Timeshares and Vacation Intervals

Do your homework before signing any deal.

Federal Trade Commission

The thought of owning a vacation home may sound appealing, but the year-round responsibility that comes with the second home may not be so attractive. Purchasing a timeshare or vacation interval plan may be an alternative, but it's a good idea to ask a lot of questions before signing the deal.

For those who want to own a place for vacations and don't want the responsibility — and expense — of owning a second home, there are two basic vacation ownership options available: timeshares and vacation interval plans. The Federal Trade Commission (FTC) urges you to do some homework before entering into any kind of agreement to purchase one of those plans.

First, you should know that the value of these options is in their use as a vacation destination, not as an investment.

Because so many timeshares and vacation interval plans are available, the resale value of yours is apt to be a good deal lower than what you paid. Both a timeshare and a vacation interval plan require you to pay an initial purchase price and periodic maintenance fees. The initial purchase price may be made all at once or over time; periodic maintenance fees are likely to increase every year.

The FTC offers a look at different plans:

Deeded Timeshare Ownership

In a timeshare, you either own your vacation unit for the rest of your life, for the number of years spelled out in your purchase contract, or until you sell it. Your interest is legally considered real property. You purchase the right to use a specific unit at a specific time every year, and you may rent, sell, exchange, or bequeath your specific timeshare unit. You and the other timeshare owners collectively own the resort.

Unless you've bought the timeshare outright for cash, you are responsible for paying the monthly mortgage. Regardless of how you bought the timeshare, you also are responsible for paying an annual maintenance fee; property taxes may be extra. Owners share in the use and upkeep of the units and of the common grounds of the resort property. A homeowners' association usually handles management of the resort. Timeshare owners elect officers and control the expenses, the upkeep of the resort property, and the selection of the resort management company.

“Right to Use” Vacation Interval Option

In this option, a developer owns the resort, which is made up of condominiums or units. Each condominium or unit is divided into “intervals” — either by weeks or the equivalent in points. You purchase the right to use an interval at the resort for a specific number of years — typically between 10 and 50 years.

The interest you own is legally considered personal property. The specific unit you use at the resort may not be the same each year. In addition to the price for the right to use an interval, you pay an annual maintenance fee that is likely to increase each year.

Within the “right to use” option, several plans can affect your ability to use a unit:

Fixed or Floating Time. In a fixed time option, you purchase the unit for use during a specific week of the year. In a floating time option, you use the unit within a certain season of the year, reserving the time you want in advance; confirmation typically is provided on a first-come, first-served basis.

Fractional Ownership. Rather than an annual week, you buy a large share of vacation ownership time, usually up to 26 weeks.

Biennial Ownership. You use a resort unit every other year.

Lock off or Lock out. You occupy a portion of the unit and offer the remaining space for rental or exchange. These units typically have two to three bedrooms and baths.

Points-based Vacation Plans. You purchase a certain number of points, and exchange them for the right to use an interval at one or more resorts. In a points-based vacation plan (sometimes called a vacation club), the number of points you need to use an interval varies according to the length of the stay, size of the unit, location of the resort, and when you want to use it.

Before You Buy

In calculating the total cost of a timeshare or vacation plan, include mortgage payments and expenses, like travel costs, annual maintenance fees, taxes, closing costs, broker commissions, and finance charges. Maintenance fees can rise at rates that equal or exceed inflation, so ask whether your plan has a fee cap. You must pay fees and taxes, regardless of whether you use the unit.

To help evaluate the purchase, compare these costs with the cost of renting similar accommodations with similar amenities in the same location for the same time period. If you determine that purchasing a timeshare or vacation plan makes sense, comparison shopping is your next step. Here are things to do, says the FTC:

• Evaluate the location and quality of the resort, as well as the availability of units. Visit the facilities and talk to current timeshare or vacation plan owners about their experiences. Local real estate agents also can be good sources of information. Check for complaints about the resort developer and management company with the state Attorney General, and local Better Business Bureau and consumer protection officials.
• Research the track record of the seller, developer, and management company before you buy. Ask for a copy of the current maintenance budget for the property. Investigate the policies on management, repair, and replacement furnishings, and timetables for promised services.
• Get a handle on all the obligations and benefits of the timeshare or vacation plan purchase. Is everything the salesperson promises written into the contract? If not, walk away from the sale.
• Don't act on impulse or under pressure. Purchase incentives may be offered while you are touring or staying at a resort. While these bonuses may present a good value, the timing of a purchase is your decision. You have the right to get all promises and representations in writing, as well as a public offering statement and other relevant documents.
• Study the paperwork outside of the presentation environment and, if possible, ask someone who is knowledgeable about contracts and real estate to review it before you make a decision.
• Get the name and phone number of someone at the company who can answer your questions — before, during, and after the sales presentation, and after your purchase.
• Ask about your ability to cancel the contract, sometimes referred to as a “right of rescission.” Many states — and maybe your contract — give you a right of rescission, but the amount of time you have to cancel may vary. State law or your contract also may specify a “cooling-off period” — that is, how long you have to cancel the deal once you've signed the papers. If a right of rescission or a cooling-off period aren't required by law, ask that they be included in your contract.

If, for some reason, you decide to cancel the purchase — either through your contract or state law — cancel it in writing. Send your letter by certified mail, return receipt requested, so you can document the seller received it. Keep copies of your letter and any enclosures. You should receive a prompt refund of any monies you paid, as provided by law.

For More Information

To learn more about timeshare and vacation interval ownership, contact the American Resort Development Association. It represents the vacation ownership and resort development industries. ARDA has nearly 1,000 members, ranging from privately held companies to major corporations, in the U.S. and overseas.

American Resort Development Association
1201 15th Street NW, Suite 400
Washington, DC 20005
(202) 371-6700; Fax: (202) 289-8544
www.arda.org

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

This article and hundreds more can be found in the “Member Library” at the NEA Member Benefits Web Site at www.neamb.com.