Timeshares and Vacation Plans
The thought of owning a vacation home may sound appealing, but the year-round responsibility—and expense—that come with it may not. Buying a timeshare or vacation plan may be an alternative. If you're thinking about opting for a timeshare or vacation plan, the Federal Trade Commission (FTC)—the nation’s consumer protection agency—says it’s a good idea to do some homework. If you’re not careful, you could end up having a hard time selling your timeshare.
The Basics of Buying a Timeshare
Two basic vacation ownership options are available: timeshares and vacation interval plans. The value of these options is in their use as vacation destinations, not as investments. Because so many timeshares and vacation interval plans are available, the resale value of yours is likely to be a good deal lower than what you paid.
Both a timeshare and a vacation interval plan require you to pay an initial purchase price and periodic maintenance fees. The initial purchase price may be paid all at once or over time; periodic maintenance fees are likely to increase every year.
Deeded Timeshare Ownership
In a timeshare, you either own your vacation unit for the rest of your life, for the number of years spelled out in your purchase contract, or until you sell it. Your interest is legally considered real property. You buy the right to use a specific unit at a specific time every year, and you may rent, sell, exchange, or transfer by will (bequeath or devise) your specific timeshare unit. You and the other timeshare owners collectively own the resort property.
Unless you’ve bought the timeshare outright for cash, you are responsible for paying the monthly mortgage. Regardless of how you bought the timeshare, you also are responsible for paying an annual maintenance fee; property taxes may be extra.
Owners share in the use and upkeep of the units and of the common grounds of the resort property. A homeowners’ association usually handles management of the resort. Timeshare owners elect officers and control the expenses, the upkeep of the resort property, and the selection of the resort management company.
Right to Use Vacation Interval Option
In this option, a developer owns the resort, which is made up of condominiums or units. Each condo or unit is divided into intervals—either by weeks or the equivalent in points. You purchase the right to use an interval at the resort for a specific number of years—typically between 10 and 50 years.
The interest you own is legally considered personal property. The specific unit you use at the resort may not be the same each year. In addition to the price for the right to use an interval, you pay an annual maintenance fee that is likely to increase each year.
Within the right to use option, several plans can affect your ability to use a unit:
• Fixed or Floating Time. In a fixed-time option, you buy the unit for use during a specific week of the year. In a floating-time option, you use the unit within a certain season of the year, reserving the time you want in advance; confirmation typically is provided on a first-come, first-served basis.
• Fractional Ownership. Rather than an annual week, you buy a large share of vacation ownership time, usually up to 26 weeks.
• Biennial Ownership. You use a resort unit every other year.
• Lockoff or Lockout. You occupy a portion of the unit and offer the remaining space for rental or exchange. These units typically have two to three bedrooms and baths.
• Points-Based Vacation Plans. You buy a certain number of points and exchange them for the right to use an interval at one or more resorts. In a points-based vacation plan (sometimes called a vacation club), the number of points you need to use an interval varies according to the length of the stay, size of the unit, location of the resort, and when you want to use it.
Before You Buy a Timeshare
In calculating the total cost of a timeshare or vacation plan, include mortgage payments and expenses, like travel costs, annual maintenance fees and taxes, closing costs, broker commissions, and finance charges. Maintenance fees can rise at rates that equal or exceed inflation, so ask whether your plan has a fee cap. You must pay fees and taxes, regardless of whether you use the unit.
To help evaluate the purchase, compare these costs with the cost of renting similar accommodations with similar amenities in the same location for the same time period. If you find that buying a timeshare or vacation plan makes sense, comparison shopping is your next step.
• Evaluate the location and quality of the resort, as well as the availability of units. Visit the facilities and talk to current timeshare or vacation plan owners about their experiences. Local real estate agents also can be good sources of information. Check for complaints about the resort developer and management company with the state Attorney General and local consumer protection officials.
• Research the track record of the seller, developer, and management company before you buy. Ask for a copy of the current maintenance budget for the property. Investigate the policies on management, repair, replacement furnishings, and timetables for promised services. You also can search online for complaints.
• Make sure you understand all the obligations and benefits of the timeshare or vacation plan purchase. Is everything the salesperson promises written into the contract? If not, walk away from the sale.
• Don’t act on impulse or under pressure. Purchase incentives may be offered while you are touring or staying at a resort. While these bonuses may present a good value, the timing of a purchase is your decision. You have the right to get all promises and representations in writing, as well as a public offering statement and other relevant documents.
• Study the paperwork outside of the presentation environment and, if possible, ask someone who is knowledgeable about contracts and real estate to review it before you make a decision.
• Get the name and phone number of someone at the company who can answer your questions—before, during, and after the sales presentation, and after your purchase.
• Ask about your ability to cancel the contract, sometimes referred to as a right of rescission. Many states—and maybe your contract—give you a right of rescission, but the amount of time you have to cancel may vary. State law or your contract may also specify a cooling-off period—that is, how long you have to cancel the deal once you’ve signed the papers. If a right of rescission or a cooling-off period isn’t required by law, ask that it be included in your contract.
• If for some reason you decide to cancel the purchase—either through your contract or state law—do it in writing. Send your letter by certified mail and ask for a return receipt so you can document what the seller received. Keep copies of your letter and any enclosures. You should receive a prompt refund of any money you paid, as provided by law.
• Use an escrow account if you’re buying an undeveloped property and get a written commitment from the seller that the facilities will be finished as promised. That’s one way to help protect your contract rights if the developer defaults. Make sure your contract includes clauses for non-disturbance and non-performance. A non-disturbance clause ensures that you’ll be able to use your unit or interval if the developer or management firm goes bankrupt or defaults. A non-performance clause lets you keep your rights, even if your contract is bought by a third party. You may want to contact an attorney who can provide you with more information about these provisions.
Be wary of offers to buy timeshares or vacation plans in foreign countries. If you sign a contract outside the U.S. for a timeshare or vacation plan in another country, you are generally not protected by U.S. laws.
Timeshare Exchange Systems
An exchange allows a timeshare or vacation plan owner to trade units with another owner who has an equivalent unit at an affiliated resort within the system. Here’s how it works: A resort developer has a relationship with an exchange company, which administers the service for owners at the resort. Owners become members of the exchange system when they buy their timeshare or vacation plan.
At most resorts, the developer pays for each new member’s first year of membership in the exchange company, but members pay the exchange company directly after that.
To participate, a member must deposit a unit into the exchange company’s inventory of weeks available for exchange. When a member takes a week from the inventory, the exchange company charges a fee.
In a points-based exchange system, the interval is automatically put into the inventory system for a specified period when the member joins. Point values are assigned to units based on length of stay, location, unit size, and seasonality. Members who have enough points to secure the vacation accommodations they want can reserve them on a space-available basis. Members who don’t have enough points may want to investigate programs that allow banking of prior-year points, advancing points, or even renting extra points to make up differences.
Whether the exchange system works satisfactorily for owners is another issue to look into before buying. Keep in mind that you will pay all fees and taxes in an exchange program whether you use your unit or someone else’s.
Selling a Timeshare Through a Reseller
If you’re thinking of selling a timeshare, the FTC cautions you to question resellers—real estate brokers and agents who specialize in reselling timeshares. They may claim that the market in your area is hot and that they’re overwhelmed with buyer requests. Some may even say that they have buyers ready to purchase your timeshare or promise to sell your timeshare within a specific time.
If you want to sell your deeded timeshare, and a company approaches you offering to resell your timeshare, be careful and well-informed:
• Don’t agree to anything on the phone or online until you’ve had a chance to check out the reseller. Contact the state Attorney General and local consumer protection agencies in the state where the reseller is located. Ask if any complaints are on file. You also can search online for complaints.
• Ask the salesperson for all information in writing.
• Ask if the reseller’s agents are licensed to sell real estate where your timeshare is located. If so, verify it with the state Real Estate Commission. Deal only with licensed real estate brokers and agents and ask for references from satisfied clients.
• Ask how the reseller will advertise and promote the timeshare unit. Will you get progress reports? How often?
• Ask about fees and timing. It’s preferable to do business with a reseller that takes its fee after the timeshare is sold. If you must pay a fee in advance, ask about refunds. Get refund policies and promises in writing.
• Don’t assume you’ll recoup your purchase price for your timeshare, especially if you’ve owned it for less than five years and the location is less than well-known.
If you want an idea of the value of a timeshare that you’re interested in buying or selling, consider using a timeshare appraisal service. The appraiser should be licensed in the state where the service is located. Check with the state to see if the license is current.
Before you sign a contract with a reseller, get the details of the terms and conditions of the contract. It should include the services the reseller will perform; the fees, commissions, and other costs you must pay and when; whether you can rent or sell the timeshare on your own at the same time the reseller is trying to sell your unit; the length or term of the contract to sell your timeshare; and who is responsible for documenting and closing the sale.
If the deal isn’t what you expected or wanted, don’t sign the contract. Negotiate changes or find another reseller.
Selling a timeshare is a lot like selling any other piece of real estate. But you should also check with the resort to determine restrictions, limits, or fees that could affect your ability to resell or transfer ownership. Then make sure that your paperwork is in order. You’ll need:
• the name, address, and phone number of the resort
• the deed and the contract or membership agreement
• the financing agreement, if you’re still paying for the property
• information to identify your interest or membership
• the exchange company affiliation
• the amount and due date of your maintenance fee
• the amount of real estate taxes, if billed separately
To learn more about vacation ownership, contact the American Resort Development Association (ARDA). It represents the vacation ownership and resort development industries. ARDA has nearly 1,000 members, ranging from privately held companies to major corporations in the U.S. and overseas.
American Resort Development Association
1201 15th Street N.W., Suite 400
Washington, D.C. 20005
(202) 371-6700; Fax: (202) 289-8544
State Timeshare and Vacation Plan or Ownership Laws
Many states have laws (statutes) passed by their state legislatures to protect timeshare and vacation plan buyers from high-pressure sales tactics and complex legal agreements (contracts). These laws vary from state to state but often allow buyers to cancel a contract for the purchase of a timeshare, for example, within a certain number of days; prohibit deceptive sales and marketing practices; require certain timeshare developer disclosures; protect against unscrupulous practices by timeshare resellers; and include protections in the foreclosure process if a buyer defaults and does not make payments on time.