An Important Tip When Buying Resale with a Right of First Refusal

As I mentioned in this recent post, I just purchased a second Hyatt timeshare at the Hyatt Beach House.  In that post, I went through some details on what I own and why I made those choices.  

As I mentioned in that post, the Hyatt timeshare that I purchased ended up being the second one that I tried to purchase since Hyatt exercised its right of first refusal. 

What is a Right of First Refusal?

For those of you who don't know, a right of first refusal gives the timeshare company the right to purchase your timeshare before you can sell it to a third party.  There are various reasons on why most timeshare include a right of first refusal but the one most generally used by salesmen are that it keeps resale prices up since anything that will potentially be sold for a significant discount will not pass the right of first refusal and the timeshare company will purchase it back. 

There is some "truth" to that statement but I think that the general reason that most timeshares have the right of first refusal is so that the timeshare companies can essentially control the resale market.  I can dig into this more in other posts but for this post, I wanted to explain what I learned during my process.

My Attempted Purchase

My strategy is to always make a low ball offer for any timeshare.  You may lose some but you can end up purchasing one for a tremendous discount from "retail" pricing. 

The first Hyatt timeshare that I attempted to purchase was listed on Discount Timeshares.  I found a low priced week that equated into 2000 Hyatt Residence Club points and contacted them to make an offer.  

I ended up making a low ball offer of $50.00 for this particular timeshare and after some back and forth, the seller agreed on this price.  The going rate for a similar week on eBay was somewhere around $2,000-$4,000 so I thought I got a great deal. 

In a separate post, I will put together a complete guide to purchasing a timeshare on the resale market.  As part of the process, the seller or its broker, must submit paperwork to Hyatt which details  the terms and conditions of the purchase and the price for the week. 

Hyatt Resale / Transfer Procedures:

Once Hyatt receives this paperwork, they have 30 days (15 for the Grand Aspen and Kaanapali) to inform you of their decision.

Here are the specific transfer instruction provided by Hyatt:

If you decide to sell your interval on your own or through a resale company, please follow these three easy steps:

1. Once you have identified a buyer, submit your proposed sales contract signed by you and the Buyer to [email protected]. The Developer of your timeshare/fractional resort has a first right of refusal to purchase the interval at the same price, terms, and conditions as your resale offer.
2. You will be notified within thirty (30) days (fifteen (15) days for Grand Aspen and Ka’anapali Beach owners) of receipt of your notice of the developer’s intent. If the developer does not exercise their right of first refusal, you may proceed with your resale to the proposed buyer. If the developer exercises their right of first refusal, you will proceed with your resale to the developer as the buyer.
3. Forward a copy of the recorded deed, signed resale affidavit (affidavit will be provided by HRC at time of transfer), buyer’s contact information and transfer fee (currently $650 payable to Hyatt Residence Club) to the attention of the Transfer Coordinator. Your HRC membership will be transferred to the Buyer within thirty (30) business days from the date all requirements are met.

 
The Paperwork:

For this particular purchase, while the purchase price was $50.00, I was obligated to pay for the transfer fee and the closing costs.  The total out of pocket cost for me was about $1,200.  When Discount Timeshares submitted paperwork to Hyatt, they indicated that the purchase price was $50.00.  This was accurate but as described below could have been structured in a more favorable way to benefit both the buyer and seller.

After around 30 days, I was informed that Hyatt DID exercise their right of first refusal and Hyatt succeeded in buying this timeshare out from under me for a purchase price of $50.  Hyatt will likely now include this week in their new Portfolio Program.

The seller of the timeshare probably did not care either way as he or she was successful in selling the timeshare and getting out of the annual obligation to pay for the maintenance fees.  

For me though, it was disappointing as $50.00 or $1,200 (when including the fees) for this week was a very good price.  Once this occurred, I began my search for an alternative week.  

As I mentioned in my other post, upon trying to make additional offers for similar timeshares, the representative from Discount Timeshares refused to remit my low offer to a seller despite being obligated to remit ALL offers.  

Since Discount Timeshares receives a commission for their sales based on the purchase price, I believe that they refused to do so in an effort to increase their own commissions despite it not being in the best interest of the seller who can make their own decision on whether the offered price was satisfactory or whether they should hold out for better offers.  

As a result of this experience with Discount Timeshares, I would NOT recommend them for future purchases.

What I Learned in this Process:

For Hyatt resales, my understanding is that they have some formula or metrics in which they determine what weeks / resorts to repurchase.  They will not disclose these items.

For me, when I attempted to purchase an alternative Hyatt week (which I succeeded), my strategy was to attempt to increase the submitted purchase price as high as possible while still having a low purchase price. 

For my second attempt, my offer of $2,000 was significantly higher than the original $50.00 attempted purchase but unlike my first offer, I had the seller be responsible for the transfer fee ($650) and the closing costs ($500).  Additionally, as part of the offer, I indicated that I would pay for maintenance fees that had not been paid for the current year ($1250) and would be responsible for one additional year of maintenance fees ($1250).  

Therefore, when they submitted the purchase price for this week, they indicated that the purchase price was approximately $4500 instead of the $2000 that I paid since I indicated that I would pay the current year and future year maintenance fees.  

The reason to structure this in this manner was if Hyatt exercised their right of first refusal for this week, they would have to pay the seller $4500 as this was technically my offer even though it was somewhat disguised through transfer fees, closing costs, reimbursement of maintenance fees (past and future).  

Therefore, to compare my first attempted purchase to the second attempted purchase, my original offer price was $50 versus about $850 - definitely higher but not transparent as offering a set amount and having the buyer be responsible for various fees. 

Conclusion:

From this experience, if you need to submit a purchase price where a timeshare company has a right of first refusal, I would try to have the purchase price be as high as possible by having the seller be responsible for all the various ancillary fees (transfer fees, closing costs, recording fees, existing maintenance fees, etc.).  

By presenting the purchase price as high of possible by including the fees and by indicating the obligation to pay maintenance fees in advance, you can present a legitimate purchase price to the timeshare company at a price point where there is less risk to them exercising the right of first refusal. 

In most resale transactions, the timeshare company probably does not have to pay itself any transfer fee and probably has little to no expenses for closing costs.  If the buyer is responsible for these fees, they cannot include it in the purchase price.    

The obligation to reimburse the seller or the obligation to submit the maintenance fees for the current or future years will be the buyers responsibility in almost all cases but you can include them in the purchase price submission so that the timeshare company would be obligated to remit them to the seller if they exercised their right of first refusal. 

By structuring a purchase price in this fashion, there is less risk of the timeshare company from exercising their right of first refusal and this structure can even benefit the seller as if the timeshare company actually exercises their right of first refusal, they would receive more funds than if the right of first refusal was not exercised.  

Overall, I think that this can be a win-win strategy for a buyer and seller and decreases the odds of the timeshare company from exercising their right of first refusal. 

What do you think of this strategy?  Have you lost any timeshare purchases to a right of first refusal?  Leave your comments below!