As legacy timeshare owners age and opt out, the resale side of our industry is bottle necking with ‘For Sale by Owner’ inventory. This creates great deals for new owners who wish to buy and enter vacation ownership this way. The average resale timeshare cost is estimated to be $4,800; that’s 60 percent less than the cost of an average front line, developer-sold interval. However, these interested resale buyers had better bring cash to the table or have a lot of wiggle room on their credit card because resale financing is hard to find.
Clark Rowley, president of the Licensed Timeshare Resale Brokers Association (LTRBA) states, “Support from the financial industry to the secondary industry where there is a strong market would create a win-win scenario. Not only could it help start pushing pricing upwards but it would also benefit many sellers with multiple packages. Currently these sellers find themselves breaking their ownership off into smaller pieces to sell at a cash-n-carry price.”
Adding financing to the equation may sound like another reason for developers to dislike resales, but not so fast! In making more cash readily available to resale buyers, the average prices are expected to increase over time. This increase in value will impact developers in a positive way. If they can historically show better resale pricing of their product, it will ultimately make their product more valuable.
There are several reasons a resale buyer may want to take advantage of financing: conserve cash, have the ability to choose a fixed, monthly payment amount, and add an additional advocate to the closing. The lender isn’t going to send money until all the documents are in order. But if the resale market is so great why isn’t every bank and lender competing for this business?
In August 2015, the Consumer Financial Protection Bureau imposed several changes making loans attached to real estate very difficult and labor intensive. The Consumer Financial Protection Bureau has strengthened the procedures to follow Dodd-Frank laws and TILA-RESPA Integrated Disclosure rules which charge sellers to notify potential buyers three days in advance of all loan costs, to disclose information that is hard to know within the timeshare industry, and to complete forms that equate to several repetitive pages per document. Our industry believes in transparency. Our industry believes it is fair and honest to disclose interest, truth in lending information, and costs of financing up front. However, these laws implemented by the CFPB are designed completely around the housing market and do not reflect vacation ownership protection at all. These types of complications make financing within the resale industry a nightmare for banks and lending institutions. Since most of the resale loans are very small (remember the average price is only $4,800 less the down payment) there is not a lot of opportunity to make big money. Plus, there are no upfront “points” to charge for extra income to the banks.
Banks make money through interest and there is some interest to be made. According to bankrate.com, the average national credit card interest rate is 15.91% as of March 2016. Many timeshare developers charge interest around this same average; resale lenders are no exception. What can make a positive impact, though, is having lenders who understand the complexities of the resale industry, thus making the financing easier and the closing quicker. If you understand resales, then you understand that your buyer expects to close very quickly so they can immediately book that holiday week. That’s a tough task under the best conditions, but imagine if their closing is delayed by a week or two. No one is in business to give refunds and we all want to make our customers happy.
There are a few specialty lenders available who focus on resale financing, but they will only approve the top four or five bestselling brands: Disney Vacation Club, Hilton Grand Vacations, Hyatt Residence Club, Marriott Vacation Club, and the fifth one fluctuates between Starwood Vacation Club and the Four Seasons. However, a new venture has entered the market and done its due diligence pre-approving 30 vacation club and brands. Vacation Club Loans, headquartered in Orlando, FL understand resales. This is also one of the very few that is a licensed consumer finance company, thus adhering to the consumers rights and willing to do the extra work required by law. This new option will give buyers a plethora of choices and destinations under the ability to finance. Creditworthiness is the main factor in all financing, but since this new lender has pre-approved so many resorts and brands, their interest rates are lower than most national credit cards.
The company is also beginning to work with smaller single site developers. These small, legacy resorts struggle to obtain financing due to their low annual sales volumes, but now they can refer potential front line buyers to this lending option. Since, Vacation Club Loans will finance up to $25,000 per deal, and as long as there is recourse to replace bad loans, the smaller resorts are embracing positive results. Applications can be done online and approvals are sent very quickly during business hours. This new option will hopefully lend (no pun intended) a helping hand to increase sales.
For example, The Bethel Inn in Maine has had success with the program. As a resale broker, I welcome this opportunity to provide my customers with better service and expect to see this become an acceptable practice throughout the industry.