The sales pitch is attractive: Buy this timeshare and enjoy future vacations with superior accommodation, wonderful recreational facilities, no cleaning and no maintenance worries. Spend less than the cost of a fully owned vacation home. At your option, exchange your vacation time for a holiday at any of thousands of other resorts throughout the world.
It sounds wonderful, especially if you are in vacation mode. However, before you grab that free margarita and sign the sales contract, there is homework to do.
Mastering industry jargon is a good place to start. First, a simple definition: a timeshare or vacation ownership is a furnished vacation property shared by multiple owners. Worldwide, there are about 5,400 timeshare resorts in 120 countries. The United States is the country with the most resorts -- 29% of the total. Resort developers and operators range from small private companies to major hospitality chains such as Marriott, Disney and Wyndham.
Buying a timeshare should be viewed as prepayment toward future vacations. A timeshare is not an investment, real estate or otherwise. They generally do not appreciate in value. In fact, the resale value can be substantially lower than the purchase price.
When you purchase a timeshare, you buy the right to use a defined resort property, often called a unit, for a specified time interval, typically one week per year. The week may be a fixed calendar date, a floating date -- i.e., any week within a specified period -- or it may rotate from year to year.
Timeshare ownership can be legally structured in several ways:
- Fee simple, the most popular structure, is deeded ownership of a fraction of a timeshare unit;
- The right to use a unit for a specified time period;
- Club membership entitling a buyer to accommodation for a specified time at one or more resorts. This structure is popular in countries such as Mexico that restrict foreign ownership of real estate;
- Leasehold, which is ownership for a defined number of years.
According to the American Resort Development Association (ARDA), the average sale price for a one-week timeshare in the U.S. was $20,240 (US) in 2015. The price of a particular unit will depend on the ownership structure, unit size, resort location, building age, amenities and season of use.
Besides the purchase price, a timeshare owner pays annual maintenance fees to cover property management and upkeep, insurance and other common costs. Property taxes may or may not be included. Vacation-club members may also pay annual dues. According to ARDA, the average annual maintenance fee for a one-week timeshare was $920 (US) in 2015, up 4.5% from 2014. The fee depends on the specific resort and the type of unit.
An owner must pay annual maintenance fees which typically increase every year, even if the unit is not used. If there are unexpected expenses such as property repairs due to hurricane damage, owners may be required to pay a one-time special assessment. Some clubs may not charge a maintenance fee, but levy a usage fee if the unit is used.
Exchange programs which allow an owner to trade her/his unit for a vacation at another resort are a selling point for many timeshare buyers. Some timeshare resort companies offer this feature within their own network of resorts. For the greatest choice, owners can turn to a third-party, membership-based exchange company. The two largest such firms, Resorts Condominiums International (RCI) and Interval International, are each affiliated with thousands of resorts in dozens of countries.
In general, to participate in an exchange program, you deposit your timeshare week with the exchange company, and receive points based on the trading power of your timeshare. High-season weeks at desirable resorts earn the most points. You use your banked points (and pay a fee) to book a vacation chosen from the online database of available units.
Tips for timeshare buyers
Purchase of a timeshare unit should be treated with the care and attention you would dedicate to a real-estate transaction.
Before buying, experiencing a timeshare vacation at the resort of interest during the time period you have in mind is money well spent. Timeshare units can be rented through the resort management, booking services such as TripAdvisor and Airbnb, or directly from owners.
While on site at the resort, evaluate the accommodations and amenities in terms of your current and future needs. Decide if the resort management, property maintenance and housekeeping meet your standards. Talk to existing owners for their opinions on the resort.
There are many factors to consider before making a purchase:
- Suitability of the destination, resort and unit for your family's current and longer-range needs.
- Does the timeshare unit have a "lock-off unit," a portion that can be closed off and rented out or traded?
- Local laws. Are there mandated sales-agent qualifications? Are timeshare sellers obligated to provide certain financial assurances, disclosures and rescission (the right to cancel the contract within a specific time period)? Are there adequate consumer-protection laws applicable to timeshare ownership?
- Reputation and history of the timeshare developer and management company. Is the developer a member of a trade association which requires members to follow a code of ethics? Check for disreputable operators at consumer-protection websites such as the American Resort Development Association (ARDA) consumer advisories.
- Trustworthiness of timeshare reseller websites.
- Kind of week. Is it fixed, floating, or rotating? High, shoulder or low season?
- Cost of unit. Compare the price to comparable units in resorts in the area.
- Closing costs when you buy. Besides what the seller may charge, budget for the sales contract to be reviewed by your own real-estate lawyer.
- Cost and ease of travel to the resort.
- Annual maintenance fees. Are these realistic and comparable to similar resorts?
- Past or pending special assessments.
- Exchange opportunities. Keep in mind that the resort could leave the exchange program, limiting your vacation to the unit you purchased.
- Social-media reviews of the resort.
- Current resale listings and price for units in same resort. Numerous properties for sale and low purchase prices, as little as $1 in some cases, could indicate problems at the resort.
- Exit options if you no longer want the timeshare.
Information on timeshares abounds on the Internet. ARDA's Understanding Vacation Ownership is a useful overview, albeit one with a positive spin. ARDA also maintains a comprehensive glossary of timeshare terms. Consumer Reports and Timesharing Today offer independent views of vacation ownership.
Vacation ownership works for some people, but it is not for everyone. Make sure a timeshare is right for you by doing your homework before you buy.
