Why does the price increase as the years remaining decrease?

[AllieV]

Ok, accounting people, please help me understand how it is that a contract that should be depreciating every year (due to it losing one year's points every year) keeps increasing in price? I know that yesterday's dollar and tomorrow's dollar do not have the same value, but the increase isn't even keeping pace with COLA. And if you consider that it's fewer years as time marches on, even COLA shouldn't kick in fully.

So how is it Disney keeps increasing the price per point on these contracts? And who in their right mind keeps paying the higher price?

Am I nuts or does it seem that only the resale contracts are projecting true value? I've been watching those resales for 8-10 years (I've lost track of time) and what sold for $80 or $100 in resale long ago now sells for $55-70. Same contract. That makes sense to me. What Disney is doing does not.

edit: also, why doesn't disney package every contract to be a 50-yr contract no matter when it's sold? Is there some law that they all must expire in the same year and once they establish that year, the countdown begins? I could understand raising the price on a new 50-yr contract.

 

[Chic]

The reason the prices are increasing even though there are fewer years remaining on the contract is because the cash rates for room reservations is increasing. I bought my first DVC contract back in July 2007 and the going rate for Saratoga Springs purchased directly through Disney was $105 per point. At that same time in 2007, typical room rates at the Disney Deluxe Resorts was anywhere from $250-$450 a night. Here we are 5 years later and the nightly room rates at the Deluxe resorts now are around $400-$755. There are fewer years remaining on the contracts at the DVC resorts but those contracts do replinish their annual allottment of points every year. Also, even though points are reallocated from time to time, the total number of points at a given resort can never increase. If the points go up in one area, they must go down in another. Therefore, DVC Owners still, for the most part, get the same value for their points every year. I do understand the fact that the contracts have fewer years remaining as each year passes but there is one important thing to be considered. The majority of DVC Members will either pass away or will not be in good enough health to utilize the years after the contract expires. I will be 90 years old when my SSR contract expires and, if I'm still alive, most likely won't feel like using my points anyway. In a sense, most DVC Owners will get a "lifetime" of use from their contracts.

 

[moredisneyplease]

great questions!!! i'm BLOWN AWAY at the price of the current contracts through Disney!!! $130 a point??!!!!

 

[wdrl]

Depends on how you define "true value." I believe the true value of DVC, like any other timeshare, is in its use. As long as its cheaper for me to purchase a timeshare than to pay cash for the stays, then I'm getting 'value' from my purchase.

Our first stay as DVC members was a 7-night Theme Park View Studio at BLT that cost 183 points. A few weeks before our stay, I checked the Disney website and that accommodation had a cash price of $4,545. I don't know what the current cash rack rate is for that accommodation, but even if someone pays $165 a point (or 183 * 165 = $30,195), it would take only 7 trips to pay for the initial DVC purchase. Tack on a few more trips and the DVC purchase, even at $165 point, can end up paying for itself.

I think the length of the remaining leasehold is a consideration but is not a significant factor in determining the value of a resort's points. When we purchased DVC, my wife and I anticipated that we would definitely visit WDW at least once a year for the next 10-15 years. Barring a medical miracle, we'll expire before our AKV and BLT deeds expire in 2057 and 2060. Heck, I probably won't even make it to 2042. Since my real 'window of use' is actually much shorter than the remaining years on the leaseholds, its irrelevant to me that BLT has "lost" 3 Use Years since we bought in 2009. As chic said in the prior post, we are getting a lifetime's worth of use out of our points.

As others have said, a timeshare purchase involves many intangible factors that cannot be reduced to dollars and sense (pun intended). We have already done a couple family gatherings and have another planned for next year. Some of our family might never stay on property for a WDW trip, let alone stay at AKV or BLT if it wasn't for our DVC points. On our last stay at BLT, my wife sat on the balcony looking at the monorails fly by and the Magic Kingdom in the background and said "I love this view." As the commercial says, these things are "Priceless."

 

[cbonewjersey]

First, the cost of your annal nut goes up every year because the property ages and so maintenance costs track linearly with that. So BLT annual dues are << OKW or SS.
As for the $/point, so much depends on what DVC is trying to do at the moment. When I bought at BLT it was $96 on a special if I bought at least 200 pts, but SS was $80 per point !!! That's not resale, folks. That's direct.
So the price there did go down vs. the 107 the earlier poster talked about.
But demand then was so high for AK and BLT that nobody wanted SS. That's changed. But when GF goes on sale....hold on to your hat. It's anyone's guess what prices will do. One other thing...direct $/point also has to do with older resorts that are sold out or not.

 

[ELMC]

There's not much to it, it's the standard timeshare pricing model that is based on economics and marketing. As the number of available units goes down, the price goes up. This also makes it easier to sell units because the salespeople can use impending price increases to motivate buyers. The fact that there are three fewer years on the contracts than there were originally is pretty much irrelevant.

 

[Chic]

great questions!!! i'm BLOWN AWAY at the price of the current contracts through Disney!!! $130 a point??!!!!

According to the information I've seen, BLT is currently $160 a point and is going to increase to $165 a point in July.

 

[Lynne M]

Are your familiar with the phrase "charging what the market will bear"?

When businesses set pricing for a product, they're trying to find that sweet spot where the profit is as high as possible, but not so high that customers stop buying....in other words, the maximum price that the market will bear.

So, the simple answer to your question of why Disney continues to raise point prices.....it's because customers are still willing to buy DVC, even at that price.

Now, the question of why customers are willing to pay that price...that's a lot more complicated. Some people are aware of the resale market, and still choose to buy direct for any number of reasons, and feel that to them, the additional cost is worth it. Some people have a ton of money, want DVC, and just can't be bothered with resale.

I think a lot of people buy on a whim...they go to a kiosk, or a presentation, they think "want that" and sign the papers. They don't even know that there's an option to buy resale.

 

[Brian Noble]

Are your familiar with the phrase "charging what the market will bear"?

Exactly.

Remember that timeshare is not a product that is bought. It is a product that is sold. Very few people wake up and say to themselves: "Today I will spend tens of thousands of dollars to obligate myself to pay for the operation and upkeep of a portion of a luxury condo for the next many decades."

 

[DougEMG]

As long as the contract price + annual MF will get you cheaper accomodations than the hotel at a discounted cash rate, the contract is a good deal, regardless of the number of years left on the contract.

 

[AllieV]

Ok, these make sense, thanks.

I guess my next question is: why doesn't disney package every contract to be a 50-yr contract no matter when it's sold? Is there some law that they all must expire in the same year and once they establish that year, the countdown begins? I could understand raising the price on a new 50-yr contract.

 

[ELMC]

Are your familiar with the phrase "charging what the market will bear"?

When businesses set pricing for a product, they're trying to find that sweet spot where the profit is as high as possible, but not so high that customers stop buying....in other words, the maximum price that the market will bear.

So, the simple answer to your question of why Disney continues to raise point prices.....it's because customers are still willing to buy DVC, even at that price.

Now, the question of why customers are willing to pay that price...that's a lot more complicated. Some people are aware of the resale market, and still choose to buy direct for any number of reasons, and feel that to them, the additional cost is worth it. Some people have a ton of money, want DVC, and just can't be bothered with resale.

I think a lot of people buy on a whim...they go to a kiosk, or a presentation, they think "want that" and sign the papers. They don't even know that there's an option to buy resale.

To add to this, there is probably a segment of people who are buying BLT direct for $160 a point are also probably paying rack rate for reservations, so the by comparison the value is still there. Time=money and there are people out there who will pay what it takes to have the easiest possible process when it comes to booking vacations. Just because we wouldn't do it doesn't necessarily make it wrong, or even crazy. Somewhere out there is a person saying "I can't believe people spend their time scouring resale websites and waiting months when they can just get the whole thing done in a few hours by buying direct". It's all a matter of personal preference and comfort zone. I guess what I am trying to say is that yes, there is a portion of direct buyers who are uneducated about the process, but there is also a segment who is aware and just doesn't care.

 

[drusba]

"Why does the price increase as the years remaining decrease?"

In the words of Gordon Gekko, "Greed, for lack of a better word, is good."

 

[Dziactor]

It is even crazier that BLT is now at 160 a point.

 

[wbl2745]

Ok, these make sense, thanks.

I guess my next question is: why doesn't disney package every contract to be a 50-yr contract no matter when it's sold? Is there some law that they all must expire in the same year and once they establish that year, the countdown begins? I could understand raising the price on a new 50-yr contract.

I can't answer this directly, but I'm guessing that when all of the contracts expire at the same time Disney has some options. They can tear the buildings down and build something new since only Disney owns them now. Or they can refurbish them. In either case they get to sell them again. As long as people other than Disney have an ownership interest, they can't just do what they'd like.