Timeshares and why they do not resell

In short

A friend of mine once bought a timeshare in a sunny resort town and felt like the smartest man in the room. If you own one, or you are thinking about one, you have probably wondered what it would fetch if you sold it. Many owners find the answer is very little, and sometimes less than nothing. A timeshare is the right to use a unit for a set time each year. It is not the same as owning a house. The developer keeps selling brand new weeks, and that new supply crowds out your resale. The yearly maintenance fee keeps coming whether you travel or not. Owners who want out should read the contract first, then call the resort, then stay careful with anyone who asks for money up front.

The whole of it

What it is

I once watched a neighbor sign a stack of papers at a resort sales table, and he walked out grinning. He thought he had bought a vacation home for a fraction of the price. What he bought was a slice of time. A timeshare is a right to use one unit, at one resort, for a set week or a set number of points each year. A deeded timeshare gives the owner a legal interest in the real estate. A right to use timeshare gives a license for a fixed number of years, and then it ends. Just ends.

Many resorts now sell points instead of weeks. Points work like a currency spent on stays within that resort's system, and the fancier the unit or the busier the season, the more points a stay costs. Either way, the buyer gets access to a vacation, not a share of a rising asset. That difference sits at the root of everything that follows.

How it works

You have probably heard the saying that you can check in any time but cannot always leave. For timeshares, it nearly fits. The developer sells the right to use the unit, and the buyer signs a contract and often takes out a loan. Then comes the maintenance fee, billed every year. The fee pays for cleaning, repairs, taxes, insurance, and upkeep of the grounds. Fees can rise over time, and the contract usually says the owner has to pay them no matter how often the unit gets used.

Now think about why resale is so hard. The resort sells brand new weeks at a retail price that includes sales staff, marketing, and profit, and when you try to sell yours, you compete with that same resort, which can offer perks a private seller cannot. A buyer who wants a week will ask a fair question. Why pay a stranger when the resort will give me a fresh one with a warranty? Few buyers have a good answer.

There is also the simple matter of what the thing is. A house sits on land that can gain value. A week at a resort is a use right, and use rights fade like a gym membership. Add the yearly fee, which a new owner must also take on, and a buyer sees a cost with no clear payback. Some weeks sell for a dollar or are simply given away. Some owners find the resort will not take the unit back at any price. No luck there.

The numbers, and where to find yours

Your own numbers live in your paperwork. Find the purchase contract and the latest maintenance fee bill. Look for the original price, the loan terms if you borrowed, the yearly fee, and any rules on resale, transfer, or return. Some contracts also describe a right of first refusal, which means the resort gets the first chance to buy the unit back. Read that part twice.

The law also gives new buyers a short window to change their minds. Many states set a rescission period, which is a set number of days in which a buyer may cancel the contract. The length varies by state, so check your state attorney general or consumer protection office for the exact number of days. The Federal Trade Commission publishes plain guidance on timeshares and on resale scams, and it is worth reading before anyone signs or sells. Keep in mind that any tax angle depends on the year. A loss on the sale of personal use property is generally not deductible, and the IRS website explains how personal use property is treated. Check the current rules there rather than trusting a salesperson or a stranger.

A worked example

Let me tell you about a woman named Carol. She bought a one week timeshare for $18,000. She put $3,600 down and borrowed the rest at 9 percent. The loan was $18,000 minus $3,600, which is $14,400.

Her maintenance fee was $1,100 a year. Over ten years, that is 10 times $1,100, or $11,000 in fees alone. The first year of interest on her loan came to 9 percent of $14,400, which is $1,296. So in year one, her cost beyond the loan principal was $1,100 plus $1,296, which is $2,396.

After ten years, Carol wanted to sell. She learned that similar weeks on resale sites were listed at $500 or less, and many sat unsold. Suppose hers sold for $500. She had put in $3,600 down and $11,000 in fees. That is $14,600, and she also paid interest and loan principal on top of it. Even if we ignore the loan, $14,600 in and $500 out is a loss of $14,100. Hard to swallow.

She did get ten vacation weeks out of it, and that is the honest way to see it. If each week would have cost $1,800 to rent a comparable unit, those ten weeks were worth 10 times $1,800, or $18,000. Whether that was a fair deal depends on how many weeks she really used. Some years, she skipped her trip. Those years were pure cost.

Where it goes wrong

I have a soft spot for anyone who feels stuck, because nobody likes feeling trapped. The first thing that goes wrong is the sales pitch. A salesperson may call the purchase an investment, and the contract itself rarely says that. The second is the resale scam. A caller or an email says a buyer is waiting, and the owner has only to pay a fee first. The fee goes, and the buyer never shows. The FTC warns about this, and the warning is worth taking seriously.

Another trouble is the loan. The borrower has to repay it even when the timeshare is worth far less than the balance. Missing payments can hurt a credit score and can lead to foreclosure on the timeshare. The fees also climb, and an owner who stops paying them may face collections. Walking away is not free.

Some resorts offer a deed back or a surrender program, where the owner gives the unit back. The terms deserve a careful read, because some programs charge a fee or have strict rules about who qualifies. Be wary of any company that charges thousands up front to get an owner out. Check with your state attorney general before paying anyone. Start with the resort itself, since it costs nothing to ask.

Questions to answer before you leave this page

Have you found your contract and your latest maintenance fee bill, and do you know what each one says? Do you know if your timeshare is deeded or a right to use, and when any right to use ends? What is the yearly fee today, and how fast has it risen? If you borrowed, how much do you still owe, and at what rate? Does your contract give the resort a right of first refusal, or describe a surrender or return program? Have you used your weeks or points often enough to make the cost fair? Did you check your state attorney general and the FTC pages before paying anyone to help you sell? And if a stranger promises a buyer, have you asked why they want money first?