While Real Estate Declines, Timeshare Sales 'Hold Steady'

The real estate market may be in a double-dip recession, but sales of timeshares are “holding steady,” according to a report prepared for the American Resort Development Association.

But the report also shows rentals have become a larger area for timeshares, as 10 percent of the timeshare occupancy rate was comprised of renters as more timeshare developers expanded their rental program offering in the last year.

As for buyers, the report says 55 percent were first-time buyers while the remainder owned one or more properties.

Started in Europe

The timeshare concept originated in Europe in the 1960s, when an enterprising developer came up with a bold idea. Instead of building a condominium and selling each unit, why not sell each unit to 52 different owners, who would each have use of it one week each year?

Each owner would pay fees for the upkeep and management of the property, freeing the developer of that financial responsibility. The owners would feel the status of owning a piece of a beautiful and well-manicured resort. In a deeded property sale, the owner woould own the unit until they sold it, like any other piece of real estate. As long as they owned it, they would be required to pay the maintenance fees.

The concept quickly caught on in the United States, when Conrad Hilton and some partners built a timeshare in Hawaii. Each unit owner paid several thousand dollars upfront for the timeshare, then paid the management company a monthly maintenance fee to cover the costs of operating and maintaining the building and all the units.

Trading system

Other hotel chains, like Marriott, quickly got into the game. To meeting buyers' objection that they didn't necessarily want to vacation in the same spot each year, a system of trading weeks with owners of timeshares in other locations was quickly established. Today, RCI and Interval International handle swaps for the estimated 155,000 timeshare units in the U.S.

But if the market for new timeshare units is, as the industry says, stable, what about the timeshare resale market? There, the evidence suggests that more than a few owners are encountering difficulty.

The Great Recession has changed circumstances for millions of people and flooded the timeshare market with units for sale by owners desperate to get out from under the expense. It's led to a rash of scams in which timeshare resellers contact owners with great news. They have a buyer for their timeshare unit. They just need an upfront fee from the owner to get things started.

“We got a call from TimeShare Solutions out of Florida,” Dennis, of Galveston, Tex., told ConsumerAffairs.com. “They had buyers ready to buy our Wyndham property. We paid an upfront fee of $598 expecting to hear in the next day or so that our timeshare had been sold. So far, we have not received on phone call back. When we call them, they are not available to talk.”

States crack down

In the last 12 months or so, various states have reached settlements with some companies in the business of reselling timeshares. These companies usually make big promises that they will sell an unwanted timeshare unit, but demand a large upfront fee.

In an eight-month period, Vermont Attorney General William Sorrels settled with two time-share real estate firms he accused of ripping off consumers. Massachusetts and Missouri were also among the states reaching timeshare settlements last year.

Last September, Illinois, Attorney General Lisa Madigan warned timeshare owners in her state that scammers have moved into the space, collecting money but making no attempt to sell anything.

Take my timeshare, please

The fact is, with the collapse of the real estate market, there is even less of a market for timeshare resales. Some owners are so desperate that there are now companies that offer to simply take the unit off the owner's hands. These companies have begun advertising on cable television, obviously believing there there is a large number of people interested in their solution.

The solution calls for the timeshare owner to sign over the unit. The owner gets no money for the unit, and in fact is required to pay closing costs, which can be as high or higher than if they were actually receiving payment for the unit.

Rather than do that, owners should check into donating the timeshare to a charity. There are some charities that will accept the donation of a timeshare. They will usually handle the paperwork and at least you'll get a tax deduction.