Time to share? Buyer beware

The time-share market is hot, but ownership is not for everyone.

By Rick Alm
The Kansas City Star
Originally published on June 23, 2007

Welcome to summer, prime time for time-share.

Sales offices at the nation's 1,615 time-share resorts are in high gear, with enticing offers of free weekend getaways and other gifts to anyone willing to sit through a sales pitch.

The product is a deed to a furnished and typically well-appointed condo or villa for one week or more every year.

You'll own genuine real estate, just like a condo, so expect to take on a mortgage payment plus an annual fee for the upkeep.

Time-sharing's greatest appeal is the chance to trade your place for a vacation at someone else's. But you'll pay a couple of hundred bucks a year more for that privilege.

Despite escalating costs and complexity, the time-share market is big and getting bigger.

According to the industry's trade, lobbying and research arm, the American Resort Development Association, 4.4 million Americans in 2006 owned a piece of 176,232 U.S. time-share living spaces. Multiplied by 52 weeks, that's 9.1 million ownership deeds out there.

More than 14,000 new time-share units opened last year, and industry sources estimate 58,000 more are in the planning or construction pipeline.

Time-share sales topped $10 billion in 2006, up 16 percent from 2005. Since sales tracking began in 1975, the industry has never had a down year.

Time-sharing is hot.

But a percentage of owners are hot under the collar.

"Time-sharing used to be simple," said Jim Beasley, a former Blue Springs resident and veteran time-share owner who moved to the Branson area a few years ago.

Today, he said, "time-sharing has to do with paying someone money - buying it in the first place, annual maintenance fees, exchange company membership fee, exchange fees, special assessments and nickel-and-diming - which has turned into $50 and $100."

"Some resorts even charge you when you sell your week. They get you on the way in and on the way out."

Even its staunchest advocates agree that time-sharing doesn't fit every vacationer or pocketbook.

"This product doesn't make sense if you don't use it," said Howard C. Nusbaum, president and chief executive of the association that represents about 1,100 developers, secondary-market sellers, financial firms and others.

"You have to be committed to taking at least one week of vacation a year," said Nusbaum, who asserts that most people recoup their investment in about six years. The national-average purchase price of a new time-share unit last year was $18,502, up from $16,278 in 2005.

But don't expect your time-share nest egg to grow and someday hatch into a tidy little profit when you sell. Consider it an annual vacation expense, not an investment.

Nusbaum and virtually everyone else in the industry equate a time-share purchase to buying a car.

"The value comes from use, not appreciation," Nusbaum said. "There's a secondary market, but it's a depreciated market, like a used car. You buy it to use it."

Beasley won't argue with that.

"The time-share we bought for $5,000 retail in 1999 fetched $500 when we sold it about three years ago," he said.

"The value drops drastically as soon as you drive it off the lot."

Do your homework

Buying a time-share is fraught with tough decisions and buyer-beware caution flags that should be carefully heeded.

First you must decide whether you really want and can afford a deed to a week or two of real estate ownership for life - and beyond. When you're gone, your heirs inherit the deed and its not-insignificant financial obligations.

Besides a mortgage payment on that $18,000 national-average price (unless you can pay cash), you'll get billed for maintenance fees, which Nusbaum said average around $550 a year.

Dues for an exchange club membership and a transaction fee for each trade will run you $200 to $300 more a year, at least.

Do you really want to lock into the same week at the same resort every year, hoping you can trade your time slot for a different week in a different place from time to time - or most of the time?

For a variety of reasons, it is getting more difficult to make the trade you want. A handful of lawsuits are pending across the nation challenging practices by some resort operators and exchange clubs that increasingly are renting time-share units to vacation clubs and the general public. That creates more competition for deeded owners to book desirable dates and locations.

Marriott Vacation Club spokesman Ed Kinney acknowledges that his company's properties at 46 resorts are being rented outside Marriott's time-share family of 335,000 members.

But he said those public rentals largely involved time intervals that members chose not to use and deposited in a trade "bank" for future travel.

"An owner will never be displaced by that," he said, noting that members had priority booking rights up to 13 months out.

Florida-based Interval International handles Marriott's exchanges as part of its 2,304 resort members worldwide that make up the shopping list for Interval's 1.8 million dues-paying members.

"We do not rent inventory that the exchange system can use for exchanges," said Interval's executive vice president, Dave Gilbert. "Members wouldn't renew with us if they can't make exchanges."

You might prefer to buy a "floating" week ownership for more flexibility, or a vacation club based purely on points and user rights.

But satisfy yourself that the vacation club is reputable. Many are, starting with the name-brand operations such as Marriott and Disney. But some lesser names have gone bankrupt, leaving owners as unsecured creditors.

Instead of buying, you might take advantage of those public rental policies or rent directly from an owner or independent booking service.

But beware. Booking a week's vacation at a bargain price, but sight unseen, is risky business.

Beasley said he had done it plenty of times.

"Time-shares can be picked up for very little cost either on the Internet or from homeowners associations," he said. "We have weeks we paid $300, $750 and $1,500...from an owner just trying to recoup their annual maintenance fee."

The secondary sales market is similarly loaded with bargains. One Web marketer currently lists 29,332 properties, many for pennies on the dollar. Some listings on SellMyTimeshareNow.com in Florida are actually priced at $1 - plus the buyer's agreement to take over payments. Many of the sale listings also note that the unit is available for rent.

Beasley said he had seen it all. "Just Google something like 'Orlando time-share' " and take your pick, he said.

SellMyTimeshareNow.com founder and chief executive Jason Tremblay is one of many who argue against paying developers' retail prices, which he contends are inflated to cover steep marketing costs for all those free weekends and toasters they give away.

Tremblay says his company's listings on the secondary market are priced much closer to fair market value.

His searchable Web site service charges $299 to $499 for a listing that remains there until sold.

He acknowledges that a lot of listings aren't selling, and he readily cites industry research that estimates a current industry overhang of about $30 billion in used property on the market.

Tremblay has no sales statistics but says his Web site has logged 172,544 purchase offers since it opened in 2003.

"Demand still doesn't exceed the number of sellers," he said. "Over time that's going to change as companies like ours become known as an option."

Marriott's Kinney cautions that much of the secondary sales market is likely to be older properties lacking amenities such as plasma TVs and Wi-Fi found in newer properties.

The resort association's Nusbaum characterizes the secondary market as "still uncharted territory" that lacks many of the time-share consumer protections now found in the laws of 34 states, including Missouri, but not in Kansas, where no time-share businesses are known to operate.

"The due diligence a consumer must go through on the secondary market is much higher," Nusbaum said. Many buyers are already time-share owners often looking to pad their annual accrual of points they can trade.

"For those that don't understand the product, they're more comfortable buying from a developer," he said. "It's not that there aren't good values on the secondary market, but the onus is on the consumer."

For a $15 annual membership, time-share shoppers and owners alike can join the online Time Share Users Group at www.tug2.net, which offers ads, blogs, and member reviews and ratings for many resort properties.

Desperate sellers, often heirs or surviving spouses with no interest in time-sharing, can turn to companies of last resort such as Timeshare Relief Inc. The California-based operation charges $1,000 and up to arrange time-share deed transfers to industry consolidators who sell blocks of units back to resorts for refurbishing and resale, or market them to vacation clubs.

If you're thinking about buying, the experts say you should first decide where, then book a trip there to eyeball the properties you're considering. Meet and thoroughly vet the management team and the homeowners association.

While you're in town, see whether you can book comparable accommodations at a hotel for the same price. More than likely you can't.

Then do the math and annualize your time-share investment over the number of years you realistically expect to use it versus the cost of a week in a comparable four- or five-star hotel suite.

The swap

If the time-share marketplace is such a jungle, why is it so popular?

"You're at home," Jack Mooningham said. Since the mid '90s, the Overland Park man has bought and sold two time-share units in the resort community of Myrtle Beach, S.C.

"I wish I had known about time-share years ago," said Mooningham, who describes himself as an almost-retired executive with a local telecommunications company.

"You have a balcony and appliances," he said. "You're in a villa with a Jacuzzi in the bedroom. It's just incredible what you stay in compared to a regular hotel room.

"If you're younger, this is absolutely the way to go. The younger you purchase, the more years you have it" free and clear - except for the fees, of course.

Despite a dozen years of time-sharing, Mooningham says he has never taken advantage of what, for many, is its greatest appeal - the swap.

Time-share exchange is the heart of the industry, but also the most complex to understand and navigate.

For an annual fee - Interval's currently ranges between $84 and $138, plus a per-transaction fee - Interval and industry giant Resort Condominiums International together link members to most of the world's 5,000 time-share resorts in more than 80 countries.

You trade the week or two you own in Myrtle Beach or Branson, for instance, for comparable time at Disneyland or a place near the Las Vegas Strip.

If you upgrade to a premium membership, your options can expand to non-time-share excursions such as a Caribbean cruise or an African safari.

Swaps increasingly are based on a variety of point and priority systems that reflect the value of the property you own, the value of the week or season in which you own it, the number of weeks you own and the comparable values for where you want to go. You can use your points every year or save up for a really big trip.

An online sales pitch for the Disney Vacation Club notes that the typical buyer gets in for a purchase of 160 to 270 points.

One week in a studio apartment at Disney's Saratoga Springs Resort over the Fourth of July holiday is currently going for 152 points. A one-bedroom vacation home in the Austrian Alps is 160 points.

Show-Me properties

With 49 resorts, mostly in the Branson and Lake of the Ozarks areas, Missouri ranks ninth on the resort association's 2006 list of top time-share states.

Florida's 378 resorts top the list with nearly 24 percent of the national total. The top 10 states combined claim 65 percent. The rest of the list: California, South Carolina, Hawaii, Colorado, Nevada, North Carolina, Texas and Arizona.

Ron Carrier, chief counsel for the Missouri attorney general's regional office in Springfield, said the number of inquiries and complaints from unhappy Missouri time-share buyers is on the rise - 261 last year, up from 144 in 2005 and 180 in 2004.

"There's no consistent pattern on what a complaint might be," he said. "Sometimes it's something we can't take action on.

"Folks sign a contract and six months later have personal issues or find out they can't afford it and say, 'We want out.' "

-This article is reprinted with permission by the Kansas City Star.