ROFR - Has the resale market reached its bottom?

[Lawshark]

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".

Don't get me wrong...I'm not looking at DVC as a way to "invest" in any way, shape or form. A timeshare is probably the last spot you'd look to as an investment...okay...maybe tulips would be a worse investment.

I just don't want to buy into something that at current prices may be better to rent.

A straight comparison of DVC ownership v. rack rate obviously makes sense sooner from a financial standpoint...but not so much at a 40% or 45% discount from rack rate like they are giving away this year.

Obviously these great deals will go away when the economy improves...but from my standpoint the DVC prices are likely to fall or at least stagnate for an extended period. When prices drop...I'll buy. Until then...I'll rent.

 

[RobDoc]

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.

I think there are some basic flaws in your comparison as I'm not sure how you have "valued" the points at $10 PLUS maintenance fees and it's also apparent that you were able to take advantage of one of the discounted rates - which will not likely always be available.

If you were to pay $16,000 for 200 points at BWV the annual "cost" of those points would be $16,000/32 (the number of years remaining on the contract)/200 (the number of points in the contract)= $2.50 per point. The maintenance fees on those points for 2010 would be $5.21 per point for a total of $7.71 per point. Of course, some will want to include the cost of the loss of that $16,000 purchase, so you can certainly add something to your totals there if necessary, but it will still not bring the total to $10 plus the maintenance fees. If you want to incude the cost of the loss of use of that money, be sure to also include the cost of the loss of the cash reservation on a yearly basis.

As for the room rate you used, the current rack-rate from DRC for a BWV 1BR Standard View room in April, 2010 is $525 per night (plus applicable taxes). 6 nights (I used 4/11 - 4/17/10) would be $3544 for the room itself. It sounds as though you were able to secure some discounted rate, but those have not always been available in the past and aren't likely to be available as time goes on.

The actual number of points required for that stay would be 182 points (28 points for each of the weeknights and 42 points for Friday night). If you were to use 140 points for the first 5 nights and pay cash for the higher point cost weeknight, the economics would be even better.

Using the $7.71 figure from above, the "cost" of the 6 nights (including higher cost Friday) would be $1403.22 . Many DVC members have learned to "get by" with a 5 night stay and for that the total cost would $1079.40 to use 140 points for a Sunday arrival/Friday departure stay. Regardless, the "cost" is still well below the heavily discounted rate you were able to secure for this year's trip.

Even better, if you would find in a number of years that you wanted to sell your contract, you could recoup much of the cost - possibly even benefitting from ROFR.

We purchased a resale contract at OKW over 13 years ago at $50 per point (direct sales were then at $62.75) and sold it last winter at $71 per point - recouping all of our purchase cost as well as a good portion of the annual fees used for many, many DVC stays. Even without selling the contract, we had saved enough in accommodations that the contract had "paid" for itself after 4 years of ownership and subsequent trips only cost was the annual maintenance fee. We also had the benefit of 3 years of free passes on that contract.

Good luck with your decision.

 

[lugnut33]

Don't get me wrong...I'm not looking at DVC as a way to "invest" in any way, shape or form. A timeshare is probably the last spot you'd look to as an investment...okay...maybe tulips would be a worse investment.

I just don't want to buy into something that at current prices may be better to rent.

A straight comparison of DVC ownership v. rack rate obviously makes sense sooner from a financial standpoint...but not so much at a 40% or 45% discount from rack rate like they are giving away this year.

Obviously these great deals will go away when the economy improves...but from my standpoint the DVC prices are likely to fall or at least stagnate for an extended period. When prices drop...I'll buy. Until then...I'll rent.

I'm not going to lie, I thought the exact same way for a long time. I didn't buy in because there were good deals to be had. Free dining and 40% off are good discounts.

I bought in at $80 per point at SSR on a resale contract. If I had waited another year I probably could have got in at $70 or lower. However, on a $120 pt. contract that's only a thousand or so. If I had waited I would not have been able to enjoy a wonderful couple only trip to Kidani Village for 4 nights, as well as a 5 night stay in the Tree House Villas this past August (I was able to bring along all the grandparents for this trip, something I would have never been able to do before financially. Now my kids got a great once in a lifetime trip with them.)

So yeah, you can wait around and watch the prices fluctuate, but at some point you're going to miss out on memories and great vacations (there's something really cool about staying in deluxe accomidations).

 

[lugnut33]

Oh, I talked to Jaki today at ********** and she says there have been lots and lots of contracts that Disney is buying back. According to Jaki, Disney is making a stand because the low prices are hurting new sales.

 

[Lawshark]

I think there are some basic flaws in your comparison as I'm not sure how you have "valued" the points at $10 PLUS maintenance fees and it's also apparent that you were able to take advantage of one of the discounted rates - which will not likely always be available.

Well...like I said...I'm looking at this short term...what are the prices going to do in the next year or two? I also pointed out that the 40% and 45% off rates aren't going to be around after the economy takes off...but that isn't happening in the next year or two either.

So...the relevant question is whether it makes more sense to rent in the next year or so...and then potentially buy...or more sense to buy in now. Since I think prices for DVC will fall further...I say wait and take advantage of 45% off.

The $10 value was simply an easy grab from what most DVC'ers seem to rent their points for...

If you were to pay $16,000 for 200 points at BWV the annual "cost" of those points would be $16,000/32 (the number of years remaining on the contract)/200 (the number of points in the contract)= $2.50 per point. The maintenance fees on those points for 2010 would be $5.21 per point for a total of $7.71 per point. Of course, some will want to include the cost of the loss of that $16,000 purchase, so you can certainly add something to your totals there if necessary, but it will still not bring the total to $10 plus the maintenance fees. If you want to incude the cost of the loss of use of that money, be sure to also include the cost of the loss of the cash reservation on a yearly basis.

Agreed...I would want to factor in the opportunity cost on the money...but fair enough. I just think we're looking at an upcoming reduction in pricing with the economy...especially the real estate market...and more particularly second home market...in the tank.

It sounds as though you were able to secure some discounted rate, but those have not always been available in the past and aren't likely to be available as time goes on.

Yep...1st a 40% pin code came along...then the 45% off promotion came out.

Even better, if you would find in a number of years that you wanted to sell your contract, you could recoup much of the costs possibly benefitting from ROFR.

We purchased a resale contract at OKW over 13 years ago at $50 per point (direct sales were then at $62.75) and sold it last winter at $71 per point - recouping all of our purchase cost as well as a good portion of the annual fees used for many, many DVC stays. Even without selling the contract, we had saved enough in accommodations that the contract had "paid" for itself after 4 years of ownership and subsequent trips only cost was the annual maintenance fee.

Good luck with your decision.

That's great...and yes, the ROFR has some very good benefits for the owners in keeping prices up. I'm not going to count on that holding true forever...but it would certainly be nice if you were still able to recoup a decent portion of your upfront costs in 15 years.

 

[chalee94]

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...

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.

if there were fewer buyers offering less money (i.e. a lower demand curve), prices would fall - yes. but in fact, there are enough buyers willing to pay higher prices...so you've concluded that the price where the supply and demand curve meet is actually "artificial."

i don't get it. i still think those who think ROFR exists to "artifically inflate" prices - rather than make sure DVC is the one who benefits when a few individual sellers get desperate - have confused "correlation" with "causation."

when demand took a big hit last year, ROFR dropped because the market price was really dropping due to severe demand issues IMO (i think SSR may be causing a few issues on the (over)supply side as well). it's charming that some think that DVC recently stepped up ROFR "to defend the value of DVC for their owners" but i think it's more about the demand curve firming up and DVC making a rational business decision that makes money for them. unless a long-term threat to the uniqueness of staying at wdw suddenly appears, resale prices are probably right about where they should be, with or without ROFR.

(if civilization is ending, gas prices are headed to $10/gallon and/or the u.s. completely adopts socialism...that could change.)

 

[Lawshark]

So yeah, you can wait around and watch the prices fluctuate, but at some point you're going to miss out on memories and great vacations (there's something really cool about staying in deluxe accomidations).

I completely agree that the emotional part of the equation is the biggest thing DVC has going for it. If you like/love Disney (and I do), then having DVC is a very cool thing.

But...not having DVC right now doesn't mean foegoing some great vacations...especially in this environment where hotels/resorts are blowing things out the door. Airfare too sometimes.

For example...we're heading to DC this weekend to visit my brother and his family...it wasn't planned. Southwest dinged a fare last month...$75 roundtrip including taxes. They aren't doing fares like that because planes are full. They even dinged the same route a couple weeks later...so even at $75 they didn't fill the seats.

On top of that...when I looked at hotels there were some crazy low deals. As folks who have booked DC before know...hotel prices can get a bit inflated. Not in January in this economy though. Just for kicks and giggles I added the Ritz Carlton into my search for hotels...and that ended up where we are staying. A regular room (and their rooms are bigger than average) was only $140 a night...a 2 room suite (750sqft) was only $240...cheaper than a 1br at the Residence Inn.

Everyone is right...these deals will not last.

But they will while unemployment is over 10%...

 

[RobDoc]

Well...like I said...I'm looking at this short term...what are the prices going to do in the next year or two? I also pointed out that the 40% and 45% off rates aren't going to be around after the economy takes off...but that isn't happening in the next year or two either.

Disney CEO Bob Iger has already stated that the discounts will be significantly reduced over 2010 and beyond.

The $10 value was simply an easy grab from what most DVC'ers seem to rent their points for...

... and than $10 rental rate includes paid maintenance fees plus some profit for the member. Some rent for much higher amounts.

Agreed...I would want to factor in the opportunity cost on the money...but fair enough.

If you invested that $16,000 at 6% as you suggested, the annual income would be $960 - so you would have needed to dip into the principal to cover even your heavily discounted trip in April. When you go back in 2011 - without the heavy discount - your principal has been reduced below $15K - and the return on that investment would be below $900 - again requiring further reduction in your principal balance. Over the 15 years you would possibly hold DVC, there would still be some value via resale while your $16,000 invested at 6% and used to pay for DVC vacations would be completely depleted and you would have been using other funds to pay for those vacations.

Now, if you want to stay offsite or in WDW Value resorts, you may well be able to travel on the income from the invested $16K - but that's an entirely different discussion.

Good luck with your decision.

 

[Lawshark]

Disney CEO Bob Iger has already stated that the discounts will be significantly reduced over 2010 and beyond.

No offense to Mr. Iger...but I have no doubt that assumes a more robust economy come Fall 2010. If they phase out discounts...and bookings are down...you'll see them come back.

In the end...this is all speculation regarding the direction of the economy...and no one has the exact answers.

 

[dizfan]

Even with the slower economy, didn't Disney raise the prices on the rooms?
I know they raised ticket prices in August.

The CMs are receiving a raise this year (and I think they deserve it). Those raises will be paid for by increasing prices.

Whenever stores raise prices, it's very common to advertise a discount on the items. After a bit, the discounts disappear.

It would be interesting to see what the prices of Disney accommodations have done over the years.

 

[tjkraz]

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...

Of course the rub is that DVC can still re-sell points it obtains via ROFR. In November and December (only two months I looked at) DVC still closed on 60-80 contracts per month for points at SSR. There were also closings for the BoardWalk, Old Key West and every other resort.

Re-selling the older resorts may not be a big profit center to DVC but I'm sure there is something to be made if they can re-acquire SSR points in the $50s and sell in the $90s.

Well...like I said...I'm looking at this short term...what are the prices going to do in the next year or two? I also pointed out that the 40% and 45% off rates aren't going to be around after the economy takes off...but that isn't happening in the next year or two either.

So...the relevant question is whether it makes more sense to rent in the next year or so...and then potentially buy...or more sense to buy in now. Since I think prices for DVC will fall further...I say wait and take advantage of 45% off.

Not sure I agree but it's your dime.

In the spring of 2009 you could buy Bay Lake Tower points for $96 each. Today the best public offer is $112 per point. That includes an $8 increase in the base price implemented just 3-4 months ago.

AKV is going for $91 in the spring...today it's $98. Other posters have related how the resale market is coming back up after its low during summer '09.

While dollars will vary by date, most of the comparisons I've looked at have DVC running about a break-even with CRO incentives today. I'm not sure why one would hold out hope that the cost of a DVC purchase would improve as CRO discounts begin to dry up.

 

[lugnut33]

I'm not sure why one would hold out hope that the cost of a DVC purchase would improve as CRO discounts begin to dry up.

For some the thrill of the hunt is more exciting than the shooting. Just like waiting for that sweater you want to go on sale, but that's not good enough, you're going to wait until it's on clearance.... even if you have wait until June.

 

[tjkraz]

For some the thrill of the hunt is more exciting than the shooting. Just like waiting for that sweater you want to go on sale, but that's not good enough, you're going to wait until it's on clearance.... even if you have wait until June.

True. But there's a logical reason to believe that the price of the sweater will fall--lower demand driven by higher temps.

Similarly it seems that DVC prices would only rise as CRO discounts dry up and the potential savings afforded by DVC look better and better.

We never know when DVC may offer a really good incentive or when they will waive ROFR on a lowball offer. But it's really throwing logic out the window in hoping to find a lower purchase price as Disney's theme park business improves.

 

[Lawshark]

True. But there's a logical reason to believe that the price of the sweater will fall--lower demand driven by higher temps.

Similarly it seems that DVC prices would only rise as CRO discounts dry up and the potential savings afforded by DVC look better and better.

We never know when DVC may offer a really good incentive or when they will waive ROFR on a lowball offer. But it's really throwing logic out the window in hoping to find a lower purchase price as Disney's theme park business improves.

Let's just say that I am not at all optimistic in regard to the real estate market for vacation homes. DVC is still, at its heart, a real estate interest in a vacation home.

The last decade provided a glut of 2nd home owners...and while I doubt Disney will be hit quite as hard as other sectors...I'm still quite pessimistic regarding values for 2nd homes.

 

[littlestar]

Let's just say that I am not at all optimistic in regard to the real estate market for vacation homes. DVC is still, at its heart, a real estate interest in a vacation home.

The last decade provided a glut of 2nd home owners...and while I doubt Disney will be hit quite as hard as other sectors...I'm still quite pessimistic regarding values for 2nd homes.

To me, the price of DVC has more to do with what it would cost me cash wise to stay at a deluxe hotel onsite at Walt Disney World. That's why I still own some DVC points - it gives me a break on price on what it costs to stay deluxe for a Walt Disney World vacation. The price of second homes scattered across the country didn't enter into my decision on owning DVC points.

 

[Brian Noble]

Eric: the paper did not discuss the impact of ROFR vs. non-ROFR in the same market---that's a different story entirely (and also valid).

The paper simply looked at a single market, and the impact of having one party have to bid competitively vs. having ROFR rights. Selling prices are slightly lower when ROFR is in place if the market is transparent, beacuse the rightsholder does not need to out-bid the otherwise highest bidder. There is a negligible impact if the market is opaque/imperfect.

When bidders are rational, having an ROFR "floor" doesn't increase selling price, it just decreases demand if the floor is known. And, while few things are rational when it comes to Mickey, most resale buyers are already somewhat divorced from the pixie-dust-in-the-eyes syndrome. YMMV.

Edited: if I was in the market to buy DVC, I would think now is a good time to buy. And, really, I would think six months ago would have been better. I don't expect prices to drop significantly in the coming two years, because I expect consumer confidence to increase (slowly) over that time. I also think this market is distinct from the 2nd home market, even though they nominally are selling the same thing---the level of exposure at tens of thousands is qualitatively different from the level of exposure at hundreds of thousands. YMMV again.

 

[Brian Noble]

Re-selling the older resorts may not be a big profit center to DVC but I'm sure there is something to be made if they can re-acquire SSR points in the $50s and sell in the $90s.

A common rule of thumb in the timeshare industry is that sales costs is anywhere from 1/4 to 1/2 the total price of the product. It would appear that Mickey is closer to the lower end of that spectrum given the spreads on ROFR/sales prices, but that's a little surprising given the number of body snatchers---one in every resort lobby, and kiosks every 100 feet in the parks. On the other hand, they aren't paying out for tours nearly as much.

 

[dizfan]

I think DVC is an emotional attachment to memories of many things Disney.

Most people buy DVC for trips to see the mouse. Memories of childhood, family trips, special honeymoon memories, grandparents spoiling grandchildren, etc.

Unlike a timeshare or secondary home location, our children/grandchildren don't grow up watching Disney's shows, movies, cartoons, Christmas parade, etc.

Disney markets for a family time. They are very good at capturing the special moment of a child running up to Mickey Mouse and giving him a hug.

How many other travel destinations saw decent attendance during the bad economy? Emotion is what draws people to Disney and at least to this point is why DVC hasn't dropped far worse. Enough demand to keep it going.

 

[silmarg]

There is no doubt that ticket prices increase all the time and by more than the rate of inflation. There are rarely any discounts to be had on tickets (unless you consider a 10 day No Expire or an AP a deal).

Rooms on the other hand dont seem to go up nearly as much. I think Disney has tweeked with room prices (made the seasonal fluctuations more dramatic and weekends more than weekdays). I think I paid $74/nite *****counted at ASMU 13 years ago in early Feb. Folks with discounts can do better than that today.

In many respects Disney is like Gillette. The hotels are the razors (heavy discounts) and the park tickets are the blades (expensive).

I have debated whether waiting to buy DVC made sense since there were so many great deals out ther in the last 18 months (free dining, buy 4 get 7). But I see Disney is smartening up - requiring length of stay park admission for the best deals. And I figured if I waited until the deals disappear, the resales would likely be higher.

That said, I am fine going w SSR. Its a real nice resort and there is plenty of attractively priced resales out there that I am willing to press the ROFR issue on.

 

[Shamus]

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.

Lets take a quick look at the numbers - - -
We'll use the BWV 1br in April example you provided - - -

5 nights @ $525+tax = $2950 / 140 pts = $21pt value
With a 40% room discount we would get 5x$315+tax = $1770 /140pts = 12.65 pt value back out the $5.36 maint. fee = $7.39 x 2 years = $14.78

So in 2040 with two use years remaining on the contract a buyer could pay $14.78 per point and be getting the equivalent of 40% off Rack.

So I'm sure there are people who right now want to jump at the opportunity to lock in a sale of their points for $14.78 in 2040 but first consider this.

When BWV opened in 1996 the Rate for that room was $310 and maintenace fees were $3.70 That's an anualized appreciate rate of 3.84% for the room and 2.69% on the fees. If we were to carry those percentages forward to 2040 we get $1625 and $11.89 respectively.

So $1625 - 40% = $975 +tax @ 5 nights = $5485 / 140pts = $39.17 - 11.89 fee = 27.28 pt. value x 2 years = $54.56

Still want to lock in that future sale at $14.78 ????

I know that this takes past performance and carrys it forward which is not guarenteed, but the appreciation rates could increase just as likely as fall.

As I said a number of years back - It is the Disney Hotel Room Rates and the Risk of Time that set the true DVC price market and will continue to do so. In 2040 the time risk is minimal, so you are basically just paying for use of a room for two years.

And remember that just as ROFR sets a bottom - DVC's New Purchase Selling Rate sets the Cap.