Resort Time Share Owners Take a ‘Bath’ at Auction
There’s the story of the stock market novice who was called daily by his broker to “buy! buy! buy!” a particularly volatile issue.
The customer did, dutifully, as long as the price of the stock continued to rise.
Until, at length, the price started slipping, at which point the panicky speculator ordered his broker to “sell it all, right now!”
To which the broker smoothly responded: “Of course, if you wish. To whom?”
It was impossible not to recall this story on a recent sunny Sunday afternoon at the Los Angeles Convention Center where an estimated 300 to 400 bidders attended an unusual (perhaps first-ever) auction to bid on a commodity for which, until then, there had been virtually no market--oceans of would-be sellers, but a drought of visible buyers.
The commodity: slices of time in 97 vacation resorts sprawling all the way from London and Dublin on the east to Maui on the west.
It’s an intangible, and almost unsalable, commodity that has been a major, unspoken, bugaboo of the otherwise booming resort time-share real estate market since its inception. Developers, anxious to sell weekly “units” in exotic vacation spots around the world, put heavy emphasis on the buyer’s equity in the resort and his ability to “sell out, anytime you want.”
“It’s always been pretty much hit-or-miss,” according to Mario Collura of MDR Telecom, an international computerized time-share listing service based at Marina del Rey, sponsors of the auction. “The owner of a time share wanting to get rid of it really has very few options--maybe a local realtor will handle it but, more likely, he ends up advertising it himself or, occasionally, selling it back to the developer.”
No matter, then, that at Collura’s novel auction about 90% of the 75 units sold traded hands at prices 50%, or less than the seller had originally paid for it--a discount that Collura had anticipated, and had warned his sellers to expect.
And, while the average price of new time-share condos currently on the market and being offered by developers is about $7,000 per unit a week, Collura said, 75% of those changing hands at the recent auction sold for less than $4,000.
Ironically, that was also the average price prevailing--a minor distortion accounted for by a handful of prime properties (primarily in Hawaii) which, although selling at a sharp discount from their original offering price, nevertheless sold above the $4,000 average.
The prices, the Marina del Rey broker said, ranged from a low of $1,300 for a one-week “right-to-use” condominium on the beach at Cancun, Mexico, to a high of $16,550 ($5,516-a-week) for a three-week, prime-time condo in The Whaler resort at Lahaina on Hawaii’s Maui. Hawaii, Mexico and Lake Tahoe attracted the most active bidding, Collura said.
Even though every seller at the auction was financially a loser in getting out from under the time share at a price sharply under the original purchase price, there was little bitterness. It was, instead, a sense of relief--as reflected by Dorothy Brantley of Walnut Creek after she and her husband, Lewis, sold their two one-week time shares in the Tahoe Waterfront Club at less than half their cost in 1981.
“We’re just glad to be out of it,” Dorothy Brantley said, gratefully. “It’s a lovely place, well located, and well run, but we simply became disillusioned when it became apparent that it was a very poor investment. And we think that Mr. Collura is a fine gentlemen who’s doing a valuable thing in providing a marketplace for these properties. It didn’t work out for us, but we, at least, got something out of it.”
Realtor-reluctance to get involved--even in the selling of conventional real estate in resort areas--is seen in the fact that most such listings command a premium commission, anywhere from 10% to 25% of the selling price for such property, Collura said. This is in contrast with the 6% or 7% levied on the average residential home sale, he added, because of the specialized audience to whom resort real estate appeals, and the equally specialized marketing involved.
And then double the complexity of that in trying to sell something as ethereal, and as unfamiliar to the average real estate broker, as a couple of weeks of exclusive use of one lone resort unit in a cluster of similar resorts located perhaps a full continent away from the potential buyer’s home. And where the money involved, by real estate commission standards, is minuscule.
It’s a tribute to the marketing zeal of time-share resort developers, and to the boundless optimism of American vacationers, that in spite of the near-impossibility of reselling time- share property, sales, nevertheless, have mushroomed six-fold world-wide in just eight short years--from an estimated 100,000 units in 1976 to about 600,000 at the end of last year.
It’s that direct-mail marketing zeal (“You have definitely won one of the following fabulous prizes simply by attending an exciting presentation introducing you to Bide-A-Wee Resort in beautiful Marshbog Meadows . . . ") that has made the concept of the time share a familiar one to most Americans: a condominium (with the usual leisure-time amenities) situated in a resort area and ranging from the homespun to the ultra-glitzy.
Instead of each unit being sold individually, however, the equity in each is split into 50 segments (two weeks of each year are set aside for necessary maintenance) and sold off “by the week.” Each unit (week) is sold for anywhere from $3,000 or $4,000 to as high as $20,000 or $25,000--depending on the desirability of the resort area, the opulence of the development and the time of year (“high,” “mid” or “low” season).
An alternative to “deed ownership” is the “right- to-use” timeshare where occupancy rights are guaranteed for a specified number of years, but no ownership interest in the property is entailed (as in the Cancun unit mentioned earlier).
Maintenance costs are levied, again, by the weeks of occupancy and will range from $50 or $60 a week to $300, or more.
Typical of the successful sellers represented (in absentia) at MDR Telecom’s time-share auction were Diane and Edwin Kellogg of Lexington, Mass., who unloaded a one-bedroom, one-week, time share at Harborside Inn on Martha’s Vineyard.
“It’s really a lovely place on the harbor, overlooking the bridge at Chappaquiddick, and Diane bought it about six years ago, before our marriage, as an investment,” her husband said.
Unfortunately, the time-slot was all wrong for the Kelloggs. “We had it for the last week in October,” Edwin added, wryly, “and since my wife’s a teacher that was always her busiest time. Also, at that time of year, Martha’s Vineyard is just about boarded up for the winter--the last thing of interest going on is the fishing derby the week of the 16th. As a result, we never actually used it and felt kind of trapped. We did, though, trade it a couple of times.”
Tried to Sell
Attempts to sell it, until this month’s auction in the Los Angeles Convention Center, had come to nothing: “We tried a few listing services, advertised it a couple of times ourselves, but nothing worked. The developer wouldn’t take it back because he’s still got some unsold units, himself. And then, somehow, Diane got wind of this auction and we’re pretty relieved to be out of it.”
The one-week unit at Martha’s Vineyard that Diane Kellogg bought as an investment for $5,400 six years ago sold this month for $3,250, her minimum acceptable bid.
“The time of year is very critical,” Edwin Kellogg added. “Her mother’s got a couple of weeks in Harborside, too, but they’re around the Fourth of July and they’re a gold mine.”
The “trading” reference made by Diane Kellogg is another of the lures used with a heavy hand by time share developers. Through membership in one of the nationwide “resort exchange” companies, the buyer of a time share need not feel that he has trapped himself for all time into an endless series of annual vacations in the same old condo every year--he can swap-off his time share for someone else’s half-way around the world.
Trading Widely Used
Although there is the suspicion in some quarters that time-share promoters tend to oversell this exchange freedom, it is widely used.
As a case in point, according to Renee Spencer, public relations manager for the country’s oldest (11 years) and biggest (half a million members) resort exchange company-- Indianapolis-based Resorts Condominium International--about 20% to 25% of RCI’s membership swap condos annually. For 1984, that came to 127,000 exchanges involving a network of about 1,000 time-share resorts in 40 countries.
RCI’s members, Spencer said, pay $51 a year to tie into this network, and the company’s paperwork in setting up the mechanics of a trade costs them an additional $48 per swap. The other biggie in the exchange business is South Miami’s Interval International, while two or three smaller ones operate largely on a regional basis.
But the freedom to exchange properties is, obviously, not nearly enough to offset a fairly wide-spread disillusionment, dissatisfaction and/or just plain “tired of it” feeling among many time share owners.
While both a poor choice of time (as in the case of the Kelloggs), and disillusionment with time shares as an investment (as with the Brantleys) are responsible for a fair share of the owners “wanting out”, the bulk of today’s frustrated would-be-sellers, Collura said, are there, not because of financial hardship, but because “they’ve experienced a change in life style of some kind--there’s been a sickness or a death in the family, or a divorce. Something like that. And they just simply don’t want the time share anymore.”
Interested in Market
Intimate with the time-share resort business since 1979 when he worked in marketing Hawaiian resorts and then served as a sub-broker for developers on the Southern California scene, Collura became interested in the virtually non-existent time share-resale market in 1981.
In addition to his current auction approach to the market, he has also become active in setting up a computerized network of listings for time-share sales and rentals through The Source computer database, a subsidiary of Reader’s Digest. He has also been working with the National Assn. of Realtors in incorporating time share sales and rentals into the NAR’s own computerized network listing service known as REINET.
“But, for the next year or two,” Collura added, “the auction seems to be the best bet for time-share resales. By that time, the industry should have matured enough so that time shares will simply fall in line with the conventional broker network of resales.”
With the dust of his February auction hardly settled, however, Collura is already well into the launching of is secoond offering which will be a two-day auction ( July 27-28) at the Crown Plaza Hotel at Los Angeles Internbational Airport. The ground rules will be essentially the same as for the first::
--A non-refundable registration fee for sellers equal to 5% of the minimum bid they will accept. (This is the “seed money,” Collura said, that pays for the advance printing and distribution of the catalogue illustrating the various resorts that will be represented at the auction.
--Minimum bids from would-be sellers, Collura said, “must be no greater than half the developer’s price. We want to sell these properties so we want the sellers to be prepared to look at a 50% discount--although, of course, they may very well sell higher than that.”
--A $1,000 cashier’s check made out to the auctioneer (the Piatelli Co.-Trust Account) is required of bidders, both those attending the auction and those bidding by mail).
--Bids on a specific time share may be fixed (“I’m prepared to pay $4,000 for XYZ”), or by range (“I’ll pay $3,500, but no more than $4,000 for XYZ,”) or by resort (“I’ll pay $3,500 but no more than $4,500 for any listed property in The Whaler resort at Lahaina, Maui”).
--A commission of 15% of the settlement price will be paid by the seller.
Although financing is strictly between the buyer and the seller, Collura said, seller carry-back was popular at the February auction and independent financing arranged by the buyers tended toward three-year amortization.
Further details on the upcoming July auction (for either buyers or sellers) are available from: Mario Collura, MDR Telecom, 13464 Washington Blvd., Marina del Rey, CA 90292.