Do Your Homework Before Buying a Timeshare

Full disclosure: I’ve always been somewhat skeptical of timeshares. I understand the appeal of having a guaranteed vacation home in an area you love and being able to swap your unit for a place halfway around the world.

But I worry that many buyers don’t consider all associated costs and mistakenly think timeshares are sound financial investments that will appreciate in value. In fact, sellers rarely make a profit – some only get pennies on the dollar. Plus, the waters are filled with sharks eager to rip off people desperately trying to unload unwanted timeshares.

Before you buy a timeshare, understand how they work, challenges you may face when trying to resell and scams to avoid:

Timeshares are usually either:

• “Deeded,” where you own a share of the property, usually for a particular unit for a specified time period – typically one or two weeks a year. Depending on your contract, you either own it for life, for a specified number of years, or until you sell it.
• “Right-to-use,” where a developer owns the resort and each unit is divided into “intervals” – either by the week or for a certain number of points. You purchase the right to use an interval for X number of years but don’t own any real property. Many allow you to use your points to stay at an affiliated resort (swapping).

The price for buying a new timeshare can vary widely, depending on the area and amenities offered. A typical one-week share might cost $10,000 to $25,000 – or many times that for a posh unit in Aspen or Kauai.

Plus, you’ll be responsible for various other expenses:

• Annual fees for maintenance, utilities and property taxes.
• Assessments for major repairs or improvements.
• Fees to swap your share for someone else’s or sell it.
• Don’t forget travel costs to and from the property each year.

The Federal Trade Commission (www.consumer.ftc.gov) offers many helpful tips, including:

• Compare the costs of buying and maintaining a timeshare with renting a similar property. Perhaps rent a unit first to make sure you like the complex.
• Evaluate the resort’s location and quality by visiting and talking to current owners about their experience.
• Check for complaints about the seller, developer and management company with the state Attorney General’s Office (www.naag.org) and the Better Business Bureau (www.bbb.org).
• Make sure all sales agent promises are contained in the contract.
• Don’t act on impulse or be swayed by high-pressure sales tactics. If possible, ask a lawyer or real estate professional to review the contract before signing.
• Like new cars, new timeshares quickly depreciate, so consider buying one used.

A few cautions when selling a timeshare:

• If you’re going through a reselling agency, don’t pay more than a nominal upfront fee for appraisal, advertising, etc. Look for companies that take their cut after the sale.
• Before setting your price, find out what comparable properties (at similar time periods) sell for so you don’t overprice.
• Watch out for scams, such as: an agency cold calls you and claims it has buyers waiting in the wings; or someone claims you’re entitled to a settlement from an FTC lawsuit brought against a scammer.
• If you didn’t pay cash, you’ll probably have to pay off your loan before being able to sell.
• Beware of offers to accept your timeshare as a tax deduction for a fee – often thousands of dollars. The IRS only allows you to deduct “fair market value,” which is probably significantly less than you paid for it.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney