New DVC Resale Restrictions and Who is Most Impacted
What are the DVC Resale Changes?
Effective for 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, Reflections – A Disney Lakeside Lodge and possibly additional future properties in the DVC system. All Members will still be able to exchange with RCI.
Once sales of Disney’s Riviera Resort begin, Members who purchase a resale of Riviera will only be able to stay at Disney’s Riviera Resort in the DVC network. Those Members will still have access to Interval International.
Can I Still Buy Resale before the Changes?
Any contracts submitted to Disney for right of first refusal (ROFR) prior to January 19, 2019, will be “grandfathered” in. Meaning, if you purchase a resale contract and it is submitted to Disney prior to January 19, 2019, that contract can be used at all original 14 resorts as well as Riviera, Reflections and future resorts.
If you are considering purchasing a DVC resale contract, it is highly recommended you do so prior to January 14, 2019 if you want to best ensure your purchase is submitted to Disney prior to January 19th. Reason being, the deadline is not just that you agreed to buy, but rather the contract has been signed by both parties and submitted to Disney. This is not to say if you purchase after January 14th, but before January 19th it is impossible to get your contract submitted in time. It is still possible, but the risk of the contract not being submitted in time begins to increase considerably in the days leading up to the 19th as both parties need to perform in a very timely manner, and we are anticipating a very busy period for buyers.
Who is Most Impacted by this DVC Resale Change and How?
Certainly, the most ideal option is for potential Members and existing Members to purchase resale prior to January 19, 2019 to ensure they not only get access to the 14 classic resorts, but also access to the upcoming resorts.
What is the best option after January 19th? I would assert buying the classic resorts via resale, but perhaps more so than ever. The 14 resorts currently in the DVC collection are very likely to be the most popular ever. 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.
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. 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 nearly 10 years ago, and based on sales pace may still have several more years to go before it is finally sold out.
Overwhelming, the biggest impact will likely be felt by direct purchasers of Disney’s Riviera Resort and possibly future properties, if and when those owners decide to sell their direct purchased contracts. If you purchase Disney’s Riviera direct, while you own it, the use will be unaffected by these changes. So, if someone purchases Riviera and keeps it until expiration, for roughly the anticipated 50 years it will have on it’s deed, they will not be impacted. However, in reality, the typical time frame for Members to keep DVC contracts is more like 5-15 years.
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 $20,000 – $40,000 (typical direct DVC purchase), almost everyone wants to know what does it look like if I wanted or needed to sell at some point? Essentially, what is the resale value? To think the resale price of Riviera will be impacted by the restriction of use is only natural.
Could someone purchase Riviera direct for around $40,000 and possibly be living with a resale value a fraction of that amount the next day? While we won’t know the answer to this question until probably sometime late this year when Riviera resale contracts’ are likely first entering the market, it is a scenario direct buyer’s may need to consider.
The potential buyer for a Riviera 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 being booked and having no other Disney Vacation Club option for their family’s vacation. The resale buyer of Riviera will not likely be jaded though, as they will probably be buying it at a resale price that accounts for such restrictions.
Why Would Disney Do This?
Only the decision makers at DVC truly know the answer, but certainly, we can speculate 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 may become much more difficult 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 could increase significantly.
- Opportunity for obtaining more resorts in foreclosure rather than competing with them in resale: The vast majority of contracts we resale that were purchased direct 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.