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Facts for Consumers from the Federal Trade Commission
Timeshare Tips -- October 1992
Planning your next vacation? You may have considered "vacation timesharing," the use of a vacation home for a limited, pre-planned time. It has become a popular way to take vacations. Sales in 1985 exceeded $1.5 billion. Many timeshare programs are highly regarded, but problems occasionally occur. You should consider the risks as well as the benefits before signing a contract or a check.
There are two main types of timesharing plans: deeded and non-deeded. With the deeded type, you buy an ownership interest in a piece of real estate. In the non-deeded plan, you buy a lease, license, or club membership that lets you use the property for a specific amount of time each year for a stated number of years. With both types, the cost of your unit is proportionate to the season and the length of time you want to buy. Obviously, a winter week in a warm climate is worth more than a summer week. As with any purchase that costs thousands of dollars, you should understand what you are getting before you sign any papers or pay any fees. The general information here should be accompanied by careful analysis and possibly professional advice concerning all aspects of a particular timeshare purchase.
The Federal Trade Commission suggests that you consider the following points before you purchase any type of timeshare.
Practical Factors
A major reason people buy timeshares is for the convenience of having pre-arranged vacation facilities. You might consider whether you will be able to use a timeshare facility regularly. For example, are your vacation plans sometimes subject to last-minute changes, or do they vary in length and season from year to year? Check to see if the properties have flexible use plans that you may consider. If you are evaluating a timeshare plan with units in several locations, also consider whether the club has sufficient units at the sites you prefer to give you the opportunity to use them.
Investment Potential
Question any investment claims made by the seller. The future value of a timeshare depends on many factors. Resales of the timeshare may be difficult. You may face competition from the firm that sold you the timeshare, or from local real estate brokers who may not want to include the timeshare unit in their listings. Closing costs, broker commissions, and financing charges also should be considered as part of your investment costs.
Total Costs
The total cost of your timeshare includes mortgage payments and expenses, such as travel costs and annual maintenance fees. The maintenance fees may rise at rates that equal or exceed inflation. Annual maintenance and exchange fees can add $300 to $500 to the purchase price. You may want to ask if limits exist on maintenance increases at the project. To help evaluate the purchase, compare your total timeshare costs with rental costs for similar accommodations and amenities for the same time and in the same location.
Document Review
Do not act on impulse or under pressure. Review all documents or have someone familiar with timesharing review them before you make a purchase. Find out if the contract provides a "cooling-off" period during which you can cancel the contract and get a refund. The majority of states where timeshares are located require such a cooling-off period. If there is such a provision, you can use that time to reconsider your decision. If there is no cooling-off period, be sure you understand all aspects of the purchase and review all materials before you sign.
Oral Promises
Be sure everything the salesperson promised orally is written into the contract. Be especially cautious and question any verbal claims that contradict the contract.
Exchange Programs
Remember that exchange programs, which offer the opportunity to arrange trades with other resort units in different locations, usually cannot be guaranteed. There also may be some limits on exchange opportunities. You may need to request the use of another facility far in advance. Or, even at additional cost, you may not be able to "trade up" to a larger, better unit at a popular time of the year in an exotic location. When you trade your vacation unit for another, expect one of approximately the same value.
Gift Giveaways
Many sellers offer gifts to potential buyers who will listen to a timeshare sales presentation. Consider the value of these "gifts" and "prizes." If the only reason you are going to a sales presentation is to receive a gift, then be aware that common promotional giveaways include gems with little or no value as jewels; "gold" ingots, with minimal gold content and worth no more than a few dollars; or "vacation awards," which do not cover major costs such as travel and food. It may be to your advantage to attend a sales presentation only if your are interested in the program.
Reputation Research
Your resort will be a good place to vacation only if it runs properly. Therefore, you should consider researching the track record of the seller, developer, and management company before you make your purchase. Visit the facilities and, if possible, talk to other owners. Ask for a copy of the current maintenance budget. Learn what will be done to manage and repair the property, replace furnishings as needed, and give you the promised services. Will these arrangements be adequate? If so, will these arrangements extend over a long period of time, or just for the near future? Local real estate agents, Better Business Bureaus, and consumer protection offices are often good sources of additional information.
Unfinished Facilities
If you are considering buying a timeshare on property where the facilities have not been completed, get a written commitment from the sellers that the facilities will be finished as promised. One way to protect your financial investment during this waiting period is to require that a certain amount of your money be held in escrow. This may provide some protection for your funds if the developer defaults.
Default protection
Find out what your rights are if the builder or management company has financial problems or in some way defaults. See if your contract includes two clauses concerning "non-disturbance" and "non-performance." A non-disturbance provision should ensure that you will continue to have the use of your timeshare unit in the event of default and subsequent third party claims against the developer or management firm. A non-performance protection clause should allow you to keep all your ownership rights, even if a third party, such as a bank, is required to buy out your contract. An attorney can provide you with more information about these provisions.
State Protection
Most states now regulate timesharing, either under existing state land sale laws or under laws that were specifically enacted for timesharing. The regulating authority is usually the Real Estate Commission in the state where your timeshare property is located. Contact that office if you have questions.
If you have questions or complaints about vacation timesharing, write to: Correspondence Branch, Federal Trade Commission, Washington, D.C. 20580. While the FTC cannot resolve individual complaints, the agency can take action against a company if it finds evidence of a pattern of deceptive or unfair practices. To learn about reselling timeshares, send for a free copy of Timeshare Resales. Write to: Public Reference, Federal Trade Commission, Washington, D.C. 20580.
FTC CONSUMER & SMALL BUSINESS ADVISORY - PUBLIC DOCUMENT
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