorney on the residential side and all the happy happy joy joy talk coming from the government is wishful thinking. Mortgage rates have been artificially held low due to aggressive Fed purchase of long term bonds...lots of deficit spending to force rates down. That is scheduled to expire in March...then the tax credit for homebuyers expires at the end of June...another government price support.

There are still another 1.5 million or better homes in foreclosure...ready to hit the market. 25% of all homeowners are "underwater" and owe the bank more than their home is worth. In some states nearly 50% are underwater...Florida is 45%...Nevada is 65% underwater!

Unemployment is over 10% and unlikely to drop below that number until late in 2010 at least.

Yep...we've definitely hit bottom! There are going to be just tons of people who are dying to have a 2nd home or a timeshare!

 

[silmarg]

What bottom? It's artificial due to ROFR...not a real bottom. The fact that DVD can artificially inflate the market price due to their use of ROFR means that any "bottom" is artificial unless DVD simply opts to not use ROFR any more.

By using ROFR aggressively DVD can try to stop a fall in prices...if they use it enough and there remains a large enough pool of buyers to match the increasing pool of sellers and those buyers want a contract bad enough...then those buyers will put offers in at or above whatever "stop loss" point DVD has set for point value.

However...if buyers continue to bid down the pricing...daring DVD to ROFR the contract...and they do it enough...at some point it is DVD that is going to bow to market pressure. They do not have unlimited funds...at some point it will make economic sense for them to say "No more!" and stop laying out cash to ROFR contracts. At that point, prices will fall.

You are spot on Mr Shark. If not for ROFR, DVC Resales would be much lower than they are. People who want in on a resale have to play by DVDs artificially constructed base price.

I have bid on several contracts... never had a counter offer (my read is people just need to get out at any reasonable price)... my bid has almost always been accepted.... and been ROFRd each time...

So as far as I am concerned the true market value at this point and time is what a willing buyer and a willing seller agree to transact at. Disney is artifically keeping prices up with ROFR. I bet SSR would sell in the $50s if ROFR did not exist.

I have considered bidding one several contracts at once trying to put pressure on DVD to capitulate. But knowing DVD they will have me keep all the contracts... sticking it to me!

As long as I have the luxury of time... I will keep playing the "market pressure" role.

 

[Lawshark]

You are spot on Mr Shark. If not for ROFR, DVC Resales would be much lower than they are. People who want in on a resale have to play by DVDs artificially constructed base price.

I have bid on several contracts... never had a counter offer (my read is people just need to get out at any reasonable price)... my bid has almost always been accepted.... and been ROFRd each time...

So as far as I am concerned the true market value at this point and time is what a willing buyer and a willing seller agree to transact at. Disney is artifically keeping prices up with ROFR. I bet SSR would sell in the $50s if ROFR did not exist.

I have considered bidding one several contracts at once trying to put pressure on DVD to capitulate. But knowing DVD they will have me keep all the contracts... sticking it to me!

As long as I have the luxury of time... I will keep playing the "market pressure" role.

I may join you in providing market pressure before too long...we need more people fighting the good fight to force a re-evaluation by DVD. I would absolutely love to have some points. I'm fortunate enough to be able to avoid financing the purchase. I'm damn tempted to pull the trigger. But...

Price point is simply too high right now for me to justify the upfront cost. I want Epcot...BCV or BWV...and about 200 points. $16,000 though? Urmm...not sure that works. We're going for 6 nights in April...1 BR at Boardwalk (1st visit there)...for less than $2,000 through central res. Booking points would be 184 points I think...valued at $10...$1,840 plus $1,000 almost in maintenance fees.

Good deal how? Yes...over time, etc etc...

However...BCV or BWV at $12,000 for the 200 points...now we have a deal.

 

[Brian Noble]

What bottom? It's artificial due to ROFR...not a real bottom.

I read a very interesting article recently that argued that ROFR tends to *depress* prices, not increase them. The intuition is that the rightsholder need not bid competitively in the market, and so that removes at least one purchaser from the demand side of the equation. After all, setting the ROFR floor above market price only leaves some potential purchasers (such as lawshark) deciding to forgo a purchase---which in turn tends to depress prices.

The article instead argues that the value of ROFR is in converting an opaque marketplace to an open one---the rightsholder is guaranteed to know of any sale opportunity, and that helps to establish the market. But, DVC resales are a large enough business that the market is anything but opaque. Sales prices (not just asking prices, but sales prices) are readily available both here and elsewhere.

I'm not an economist, so I couldn't tell you if the analysis was correct, but I presume the editors of the journal subjected the article to peer review. Indeed, we've seen that ROFR is subjected to market pressures---during the worst periods of consumer confidence, when developer sales were at their slowest, ROFR levels slumped quite noticeably.

 

[Lawshark]

Not sure I buy the logic in the context of a timeshare...especially this particular timeshare...

I would completely agree that a ROFR in a normal residential real estate context would depress the price...the properties that I deal with regularly. If there is a single family residence...or an investment property or 2nd home...that is subject to a ROFR...then that is going to be disclosed up front or discoverable at least on title.

That is going to be a disincentive to the buyer. Why buy this 4 bedroom, 2 bath home which might not happen under ROFR when you can buy one of the other 4 bedroom, 2 bath homes for sale within a 15 mile radius?

Sellers invariably overestimate the uniqueness of their home and the value that perceived uniqueness has in the marketplace. Yes...their home is "special" to them...but to the market at large it is simply a 4 bed, 2 bath home. Buyers are not going to spend an extra $20,000 because they put some extra special landscaping/tile/etc. into the house.

So...if you have this big stinking ROFR on one house...why wouldn't a high percentage of potential buyers simply move on to the other similar houses?

BUT...I don't see how that applies to DVC. It is simply too different of a market.

All DVC properties are subject to the same ROFR. Someone looking to buy at Disney is getting DVC...and forced to cope with ROFR. There simply isn't any alternative. Yes...there are other Orlando timeshares...but the people looking at DVC are looking at Disney and they aren't focusing on getting a Marriott or any other offsite timeshare.

So...you are not getting a downward price pressure from buyers fleeing to similar properties without placing an offer...all properties are within the system. Those bidding on DVC properties have already self-selected to deal with the ROFR issues.

Those, like me, who have opted to wait...simply haven't decided it's worth the trouble to put in "lowball" offers...too much time and effort with what I've got going on in my life.

That would seem to me to inflate market values...by exercising ROFR aggressively Disney can drive potential buyers out of the market...the folks who are going to put in lower offers and don't want to deal with having their contract ROFR'd. That leaves folks willing to put in offers above the artificial floor that Disney is attempting to set.

Disney only loses if enough people say "screw it" and decide to call their bluff.

 

[silmarg]

Granted Disney's timeshare is very different that most other timeshares, but considering that other timeshare resales sell for pennies (or nickles or dimes) on the dollar in this economy while DVC is selling for 50-80 cents on the dollar leads me to believe that ROFR has the effect of keeping prices up.

That said, DVD does not have an endless appetite to keep buying back via ROFR - unless they are getting a decent flow of owners looking to buy the older resorts direct from Disney (which I doubt, with the exception of smaller DVCs like BCV).

When resale prices cratered in early 2009, Disney let the prices drop as it seems they did not want to step in front of a runaway train. I think as the stock market recovered in the summer of 2009 that Disney saw the light at the end of the tunnel of our economy, and they decided to defend the value of DVC for their owners.

I agree with the Shark, the economy is not so hot. There are way more sellers than buyers on all areas of real estate - especially timeshares and vacation homes (in fact we were considering just buying a condo on 192 or in Celebration over DVC... but we decided we didnt wan't to deal with the hassels of ownership).

 

[lugnut33]

I may join you in providing market pressure before too long...we need more people fighting the good fight to force a re-evaluation by DVD. I would absolutely love to have some points. I'm fortunate enough to be able to avoid financing the purchase. I'm damn tempted to pull the trigger. But...

Price point is simply too high right now for me to justify the upfront cost. I want Epcot...BCV or BWV...and about 200 points. $16,000 though? Urmm...not sure that works. We're going for 6 nights in April...1 BR at Boardwalk (1st visit there)...for less than $2,000 through central res. Booking points would be 184 points I think...valued at $10...$1,840 plus $1,000 almost in maintenance fees.

Good deal how? Yes...over time, etc etc...

However...BCV or BWV at $12,000 for the 200 points...now we have a deal.

You probably shouldn't buy in if you plan or want to make money off DVC.

Depending on where you're buying, what is a $1000 or so dollars spread over 40 to 50 years?

Not every purchase has to stand the economist test because that would eliminate any emotion from it. It's a proven fact, most economists last words are, "I wish I had bought that".