Vacation timesharing, or using a home for a limited, preplanned time, has become a popular way of taking a vacation. Many timeshare programs are highly regarded, but others are little more than real estate swindles. You should consider the risks, as well as the benefits, before signing a contract or a check.
What are Timeshares?
Modern timesharing started in Europe many years ago and was simply an arrangement whereby a number of parties joined together to buy and run a holiday resort for their mutual benefit. It worked well, and the idea spread throughout the world.1
There are two main types of timesharing plans: deeded and non-deeded. With the deeded type, you buy an ownership interest in a piece of real estate. In the non-deeded plan, you buy a lease, license, or club membership that lets you use the property for a specific amount of time each year for a stated number of years. With both types, the cost of the unit is proportionate to the season and the length of time you want to buy.2
Before You Buy
As with any major purchase, you need to understand what you are getting before you sign any papers or pay any fees. The general information should be accompanied by careful analysis and perhaps even professional advice that concerns all aspects of a particular timeshare purchase.
Before purchasing a timeshare consider the following points.3
- A major reason people buy timeshares is for the convenience of having prearranged vacation facilities. Therefore it would be wise to determine whether you will be able to use the timeshare facility regularly. When evaluating a timeshare with units in several locations, consider whether sufficient units are available at the sites you prefer at the time you want to use them.
- Question any investment claims made by the seller. The future value of a timeshare depends on many factors. Resale of timeshares is almost impossible.4 So, if you are considering buying a timeshare, do it, realizing that you will probably not be able to resell it; and, even if you are able to sell, you probably won’t be able to sell it for anything close to your original purchase price. Closing costs, broker commissions, and financing charges also must be considered as part of the investment costs.
- The total cost of a timeshare includes mortgage payments and expenses, such as travel costs and annual maintenance fees. The annual maintenance fees usually rise to equal or exceed inflation and could add hundreds of dollars to the purchase price. To help evaluate the purchase, compare the total timeshare costs with rental costs for similar accommodations and amenities for the same time in the same location.
- Do not act on impulse or under pressure. Review all documents or have someone familiar with timesharing review them before you make a purchase. Do not be pressured into making a purchase without having a couple of days to think about it. Find out if the contract provides a cooling-off period during which you can cancel the contract and get a refund.
- Be sure everything the salesperson promised orally is written in the contract.
- Remember that exchange programs, which offer the opportunity to arrange trades with other resort units in different locations, cannot be guaranteed. When you trade your timeshare unit for another, expect one of approximately the same value.
- Many timeshare sellers offer gifts to potential buyers who will listen to a timeshare sales presentation. Consider the value of these gifts or prizes. Most are of little value.5 It would be to your advantage to attend a sales presentation only if you are interested in the program.
- Your timeshare will be a good place to vacation only if it is run properly. Therefore you should consider researching with local real estate agents, Better Business Bureau, and consumer protection offices, the track record of the seller, developer, and management company before you make your purchase.
- If you are considering buying a timeshare on property where the facilities have not been completed, get a written commitment from the sellers that the facilities will be finished as promised, and require that a certain amount of your money be held in escrow.6
- Find out what your rights are if the builder or management company has financial problems or in some way defaults. Make sure that your contract has both non-disturbance and nonperformance clauses. A non-disturbance clause ensures that you will continue to have use of your timeshare unit in the event of default and subsequent third party claims against the developer or management firm. A nonperformance clause allows you to keep all your ownership rights even if a third party is required to buy out your contract.
- If you have any questions or complaints regarding timeshares or a timeshare that you have purchased, contact the Real Estate Commission of the state in which the timeshare property is located, as well as the Correspondence Branch, Federal Trade Commission, Washington, DC 20580.
How Timeshare Resale Scams Operate
If you already own a timeshare, be cautious about people who offer to help you resell the timeshare for a fee. Because many of these types are rip-offs, be careful to deal only with legitimate sales companies. Companies that use questionable resale practices operate like many other telemarketing scams. You might be contacted by a telephone salesperson or through a postcard, asking you to call a particular telephone number about selling your timeshare. The salespeople are likely to tell you that the market for resale of timeshares is “hot” and that their company has a high success rate in reselling these units. They may even claim that they have extensive lists of sales agents and potential buyers for timeshares and for an advance fee of hundreds of dollars these salespeople promise to sell your timeshare for a price equal to or greater than the amount you originally paid.7
The market for resale is actually extremely poor, because there is no secondary market for timeshares.8 Currently American consumers own 1.5 million timeshares. Approximately 870,000 of these are presently available for resale, with 845,000 for sale far below the original purchase price. In truth, over the past 20 years, only 3 percent of owners who have wanted to sell their timeshares have been successful, and the vast majority of those have had to sell below their original purchase price. So, it is highly unlikely that a company can sell the timeshare at all, let alone for the original purchase price.
There are some precautions to consider if you decide that you want to resell your timeshare and are approached by a resale company. (1) Do not agree to anything over the telephone. (2) Ask the salesperson to send you written materials to study. (3) Ask for company references of customers who have used their services. (4) Ask where the company is located and in what states it does business. (5) Ask if the company’s salespeople are licensed to sell real estate by the state where your timeshare is located, and check with the state licensing board to verify the information. (6) Be cautious of any company charging an advance “listing” fee for its service.9
Timesharing is not an investment product and is not intended as a way of making money. It is, though, a financial commitment to your leisure enjoyment. So, how much is leisure and preplanned vacation time worth to you? This is the question that must be asked before you decide to buy a timeshare. If it is not worth thousands of dollars in initial investment, plus hundreds more in maintenance fees, then you should probably stay away from timeshare promotions. But if, on the other hand, you enjoy preplanned vacations and realize that timeshare is not a money making investment, then it may be a good choice for you.
4 www.accessatlanta.com/partners/clarkhoward/ cliffnotes/tips/timeshares.html
5 www.accessatlanta.com/partners/clarkhoward/ cliffnotes/tips/timeshares.html
6 www.triwest-timeshare.com/InThePress/4-14-97/ BusinessJournal.html (Link no longer valid)
8 www.wutzon.com/scams/scams.htm (Link no longer valid)