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A timeshare is a property with a particular form of ownership or use rights. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each sharer is allotted a period of time (typically one week and almost always the same time every year) in which they may use the property. Units may be on a partial ownership, lease, or "right to use" basis, in which the sharer holds no claim to ownership of the property.
The term "timeshare" was coined in the United Kingdom in the early 1960s; expanding on a vacation system that became popular after World War II in Europe. Vacation home sharing, also known as holiday home sharing, involved four European families that would purchase a vacation cottage jointly, each having exclusive use of the property for one of the four seasons. They rotated seasons each year, so each family enjoyed the prime seasons equally. This concept was mostly utilized by families related to each other because of the trust factor involved in joint ownership and no property manager was involved. However, few families vacation for an entire season at a time; so the vacation home sharing properties were often vacant for long periods of time.
Enterprising minds in England decided to go one step further and divide a resort room into 1/50th ownership, have two weeks each year for repairs and upgrades, and charge a maintenance fee to each owner. It took almost a decade for timeshares in Europe to evolve to a smoothly run successful business venture.
The first timeshare in the United States was started in 1974 by Caribbean International Corporation based in Fort Lauderdale, Florida. It offered what it called a 25-year "vacation license" rather than ownership. The company owned two other resorts the "vacation license holder" could alternate their vacation weeks with, one in St. Croix and one in St. Thomas; both in the U.S. Virgin Islands. The Virgin Islands properties began their timeshare sales in 1973 with owners Hillie Meyers, Don Saunders, and Arthur Zimand.
The contract was simple and straightforward. The company, C.I.C. (Caribbean International Corporation), promised to maintain and provide the specified accommodation type (a studio, one bedroom, or two bedroom unit) for use by the "license owner" for a period of 25 years (until 1999 from 1974, for example) in the specified season and number of weeks agreed upon, with only two extra charges: a $15.00 per diem (per night) rate, frozen at that cost for the life of the contract and a $25.00 switching fee, should the licensee decide to use his/her week/weeks at one of the other resorts. The presentation's logic was based on the fact that the cost of the license and the small per diem, compared with the projected cost of hotel rates climbing in the next 25 years to over $100.00 per night, would save the license owner many vacation dollars over the span of the license agreement. The license owner was allowed to rent or give his week away as a gift in any particular year. The only stipulation was that the $15.00 per diem must be paid every year whether the unit was occupied or not. This "must be paid yearly fee" would become the roots of what is known today as "maintenance fees", once the Florida Department of Real Estate became involved in regulating timeshares.
The timeshare concept in the USA caught the eye of many entrepreneurs due to the enormous profits to be made by selling the same room 52 times to 52 different owners at an average price in 1974-1976 of $3,500.00 per week. Shortly thereafter, the Florida Real Estate Commission stepped in, enacting legislation to regulate Florida timeshares and make them fee simple ownership transactions. This meant that in addition to the price of the owner's vacation week, a maintenance fee and a homeowners' association (HOA) had to be initiated. This fee simple ownership also spawned timeshare location exchange companies like Interval International and RCI so owners in any given area could exchange their week with owners in other areas.
Cancellations, or rescission to the timeshare contract, remain the industry's biggest hurdle to date.
(See "Cancellations to the Timeshare Contract" chapter below)
This concept has attracted many resort developers and prominent hoteliers, such as Starwood, Wyndham, Accor, Hyatt, Hilton, Marriott, and Disney. Vacation ownership has proven to be lucrative for stakeholders in these major resort families, due to its popularity with vacation-goers. This form of lodging has spawned a variety of products sold on similar occupancy schemes; cars, planes, boats, condo-hotel units, and luxury fractional properties (at which affluent guests may stay for as long as a quarter of a year, and which often command a six-figure price tag).
The scope of today's timeshare industry in the USA is well documented. The ARDA International Foundation (AIF), which is the research arm of the American Resort Development Association (ARDA), reports there are 1,604 timeshare resorts with 154,439 units in the USA as of January 1, 2006 (AIF 2006). Though reportedly fewer than six percent of U.S. households own a timeshare, the prevalence of vacation ownership continues to expand. Approximately 4.4 million households own one or more U.S. weekly intervals or points equivalent as of January 1, 2007, an increase of sixteen percent from 2006
About half of the resorts in the USA are currently selling, generating sales of $8.6 billion in 2005 (AIF 2006).
The global scope of the industry is not as readily quantified. Interval International, one of the two major exchange companies, reports there are 1,800 resorts in nearly 80 countries, with 2004 worldwide sales estimated at nearly $11.8 billion (Interval International 2006). RCI has more than 4,000 resorts in nearly 100 countries.
A 2001 report estimated there to be 5,425 timeshare resorts worldwide, of which around 31% are situated in North America, 25% in Europe, and 16% in Latin America (where Mexico leads with 40% in the region). Emerging resorts in Asia have 14% penetration rates, led by Japan, but with Thailand and India becoming increasingly prominent.
The industry is regulated in all countries where resorts are located. In Europe, it is regulated by European and by national legislation. In 1994, the European Communities adopted "The European Directive 94/47/EC of the European Parliament and Council on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis", which was subject to recent review which resulted in the adoption on 14 January 2009 of the European Directive 2008/122/EC.
On May 17, 2010, Mexico’s Ministry of Economy through the General Directorate of Standards established new regulations and requirements for developers of timeshare services. The new regulations are outlined in the Official Mexican Norm (NOM). The Official Mexican Norm consists of a series of official standards and regulations applicable to diverse activities in Mexico. The following institutions were involved during the new standardization:
• Mexican Resort Development Association (AMDETUR)
• National Fund for Tourism Development (FONATUR)
• Federal Consumer Protection Office (PROFECO)
• Ministry of Economy (SE)
• Secretary of Tourism (SECTUR)
The NOM, called “NOM-029-SCFI-2010, Commercial Practices and Information Requirements for the Rendering of Timeshare Service” establishes the following standards:
• It is not allowed to the timeshare providers the use of gifts and prizes without clearly specifying the real purpose of the offer.
• The requirements to cancel a timeshare contract must be more practical and less burdensome.
• The NOM recognizes the privacy rights of timeshare consumers. It is strictly prohibited for the provider to dispose of the consumer’s personal information without a written consent.
• Verbal promises must be written and established in the original timeshare contract.
• The timeshare provider must comply with all obligations written in the timeshare contract, as well as the internal rules of the timeshare resort.
• The charges that are intended to be made to the consumer must be plainly described, including the membership cost, the extra fees and all the application forms.
To make the new regulations applicable to any person or entity that provides timeshares, the definition of a timeshare service provider was extended. If the timeshare provider does not follow the rules decreed in the NOM, the consequences may be substantial; such as financial penalties that can range from US$50 to US$200,000.
Recently, with most point systems, owners may elect to:
Some developers, however, may limit which of these options are available at their properties.
Owners can elect to stay at their resort during the prescribed period, which varies depending on the nature of their ownership. In many resorts, they can rent out their week or give it as a gift to friends and family.
Much lauded is the idea of owners exchanging their week, either independently or through several exchange agencies, to stay at one of the thousands of other resorts worldwide. There are many exchange agencies, the two largest of which are RCI and Interval International (II). Together they have over 7,000 resorts. They have resort affiliate programs and members can only exchange with affiliate resorts. It is most common for a resort to be affiliated with only one of the larger exchange agencies, although resorts with dual affiliations are not uncommon. The timeshare resort one purchases determines which of the major exchange companies can be used to make exchanges. RCI and II charge a yearly membership fee and fees for when they find an exchange; also bar members from renting weeks for which they already have exchanged.
Owners can also exchange their weeks or points through independent exchange companies. Owners can exchange without needing the resort to have a formal affiliation agreement with the companies.
Owners may sometimes also arrange a direct exchange. This requires locating an owner with the location and weeks both mutually desire. This form of exchange saves money on exchange fees and is often sought after. Several bulletin boards have been created to help timeshare owners meet other owners to perform timeshare exchange as well as other discussion board uses.
This type of lodging may take different forms depending on the seller. The vast majority consist of one week of ownership – i.e., 1/52 year – but some developers sell point-based systems that are a different form of vacation currency that allow hotel stays, car rentals, and stays at large networks of resorts.
Due to the promise of exchange, these units, called "vacation ownership" by the industry, often sell regardless of their deeded resort (most are deeded into a certain resort site, though other forms of use do exist). What is not often disclosed is that all differ in trading power. If a resort is in Hawaii or Southern California, it will exchange extremely well; however, those areas are some of the most expensive in the world, subject to demand typical of a heavily trafficked vacation area.
A major difference in types of vacation ownership is between deeded and right to use contracts.
With deeded contracts the use of the resort is usually divided into week long increments and these are sold as fractional ownership and are real property. As with any other piece of real estate, the owner may do whatever he or she desires: use his or her week, rent his or her week, give it away, leave it to his or her heirs, or sell the week to another prospective buyer. The owner is also liable for his or her portion of real estate taxes, which usually are collected with condominium maintenance fees. The owner can potentially even deduct some property related expenses, such as real estate taxes, from his or her taxable income.
While this form of ownership can offer additional security to the owner as a form of physical ownership, deeded ownership can be as complex as outright property ownership in that the structure of deeds varies according to local property laws. Leasehold deeds are common and offer ownership for a fixed period of time after which the ownership reverts to the freeholder. Occasionally, leasehold deeds are offered in perpetuity, however many deeds do not convey ownership of the land, but merely the apartment or 'unit' of accommodation.
With right to use contracts, a purchaser has the right to use the property in accordance with the contract, but at some point the contract ends and all rights revert to the property owner. In other words, a right to use contract grants the right to use the resort for a specific number of years. In many countries there are severe limits on foreign property ownership, so this is a common method for developing resorts in countries such as Mexico. Care should be taken with this form of ownership as the right to use often takes the form of a 'club membership' or the right to use the reservation system. Where the reservation system is owned by a company not in the control of the owners, the right of use may be lost with the demise of the controlling company.
A variant form of real estate-based timeshare that combines features of deeded timeshare with right-to-use offerings was developed by Disney Vacation Club (DVC) in 1991. Purchasers of Disney Vacation Club timeshare interests, whom DVC calls "members," receive a deed conveying an undivided real property interest in a timeshare unit. Each DVC member's property interest is accompanied by an annual allotment of "vacation points" in proportion to the size of the property interest. Like right-to-use products, DVC's vacation points are highly flexible and may be used in different increments for vacation stays at DVC resorts in a variety of accommodations from studios to three-bedroom villas. In addition, DVC's vacation points can be exchanged for vacations worldwide in non-Disney resorts or may be "banked" into or "borrowed" from future years.
DVC's deeded/vacation point structure, which has been used at all of its timeshare resorts, has been adopted by other large timeshare developers including Hilton and Hyatt.
The most basic unit is a fixed week; the resort will have a calendar enumerating the weeks roughly starting with the first calendar week of the year. An owner may own a deed to use a unit for a single specified week. For example, week 26 normally includes the Fourth of July holiday, week 51, Christmas and so on. If an owner owned Week 26 at a resort he or she could use that week every year.
Sometimes units are sold as floating weeks. The ownership will be specific on how many weeks the owner owns and from which weeks the owner may select for the owner's stay. An example of this may be a floating summer week where the owner may request any week during the summer season, generally weeks 22 through 36. In this example there would be competition for prime holidays such as the weeks of Memorial Day, Fourth of July, and Labor Day. The weeks when schools may still be in session would not be so high in demand. Some floating contracts exclude major holidays so they may be sold as fixed weeks.
Some are sold as rotating weeks, commonly referred to as flex weeks. In an attempt to give all owners a chance for the best weeks, the weeks are rotated forward or backward through the calendar, so in year 1 the owner may have use of week 25, then week 26 in year 2, and then week 27 in year 3. This method give each owner a fair opportunity for prime weeks, but it is not flexible.
Major international hotel chains such as Hilton, Accor, and Marriott have introduced their own Vacation Ownership Programs, which are based on point systems. The share of membership sold is either deeded or with right to use the club's services for a certain number of years.
There are also Vacation Clubs that may own units in multiple resorts in different locations, offering services to a private customer base for a sense of "exclusivity". Some clubs consist only of individual weeks at other developer's resorts. Vacation clubs cater to a wide range of economic backgrounds and income levels.
Resort based points programs are also sold as deeded and as right to use. Points programs annually give the owner an amount of points equal to the level of ownership. The owner in a points program can then use these points to make travel arrangements within the resort group. Many points programs are affiliated with large resort groups offering a large selection of options for destination. Many resort point programs provide flexibility from the traditional week stay. Resort point program members, such as WorldMark by Wyndham, may request from the entire available inventory of the resort group.
A points program member may often request fractional weeks as well as full or multiple weeks stays. The number of points required to stay at the resort will vary based on a points chart. The points chart will allow for factors such as:
These properties tend to be apartment-style units ranging in size from studio units (with room for two) to three and four bedroom units. These larger units can comfortably house large families. Units normally include fully equipped kitchens with a dining area, dishwasher, televisions, DVD players, and more. It is not uncommon to have washers and dryers either in the unit or easily accessible on the resort. Kitchens are equipped to the size of the unit, so that a unit that sleeps four should have at least four glasses, plates, forks, knives, spoons, and bowls so that all four guests can sit and eat at once.
Units are usually listed by how many the unit will sleep and how many the unit will sleep privately.
Sleep privately refers to the number of guests who will not have to walk through another guest's sleeping area to use a restroom. These resorts tend to be strict on the number of guests per unit.
Unit size can affect demand at a given resort where a two-bedroom unit may be in higher demand than a one-bedroom unit at the same resort. The same does not hold true comparing resorts in different locations. A one-bedroom unit in a desirable location may still be in higher demand than a resort with less demand. An example of this may be a one-bedroom at a desirable beach resort compared to a two-bedroom unit at a resort located inland from the same beach.
Incentives for the prospective buyer to take the "Tour" include:
First, the "Prospects" (prospective buyers) are seated in a Hospitality Room with many tables and chairs to accommodate families. The Prospects are assigned a Tour Guide; he/she is usually a Licensed Real-Estate Agent, but not in all cases. The actual cost of the Timeshare can only be quoted by a Licensed Real-Estate Agent. After a warm up period and some coffee or snack, the lights will dim and the Prospects will be shown a film designed to dazzle them with exotic places they could visit as Timeshare Owners.
Next, the Prospects will be invited to take a tour of the property. Depending on the Resort's available inventory, the tour will include an accommodation that the Tour Guide or Agent feels will best fit the Prospect's family's needs. Then it's back to the Hospitality Room for the verbal sales presentation. The prospective buyers are given a brief history of Timeshare and how it relates to the Vacation Industry today. During the presentation they will be handed the resort exchange book from RCI, Interval International, or what ever exchange company is associated with that particular Resort Property. The Prospects will be asked to tell the Tour Guide the places they would like to visit if they were Timeshare Owners. The rest of the presentation will be designed around the responses the prospective buyers give to that question.
If the guide is licensed, he/she will then give the Prospect the retail price of the particular unit that best seemed to fit the prospective buyer's needs. If he/she is not a Licensed Agent, a Licensed Agent will now step in to present the price. If the Prospect replies with "no", or "I'd like to think about it", the prospective buyer will then be given a new incentive to buy. This incentive will usually be a discounted price that will only be good "Today". If again, the reply is "no", or "I'd like to think about it", the Guide/Agent will ask the Prospect to please talk to one of his/her managers before the Prospect leaves. It is at this moment that the prospective buyer realizes that the 'Tour' has actually just begun.
The Manager, Assistant Manager or Project Director will now be called to the table. This procedure is called: "TO", or getting the "Turn Over" man to find an incentive usually in the form of a smaller less expensive unit or "Trade-In" unit from another owner. This tactic is commonly used as a sales ploy, because the Resort is not interested in reselling 'Already Deeded Property'. Similar to the Automobile Sales Industry, the manager and salesman know before hand exactly what the lowest price is that will be offered to the Prospect, well before the prospective buyer has arrived for the Tour. If one incentive doesn't move a Prospect to purchase, another will follow shortly, until the Prospect has either purchased, convinced the usually very polite sales crew that no means no, or has gotten up from the table and escorted himself/herself out of the building.
Critics contend timeshare units are overpriced. The United States Federal Trade Commission provides consumers with information regarding timeshare pricing and related information. Timeshares are also known as Universal Lease Programs (ULPs). Due to the nature of timeshares, they are considered to be securities under the law.
Many timeshare owners complain about the annual maintenance fee (which includes property taxes) being too high.
Pricing is compared to staying at hotels in the long term, when interest and fees are not included. However, a hotel guest does not have a monthly vacation mortgage payment, upfront cost, fixed schedule, maintenance fees and preset vacation locations.
There are timeshare companies accused of scamming their customers. One example is "Incentive Leisure Group". The company has been liquidated and claim that certain "firms" are helping Incentive Leisure Group's customers try to get their money back.
The industry's reputation has been severely injured by the comparison of the timeshare salesman to the used car salesman; because of the sales pressure put on the prospective buyer to "buy today". "The discounted price I quoted you is only good if you buy today"; is the industry standard's pitch to close the sale on the first visit to the resort. Many have left a timeshare tour complaining of being exhausted by the barrage of salespeople they had to deal with before they finally exited the "Tour". The term "TO", or "Turn Over" man, was coined in the industry. Once the original tour guide or salesman gives the prospective buyer the pitch and price, the "TO" is sent in to drop the price and secure the down payment.
However, the biggest complaint of all is the fact that timeshare re-selling by the private owner is almost impossible to do. An owner looking to sell literally cannot give the timeshare away. Timeshare resale companies have sprung up that actually charge the owner to assume his/her timeshare ownership, using the excuse that the resale company must assume the maintenance fees until that burden can be unloaded to a new buyer.
Timeshare sales are often high-pressure and fast-moving affairs. Some people get caught up in the excitement of the sales presentation and sign a contract, only to realize later that they may have made a mistake. U.S. law (enforced by the U.S. Federal Trade Commission) has a "cool off period" that allows people to cancel any purchase of $25.00 or more, including a timeshare contract, without penalty. The length of this period varies by the state; but must be at least five days long. Almost all states have laws specifically written for timeshare contracts. In California, the cancellation period is seven (7) days from the contract signing. In Florida, the cancellation period is ten (10) days; and in Mexico, the cancellation period is five (5) days. A common practice in Mexico and some US states is to have the prospective buyer sign a "Cancellation Waiver", using it as an excuse to lower the price of the timeshare. However, no cancellation waiver is a legally-enforceable document anywhere in Mexico or the USA. If a recent timeshare buyer wishes to rescind or cancel his/her contract, the intent to cancel must be made within the allotted time period in writing or in person. A telephone call will not suffice.
The secondary market for timeshares consists of rentals and resales initiated by the owner. Resale transactions involve the owner permanently transferring his or her deed or right to their timeshare to another party. Rental involves the owner temporarily transferring all or part of their week or interval to another party, without the transfer of ownership. This typically takes the form of an owner renting one week to a traveler who uses it as one would use a hotel or other vacation rental. Either transaction can be accomplished entirely by the owner, with the assistance of a third party, or a broker.
Timeshares are generally treated as real property and can be resold to another party. However, most timeshares do not appreciate in value, and therefore should not be considered a money-making investment. Additionally, as much as 50 percent or more of the original purchase price of a timeshare from a developer or resort went towards marketing costs, sales commission, and other fees, which realistically can never be recouped by the owner. Most timeshares resell for the nominal price as low as $1, so the new owner only takes responsibility of maintenance and other recurring fees. Resale price can be considered a market price of the timeshare.
There are brokers and agents who specialize in reselling timeshare units on behalf of their owners. This arrangement typically involves listing fees, commissions, or both, being paid by the owner to the broker/agent. In return, the broker/agent markets the resale to prospective buyers. This marketing can take the form of printed materials, Internet postings, radio and television advertisement, and direct telephone solicitations. Most of the fees associated with third party resales are up-front and non-refundable, regardless of whether the unit sells, or for how much.
Depending on the terms of the timeshare contract, an owner may rent their week or interval to another party in exchange for payment to the owner.
There are many third parties that will rent timeshares on behalf of their owners as an one time event or an annual occurrence. The broker/agent will find a suitable renter in exchange for fees and commissions. In addition to a hands-off experience for the owner, third parties typically handle the money transfer as well.
The obstacle of finding a suitable renter remains the same, with the added liabilities associated with renting any real property—namely, ensuring payment prior to transferring the use to the renter and coverage for any damage to the unit by the renter.
Charities sometimes accept timeshare donations. They must be able to convert the timeshare into cash to benefit from the donation. Charities do not want to become obligated as owners and assume the same annual fees that face the donators. Unless a charity can convert it to cash by resale or rent, the acquisition can become a liability instead of an asset. Some charities charge the Donor an acceptance fee, and have no intention of ever making any maintenance fee payments. They take on the obligation and ignore all bills and threats of collection until the original Finance Company that bought the paper, decides to foreclose on the property. The charity that will legitimately accept the donation, will have the donor continue to hold title while they have an experienced broker try to sell the timeshare and convert it to cash.
The IRS says if the timeshare is sold by the charity within a 36 month time of donation, the actual cash received determines the income deduction. If the timeshare is not sold, a maximum of $5,000 can be deducted without an appraisal. To receive a higher appraisal, an licensed appraiser must appraise the property. It must include actually sold timeshares as comps. It must supply specific information only found on the sales contract or recorded deeds, must use replacement costs of land and improvements (resort prices) in the computation, and no distressed sales as comparables.
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