If you have been offered a free gift, discount lodging, discount activity or something else in return for going to a presentation by Vistana, they may be trying to sell you a timeshare, also called a “vacation ownership interest.”
Before you buy anything, you should make sure you are clear about what you’re buying – all the upfront costs and ongoing costs, what responsibilities you will have and what promises the developer is and is not making to you. Here are the 10 most important questions to ask.
Click here to download the full list. You can print it out and take it to the sales presentation.
- What annual fees will I have to pay on top of the cost of the timeshare? Are there:
- Maintenance fees / plan expenses?
Many timeshare properties charge owners annual maintenance fees, similar to condos. According to the Federal Trade Commission, “Maintenance fees can rise at rates that equal or exceed inflation, so ask whether your plan has a fee cap.”[i]
- Property taxes?
If you are buying a deeded timeshare, you will likely be responsible for property taxes. Beyond finding out how much they are likely to be, you may want to know when taxes are due. If there are no property taxes, you should ask whether the product the company is selling is actually real estate. If it is not real estate, follow up with these questions:
- What is it? Is it “property” and if so, what kind?
- How is the value of what you are buying determined?
- Can an independent appraiser confirm the value of what you are buying?
- How can they assure you it will have any value in the future (if the company goes out of business, for instance)?
- Occupancy and excise taxes?
Depending on the policies of the State and County in which your timeshare is located, you may be responsible for these taxes as well. For instance, if you are buying timeshare in the State of Hawaii, you are responsible for paying a daily timeshare occupancy tax equal to 8.25% (9.25% starting 1/1/17) of the fair market rental value of the unit, and a general excise tax of 4% on things like regular and special assessments.[ii]
- Exchange network fees?
Vistana is now a subsidiary of ILG, a company that runs an “exchange network” called Interval International. Exchange networks can allow users the option to swap their timeshare with a timeshare somewhere else. But be warned: using the network may come at a price. There may be transaction fees and service fees when you want to use the service.
- Special assessments?
If, by buying a timeshare, you become part of an Association of Apartment Owners (AOAO), you should find out whether the rules of that AOAO allow it to charge special assessments to timeshare owners. Some AOAOs charge special assessments to conduct major repairs or maintenance projects; there may not be a cap on how much the AOAO can charge for a special assessment, and they are generally in addition to whatever maintenance fees owners are already responsible for.
- Maintenance fees / plan expenses?
- How much have these fees risen in the last 5 years at this resort? Are there limits on how much they could go up in the future? What happens if I can’t pay?
Resorts that charge maintenance fees may or may not have a cap on how high those fees could go from one year to the next.
Not paying maintenance fees may be grounds for foreclosure of your unit, even if you have paid off all of the other loans and taxes you owe. Timeshare foreclosures may work differently from foreclosures on a house. There may be different standards for the company’s responsibility to inform you about the foreclosure. Your legal rights may be different. Nobody expects to get foreclosed, but you should make sure you know something about this before you buy, so you don’t get surprised later on.
- If they are selling points instead of weeks (or in addition to weeks), you should be especially careful. Ask:
- Who decides how many points I get? Could that number ever change in the future?
- Will the things I could buy with my points today cost more points in the future?
- How much is each point worth in dollars? Can I sell my points for that amount?
- Are there different categories of points (e.g., Club Points, Network Points, etc), and are they guaranteed to be equal?
- Does everyone pay the same for points?
- If you start selling points for less than I paid, will I get more points to compensate for the loss in value?
- How much will it cost me to finance my timeshare? How does that compare to home equity or other sources of financing? (You might want to Google “current mortgage interest rates” for comparison)
In August 2016, Vistana’s parent company claimed that the average interest rates it charges when it gives timeshare loans for Vistana and Hyatt Residential timeshares is about 13%.[iii]
To put that in perspective: Bankrate.com reported the average 30-year mortgage interest rate as of November 30, 2016 was 4.13%, and that was the highest it had gone since July.
The company took out a loan of its own for $350 million. That loan has a 5.625% interest rate.[iv] If you were to finance your timeshare purchase with Vistana at a 13% rate, you would be paying more than double what the company pays on its own debts. In fact, interest from timeshare loans is one of the main ways Vistana makes money. In the third quarter of 2016, the company got $19 million net income just from timeshare loans, making up over 59% of the company’s overall profits during that period.[v]
- Are the amenities (restaurants, pool privileges, exchange network affiliations, etc.) currently offered at the resort guaranteed to be around in the future?
We all know that nothing is guaranteed in life. However, if the company selling you a timeshare knows about any plans to close a restaurant on property, reconfigure its pool or something else, they should tell you. Wouldn’t you hate to find out later on that the amenities you thought you would be able to enjoy were no longer there? You should also ask whether any changes in amenities could affect the value of your points or your ability to trade your interval on the exchange network.
- Is everything I was told verbally written into the contract? Does the company I’m signing a contract with have the legal right to promise me the things I believe I’m being promised?[vi]
Some Vistana timeshare documents specifically state that the company has no legal responsibility for anything they didn’t give you in writing.[vii] A recent New York Times article about a different timeshare company called Wyndham revealed that at one Wyndham property “Employees routinely flouted rules and regulations by making oral promises to customers that differed from the terms of the voluminous contracts they signed when making a purchase.”
If the contract contains everything the salesperson is telling you, they should be able to point to the specific sections of the contract that guarantee the things they are saying.
Imagine this: you buy a timeshare, and you though the salesperson told you about some great benefit that comes with it. A few months later, someone at the company informs you that there is no such benefit. You look in the contract, only to find nothing about it. What can you do at that point? Will you be able to track that salesperson down? Even if you do, what if the salesperson claims you misheard them? Then it’s just your word against theirs. You may not even be able to sue the company, depending on what your contract says about that. At the Wyndham property mentioned above, the New York Times article states: “What would happen if a customer complained? Typically, a company official would ask the sales representative who worked with the customer about the facts outlined in the complaint. The representative would inevitably dispute the customer’s report, and the complaint would be closed, labeled unsubstantiated, the former sales executive testified.”
- What is my ability to cancel the contract after it is signed?
For more information on that, Click here.
- How many units have been foreclosed at this resort in the last 3 years? Why have those units (if any) been foreclosed? Am I buying a unit that was foreclosed on?
No matter what, a large number of foreclosures is a bad sign.
If you’re getting a loan to buy a timeshare, you should find out what the lending company does to help borrowers who are in trouble. A responsible bank will offer workout programs to keep people from getting foreclosed.
Did the foreclosures follow an increase in some expense? As mentioned above, not paying maintenance fees may be grounds for foreclosure of your unit, even if you have paid off all of the other loans and taxes you owe. Timeshare foreclosures may work differently from foreclosures on a house. There may be different standards for the company’s responsibility to inform owners about foreclosures. What process did the company go through with its foreclosures? How were the foreclosed owners made aware they were getting foreclosed?
Also, if you’re buying a unit that was already owned and foreclosed, you should try to get a significant discount to the original price.
- What are the terms and conditions for selling my unit? If I want to sell my unit someday, do I have to offer it to the company to buy back first?
In some cases, the company has a right to buy back your timeshare before you can sell it to anyone else. If that is the case, you should consider how that might affect the sales process. There might be other limitations on unit sales and on the sale of points.
For instance, at the Ocean Resort Villas, a Vistana property, the rules are as follows: “If you receive an offer to buy (the “Offer to Buy”) your Vacation Ownership Interest and if you want to accept it, you must first notify the Developer before accepting the offer and must provide a complete copy of the Offer to Buy. The Developer will then have the right and an option to buy your Vacation Ownership Interest at the same price and on the same terms contained in the Offer to Buy. If the Developer decides to buy it, then the Developer will send you written notice of that decision within ten (10) business days after the Developer receives your notice of the Offer to Buy.
If the Developer does not send notice of its decision to buy the Vacation Ownership Interest within the ten (10) business day period, then you may sell your Vacation Ownership Interest to the person who submitted the Offer to Buy. If the Offer to Buy is changed in any way (for example, a reduction in the price, a change in the Buyer or an assignment of the Buyer’s rights to someone else), or if the sale does not close within ninety days, then the Offer to Buy will be considered a new Offer to Buy and you must re-submit it to the Developer and the requirements of this section will apply again.”[viii]
- Am I guaranteed the use of my unit every year? What are the rules around reserving my unit? Could those rules change? If so, who has the right to change those rules, and do I get any say?
Even if you buy a timeshare with every-year use rights, you should check on how far in advance you have to reserve it. You may have the right to use a specific unit or a class of units, and your rights may be subject to availability. There may be people with more rights than you who can reserve their units before you even have a chance to make a reservation. If you want to actually use the timeshare you’re buying, make sure you know all of the rules inside and out.
There are a few more questions for you to consider before you buy. Salespeople may or may not be able to answer them for you, but either way, doing a little research on your own is essential before you buy.
- Can you get a better deal by buying resale rather than from the developer?
Timeshare owners use sites such as Redweek.com to sell their timeshares. As of December 6, 2016, Redweek.com was advertising units at the Sheraton Vistana Resort in Orlando, Florida for the prices listed below:
|Price||Annual Maintenance Fees||Week (Season)||Use||Type||Unit view||Bedrms||Baths||Sleeps|
- What will the total cost of your vacations be, including mortgage payments, travel costs, annual fees and taxes, closing costs, broker commissions and finance charges?
In the heat of the moment, it can be hard to remember all the costs that go into owning a timeshare. Don’t let anyone pressure you into buying before you have a chance to sit down and think through all of the costs.
- Are you being pushed to act on impulse? Would you be more comfortable if you waited to sign a contract until talking with a real estate or legal professional?
Getting an outside opinion from an experienced professional is definitely a good idea before you buy anything as expensive as a timeshare. Do not allow yourself to be rushed. Don’t let anyone tell you that if you don’t say “yes” today, that you can’t get another good deal tomorrow. Don’t give your money to someone who is trying to pressure you instead of respecting your right to know what you’re getting into.
- Are you assuming the timeshare is an investment that will grow in value?
Timeshares generally do not appreciate the way other real estate does. In fact, a disclosure statement for a Vistana timeshare specifically states “Purchases should be made for personal use and enjoyment and for value as a vacation experience and for spending leisure time, not as an investment or for rental income purposes or for appreciation or for value at resale.”[ix]
- Did the above questions get answered to your satisfaction? If not, why not?