Do you have questions about first right of refusal?
Many owners and timeshare newcomers will find themselves wondering what these buy-back programs really mean for them. Further confusing the subject, almost every developer’s program will differ from the next. So we won’t bore you with the small differences. In this article, we will cover the basics of these programs and get you up to speed about your rights as well as the pros and cons of first right of refusal.
What Is First Right of Refusal?
First right of refusal programs are just what they sound like. As a current owner, before selling your ownership, or buying a timeshare on the resale market, you are required to give the developer the right to refuse the purchase of the ownership directly from you. At the time of the sale, the seller will be obligated to submit the purchase agreement to the developer to review.
At the point of submitting the contract, the developer can choose whether or not to purchase the ownership for the price the owner has secured in the agreement. In most cases, you are guaranteed at least what you are contracted for, so it is not a detriment to the seller if the ownership is purchased from the developer, as the transfer will be carried out just like any other.
Why Do These Programs Exist?
These programs exist for many reasons. Mostly, it is a way for the developer to control what price ‘their’ ownerships are sold for on the resale market. A developer will generally only exercise their right to purchase the unit if the price it is sold for is too low in the eyes of the developer.
If the developer does elect to buy the ownership back, the buyer will lose the deal, but the seller will still be in contract to sell the ownership. There currently is no standard for what price each developer will pay for a particular account, and it is dependent on many factors such as; current resale market value, current costs to build new resorts, the amount of funding allocated to these buy-back programs, and the property’s details.
From the perspective of the owner, first right of refusal can be a very positive thing. It generally means there will be a controlled secondary market for your ownership. This can lead to stability in resale prices, and prevent the ownership from being devalued to the point of being a liability for the owner. It is this reason why our brokerage only deals in high end timeshares, to make sure our clients are not stuck with a burden, and have a clear exit strategy if they need to divest.
What buyer wants to make an offer and sign a contract on an ownership that will just be purchased out from under them? Which leads to…
What Are the Disadvantages?
Overall, there are very few bad things to say about first right of refusal, but if one were inclined to complain (we’re just so good at it!), the most obvious caveat is for the buyer on the resale market. Their offers will have to pass the developer’s standard to actually have the property transferred into their name. Many times, you would have to be extremely experienced and involved in your developers resale market to know what price will pass. This is where a brokerage, who specializes in the transfer of your ownership, can really help you understand what price the ownership should be listed at, or what price your offer will need to be to make the transfer successful.
What’s the Verdict on First Right of Refusal?
As a seller in today’s market, you can take comfort in knowing that your ownership will be valued at something with a buy-back program. There are some small properties, which lack safeguards such as these that sell for literally nothing. Some ownerships value can be so low that you’d have to pay to give it away. This can be easily avoided by knowing which property to buy.
In our experience, many buyers prefer knowing the vacation ownership they are putting their hard-earned dollars into will have much better residual value and overall will be more desirable, if they ever chose to sell. Programs such as first right of refusal can help protect against not only liability for yourself, but if the ownership is planned to be willed to your children, they will have considerably less liability down the road.
Feel free to contact us for more information regarding the specific programs for each developer, and we would be more than happy to have a licensed agent contact you to answer any questions you have.
