DVC Resale Restrictions and Who is Most Impacted
What are the DVC Resale Restrictions?
Effective for DVC resale purchases submitted on or after January 19, 2019: Disney Vacation Club resale contracts purchased for the original 14 DVC resorts will only be able to exchange into those 14 existing resorts in the DVC network. These contracts will not be able to exchange into Disney’s Riviera Resort, The Villas at Disneyland Hotel, and possibly additional future properties in the DVC system. Members who purchase a resale of Riviera or Disneyland Hotel will only be able to stay at their specific deeded home resort. Those Members will also still have access to Interval International.
Who is Most Impacted by this DVC Resale Change and How?
Despite these resale restrictions, buying the classic DVC resorts via resale will likely remain extremely popular. Why? The 3 rules of real estate: location, location, and location! The classic 14 resorts surround nearly all the available real estate around the major theme parks. These include some of the most popular DVC resorts for owners and guests, with Bay Lake Tower, Polynesian, Grand Floridian, BoardWalk, and Beach Club.
Without the addition of new major theme parks, which has been more of a rumor and a dream than a reality since 1998, there really isn’t an opportunity for newer DVC resorts to compete in popularity with existing prominent resorts such as Beach Club, Boardwalk, Grand Floridian, etc. A recent addition to The Villas at Disney’s Grand Floridian Resort and Spa was included in the resorts existing condominium association, excluding it from new resale restrictions. This may also occur with the tower being added to Disney’s Polynesian Villas and Bungalows, scheduled to open in 2024.
Additionally, based on action or lack thereof, DVC doesn’t seem to be highly interested in locations outside of a theme park. Aulani was the last DVC resort location built outside a Disney theme park. Aulani went up for sale years ago, and based on its sales pace may still have several more years to go before it is finally sold out.
Overwhelmingly the biggest impact will likely be felt by direct purchasers of Disney’s Riviera Resort and The Villas at Disneyland Hotel. If you purchase one of these contracts direct, while you own it, you (the owner) will be unaffected by these changes. So, if someone purchases Riviera and keeps it until its expiration in 2070 (roughly 50 years), they will not be impacted. However, in reality, the typical time frame for Members to keep DVC contracts is more like 5-15 years. If and when those owners decide to sell their direct purchased contracts, Riviera has shown us this will result in a greatly reduced resale value.
With that time frame for potentially selling in mind, families have to consider what does my resale value look like? Much like a car, DVC is by no means an investment. However, much like a car, when someone makes a purchase decision in the neighborhood of $35,000 – $45,000 (typical direct DVC purchase), almost everyone wants to know what it looks like if they want or needed to sell at some point? Essentially, what is the resale value? To think the resale price of Riviera and Disneyland Hotel will be impacted by these restrictions of use is only natural.
The potential buyer for a Riviera or Disneyland Hotel resale contract has to not only account for the fact they can’t stay in some of the more popular locations, but they also have to consider the possibility of Riviera or Disneyland Hotel being completely booked and having no other Disney Vacation Club option for their family’s vacation. The resale buyer of Riviera or Disneyland Hotel will not likely be jaded though, as they will probably be buying it at a resale price that accounts for such restrictions. As of March 2023, these restrictions have resulted in a 38% decrease in the resale value of a Riviera contract when compared to Direct Disney pricing.
Why Would Disney Do This?
Only the decision makers at DVC truly know the answer, but certainly, we can speculate on the financial opportunities that may result from this decision. Is this decision to boost more direct sales at the expense of resale? This is possible, but the truth is direct sales starting with the Riviera, have been shown to struggle, given concerns over resale value. Other possible financial benefits could be the following:
- Increase in Buy Back margin: if the resale value is much less, and the direct price remains the same or increases, the profit margin when buying back via Right of First Refusal (ROFR) could increase significantly.
- Opportunity for obtaining more resorts in foreclosure rather than competing with them in resale: The vast majority of contracts for sale via resale that were purchased direct from DVC were financed. If someone is wanting or needing to sell a contract purchased and the market will not bear a price close to what they owe, the Member may have no other alternative than to lose their contract via foreclosure.
- More revenue opportunity in the “Breakage Period”: If a unit has not been reserved sixty days prior to a given use day, Disney retains the right to rent that unit to non-members. By restricting use of Member’s points in the DVC network, the opportunity to use or rent those points that may otherwise go unused diminishes. Thus, leaving Disney with more inventory to acquire in the breakage period and more rental income for Disney.