As promised, here is the third part of a multiple part series on how to purchase a timeshare on the resale market.
Part 1, dealing with finding the specific timeshare, is found here.
Part 2, dealing with contracting is found here.
For Part III, the final part, I wanted to go through some various due diligence items that you need to be aware of.
While you should definitely do due diligence on the particular timeshare that you are purchasing before contracting, once you have an executed contract, you need to make sure that you know exactly what you are buying before you close. Otherwise, you can end up with something that you didn't realize or worse, undisclosed debt.
I have discussed this item before but will do so again in order to have a complete guide. An estoppel certificate is a letter drafted by the timeshare company or timeshare manager, in response to a buyers request, which states the specifics of the timeshare. The specifics should include the particular week that you are purchasing and if it is a points based program or hybrid program, the amount of points allocated for that week.
It should also state the current amount of maintenance fees for that particular timeshare and a statement that all past due maintenance fees, special assessments or other dues have been paid in full.
It will also state whether there is a mortgage with the timeshare that would need to be paid off before any transfer.
As you can see, the estoppel certificate includes some extremely important items. While the seller may state certain things, the estoppel certificate is the authoritative document that confirms what you are buying.
Read it carefully and make sure that there are no surprises.
Right of First Refusal
Again, I have written about the right of first refusal before but here is some brief information on the subject again.
The right of first refusal provides that the original timeshare company must be provided the opportunity to purchase the timeshare at the proposed price that the seller is offering the timeshare before a sale can be completed. The timeshare company can either elect to exercise its rights and purchase the timeshare from the seller for the same terms and price or waive its right and the buyer and seller can proceed with the transaction.
The timeshare companies claim that the right of first refusal is generally included in order to maintain a floor for secondary prices. This is partially true but I think that the real reason is for the timeshare companies to control the secondary market.
As I wrote about above, there are certain strategies that you should use before you submit the right of first refusal. I lost a couple of good timeshares when the timeshare company exercised their right and purchased the timeshare for almost nothing likely selling it immediately for a tremendous amount more.
An escrow account is generally an account held by an independent third party where the buyer will deposit the purchase price. Only when the escrow agent receives all the documents and confirms that everything has been executed and filled out properly, will the escrow agent release funds to the Seller. The escrow agent will also handle disbursements to any broker or other third party that may get paid out of the sales proceeds.
An escrow account is meant to protect both the buyer and seller. It is suppose to be an independent party so neither the buyer or seller will be able to manipulate any of the funds. It also highly protects the buyer so that the funds deposited will only be released upon confirming that everything is in order and the actual deed for the timeshare is filed.
Timeshares are notorious for having a lot of fraud and scams so an escrow agent is a very good idea.
A very good strategy to use is to use a credit card to deposit the funds in the escrow account. Most companies or sellers will allow you to use a credit card to purchase the timeshare.
This does a couple of important things.
(1) You can get credit card points! I am a huge fan of credit card points and any chance I get to obtain them, I do, If you are lucky, it may post as a travel expense which is generally a bonus category in most of the lucrative credit cards (Chase Sapphire Reserve, Citi Premier, Chase Ink Business, etc.)
(2) It gives you another layer of protection. If anything occurs with the purchase, you have your credit card protections to back you up. If you are mainly going to use a credit card for protection purposes, I highly recommend using American Express. American Express is notoriously customer friendly, vendor adverse, and anytime I have ever had an issue with a vendor and filed a claim, it has been ruled in my favor.
A timeshare is considered real property so in order to fully document everything, there needs to be an actual deed completed and notarized that is filed with the county where the timeshare is located.
There are many different types of deeds but the ones that you will potentially run into with timeshare purchases are quitclaim deeds or special warranty deeds.
A quitclaim deed is the least protective deed. The seller is essentially transferring whatever interest the seller has in the particular timeshare. The seller is not providing any type of warranty that they own anything or that others may have any interest in the particular timeshare.
A special warranty deed is much better than a quit claim deed in that the seller is representing and warranting that the Seller owns the particular interest being transferred and they are unaware of any other issues or claims that have occurred during the time that they owned it.
The best type of deed is the general warranty deed which provides the same protections as the special warranty deed but the seller warrants that there are no claims relating to the time period before the seller acquired the interest.
Points based timeshares may be slightly different depending on how it is structured but still likely require some public record filing. Most of the points based timeshares are structured as a Land Trust where the timeshare company sells interests in the Land Trust which is given to you as points. The owners of the Land Trust still need to be disclosed in the public records through deeds. Hybrid systems, where you own a week and you can convert that week into points, will require an actual deed.
Once the deed is transferred to your name, you are technically the owner the timeshare. However, the timeshare company will need a copy of the filed deed in order to change the name of their account and begin to give you access to using the week and/or points.
Timing can differ based on the timeshare company but for me, with Hyatt, it took about 2 weeks after the deed was recorded for an account to be set up in my name where I could actually book weeks and use my points. I would say that this a reasonable amount of time for most timeshare companies to handle the transfer process.
Buying and selling a timeshare can be a complicated process. There are legal agreements to complete, multiple parties to contact and filings in the public records.
Despite being familiar with the process, I have always used a closing company to purchase the timeshare. They make the entire process much easier and know exactly what to do. There are various timeshare closing companies out there so you need to do you homework.
I have used Greatway Services through my purchase with Sumday Vacations. If you end up purchasing a timeshare through a company, they will usually handle the closing or have some affiliate do so. This should generally be fine but make sure you understand the fees before agreeing to anything.
Here is a link to some reviews and comments on various timeshare related companies. This is a good place to start looking for reputable companies to assist with any timeshare purchase.
Also, when you negotiate the purchase agreement, you should be very clear on who is responsible for the closing costs. They can run in the thousands of dollars so make sure to negotiate this point up front!
Purchasing a timeshare is almost identical to purchasing a house. While the contracts and documents will be slightly different, it is a real estate transaction and it can get complicated fast.
Purchasing a timeshare on the resale market can save you an absolute bundle. Prices will differ depending on the timeshare that you are purchasing, but I would venture to say that the resale prices are somewhere around 50-99% of the original purchase price.
Buying resale is a great way to get a timeshare for a low initial fee. If you purchase low enough and you understand what timeshare you want and what strategies you will use to maximize its use, you can really get some great vacations for very little money.
If you are considering a timeshare purchase, I highly recommend sticking with a name brand timeshare. They tend to exchange the best, be the most desirable properties and have some secondary market value so you can sell it down the road, maybe not for a profit, but at least you can transfer it to someone else and get out of paying the maintenance fees.
In addition, if you are purchasing a timeshare, I would highly recommend using a closing company. They are simply well versed in timeshare transfers and will save you hours of frustration and could potentially save you from purchasing something you didn't expect.
Please make sure to add anything that I may missed in these resale purchase guides! Please also add any companies that you have used successfully!
I hope you find these guides useful. I'll compile these into one complete guide after comments are done to make sure that everything is included!