Does anyone have details on Starwood's ROFR obligation to pay Seller?

[PamMo]

I know several Tuggers had Starwood exercise ROFR on units they sold this year, and I have a question I hope one of the Starwood experts here can answer. Is there a time limit on when Starwood has to pay the Seller, once ROFR has been exercised? For example, if you are selling a Ka'anapali unit and sign a purchase contract with a Buyer, Starwood has 10 business days to notify the Seller they are exercising ROFR. If Starwood does not notify the Seller within 10 business days, the Seller can legally transfer title to the Buyer. If Starwood does exercise ROFR, is there a time limit on when they have to pay the Seller? Thanks.

Added: Since they are exercising ROFR on an existing Sales/Purchase contract, aren't they bound by the same terms as on the original contract?

 

[jarta]

PamMo, ... "For example, if you are selling a Ka'anapali unit and sign a purchase contract with a Buyer, Starwood has 10 business days to notify the Seller they are exercising ROFR."

Close, but not quite that easily accomplished. The time for exercising or waiving the ROFR begins to run the day notice of the sale is provided to Starwood. It does not run from the day the purchase contract is inked. For that reason, careful brokers and closers send the formal notice of the sale, which asks Starwood to waive its ROFR, by certified mail - and keep track of the number of days from the date of delivery shown on the green postal return receipt card.

Starwood blew the time for exercising its ROFR for a WMH Platinum week I bought last year. When notified of its error by the broker (Fredm) and his closer, Starwood backed off trying to exercise the ROFR and I got the week.

Because my sale went through without a ROFR, I have no knowledge about any requirment for payment by a date certain once the ROFR is validly exercised.

I would expect a court would rule, in the absence of a statute or clause in the governing documents of the resort, that payment must be made within a reasonable time or the exercise of the ROFR is void. But, who wants to spend time and money suing Starwood over mere delay - thereby causing even more delay while the suit grinds along to an eventual decision on reasonableness of the time of payment (which only affects the seller; not the buyer who was aced out of the deed). There are almost always other weeks for sale which the buyer can buy. ... eom

 

[PamMo]

Thanks, Jarta. I've been through ROFR several times (with Starwood and Marriott), and am very particular about having all the paperwork in order and documenting all communication. I started wondering about the performance requirements for Starwood when they exercise ROFR, after hearing about Sellers waiting three months or longer for payment. I am a huge fan of Starwood, but I think that "fuzzy" policies are often to the detriment of owners. With Starwood exercising ROFR more frequently, I would like to see some clarification on what their obligation is to the Seller.

 

[Fredm]

I know several Tuggers had Starwood exercise ROFR on units they sold this year, and I have a question I hope one of the Starwood experts here can answer. Is there a time limit on when Starwood has to pay the Seller, once ROFR has been exercised? For example, if you are selling a Ka'anapali unit and sign a purchase contract with a Buyer, Starwood has 10 business days to notify the Seller they are exercising ROFR. If Starwood does not notify the Seller within 10 business days, the Seller can legally transfer title to the Buyer. If Starwood does exercise ROFR, is there a time limit on when they have to pay the Seller? Thanks.

Added: Since they are exercising ROFR on an existing Sales/Purchase contract, aren't they bound by the same terms as on the original contract?

Unfortunately, there is not a set time limit by which an ROFR must close.

Starwood says that the seller can expect a "reasonable" delay.
Reasonable is a subjective term.
I have witnessed ROFR closings from several weeks to several months.

Re: "Since they are exercising ROFR on an existing Sales/Purchase contract, aren't they bound by the same terms as on the original contract?"
Not really. Starwood issues replacement terms for the owners signature. They do reflect the same purchase price, use-year and fee obligations. Starwood does not, for example, recognize the stated closing agency in the sales agreement. They use their own. Likewise, for broker commission payments.
They pay the seller, and the seller then pays the broker commission (unless the broker is an approved and registered Starwood vendor). These are but two of the terms that typically appear in the original contact.

I do know of an owner who became quite frustrated with the amount of time it took. After several inquiry calls over the course of a couple of months, they stated their frustration in more forceful terms. Their check was in the mail the following day. Coincidence? Perhaps.

Keep in mind that Hawaii closings are taking a couple of weeks longer than in the past. Per a change this past July Land Court deeds must be de-registered and re-registered with the Regular system. No more Land Court for timeshares.
Hawaii culls them from the Land Court system as they are sold.

 

[ada903]

I think Marriott is even worse that Starwood if that makes you feel better. Starwood sent me paperwork within about 3-4 weeks of exercising ROFR, with Marriott it has been over a month and I have heard nothing back.

 

[PamMo]

Thank you, Fred and Adriana. What you wrote is very interesting. When I asked for the specific policy pertaining to ROFR for WKORVN, here is what Starwood sent me:

Thank you for your inquiry. The Right of First Refusal means you are able to list your week for sale without contacting us.

If you receive an offer to buy your Vacation Ownership Interest and if you want to accept it, you must first notify us before accepting the offer. Likewise, if you make an offer to sell your Vacation Ownership Interest, then you must provide to us a complete copy of the purchase agreement signed by all sellers and prospective buyers. This may be faxed to 407.903.4701 attention LSA.

We then have the right and an option to buy your Vacation Ownership Interest at the same price and on the same terms contained in the purchase agreement. If we decide to buy it, we will send you written notice of that decision within ten business days. If we do not send notice of our decision to buy your Vacation Ownership Interest within the ten business days period, then you may sell your Vacation Ownership Interest to the buyer under the purchase agreement.
​

This policy does not state that Starwood can change the terms of the original purchase agreement. I understand "reasonable" is the issue, but if my original buyer could pay within thirty days, isn't it unreasonable that a large corporation like Starwood would need 60 days or longer AFTER exercising ROFR to pay me?

Mostly, my question was to try to find out exactly how Starword's ROFR policy worked for the seller. I used to think it was no big deal either way who bought the unit, and that it would be quick and painless if Starwood exercised it, but I'm discovering otherwise...

 

[Fredm]

This policy does not state that Starwood can change the terms of the original purchase agreement. I understand "reasonable" is the issue, but if my original buyer could pay within thirty days, isn't it unreasonable that a large corporation like Starwood would need 60 days or longer AFTER exercising ROFR to pay me?

But, as stated they do not conform to ALL the terms of the original purchase contract. If they did, all they would have to do is substitute their name in place of the original buyer, get the seller to sign the amended agreement, and proceed with the title search and closing (they already have the estoppel).

Re: the payment time frame, when the original buyer was willing to pay for it has little to do with how long it takes to actually close the escrow. The buyer can fund the escrow at any time (although it usually occurs just prior to recording the new deed). As we know, the deed can take a variable time to record, and the newly recorded deed can take a variable amount of time to be updated on Starwood's records.
Once it leaves the escrow agent's hands it is out of their control.
To expedite the recording we have the deed hand delivered to the County, and wait for the recording. So, it happens "over the counter". Starwood may not do that. It can take weeks if done by mail.

After recording the new deed, I remember the days when it took Starwood 3-4 weeks just to update their records once the new deed was received. Much improved since then.

Starwood has become much more aggressive in their exercise of ROFR in Hawaii. I imagine they do not have the resources or procedures in place to process it all in a timely manner. I also imagine that Starwood has additional inventory control steps it must take since they are placing the unit back into their available sale inventory.
They probably do not "close" until all their boxes are checked off.
Then, the payment probably goes to accounts payable for its approval/audit, and is batched for a check run.

Not excusing the time it takes, just trying to figure it out.

I feel for those who have a sale wrapped up in a less than timely closing process. We wait for our commissions along with the sellers.

 

[PamMo]

As usual, Fred, your posts are thoughtful and full of good information. It's not always the information I want to hear, but thank you. I am bemused by the difference in time it takes to close on various resorts in Maui. My first two Westin Ka'anapali units took almost five months to close, my third took three months. A recent purchase at The Whaler was closed and recorded within 3 weeks of signing the sales agreement. I guess economies of scale don't equate to economies of time.

Thanks again.

Pam

 

[vacationtime1]

But, as stated they do not conform to ALL the terms of the original purchase contract. If they did, all they would have to do is substitute their name in place of the original buyer, get the seller to sign the amended agreement, and proceed with the title search and closing (they already have the estoppel).

Re: the payment time frame, when the original buyer was willing to pay for it has little to do with how long it takes to actually close the escrow. The buyer can fund the escrow at any time (although it usually occurs just prior to recording the new deed). As we know, the deed can take a variable time to record, and the newly recorded deed can take a variable amount of time to be updated on Starwood's records.
Once it leaves the escrow agent's hands it is out of their control.
To expedite the recording we have the deed hand delivered to the County, and wait for the recording. So, it happens "over the counter". Starwood may not do that. It can take weeks if done by mail.

After recording the new deed, I remember the days when it took Starwood 3-4 weeks just to update their records once the new deed was received. Much improved since then.

The difference is that a typical private sale involves an escrow agent. But when it exercises ROFR, Starwood unilaterally changes this term and closes the transaction internally.

When there is an escrow, the deal closes as soon as the escrow agent has a proper deed from the seller and money from the buyer. A competent escrow agent can record the deed over the counter at 8:00 am the next day (as soon as the Recorder's Office opens) and release the sales proceeds to the seller. End of discussion; if the recorder takes a month to mail back the recorded deed to the buyer, if the HOA takes a month to recognize the new owner, etc., that is the buyer's problem; the buyer received everything from the seller that he bargained for -- a valid deed which he recorded.

(Think of selling a home in this context; the seller gets paid when the deed is recorded, it doesn't matter if the buyer waits a month to move into the property.)

Starwood does not play by these rules because it does not use an independent escrow agent. It is not the seller's concern that Starwood needs time to do some kind of inventory control after the deed is recorded, takes time to put the unit into its sales department, or anything else. The seller's only obligation is to deliver a valid deed; the seller is entitled to his money as soon as that deed is recorded (and the seller's agent is entitled to his commission at that exact moment, also). Neither the seller nor his agent should have to wait for the seller to "requisition a check"; the buyer was not entitled to record the deed without first paying for it.

Think of what would happen if Starwood went bankrupt the day after the deed was recorded, but before issuing the check. The bankruptcy estate would legally own the property and the seller would be a general creditor of the bankruptcy estate and get pennies on the dollar. No rational buyer would sell a property in the real world on that basis.

I am one of the sellers OP referred to in the OP; I waited over three months for my money on a WKORV sale last summer. I am not as upset about it as this rant may imply; I rationalized it by considering it to be a couple of extra months to find a buyer. But Starwood's process stinks.

 

[Fredm]

Starwood does not play by these rules because it does not use an independent escrow agent. It is not the seller's concern that Starwood needs time to do some kind of inventory control after the deed is recorded, takes time to put the unit into its sales department, or anything else. The seller's only obligation is to deliver a valid deed; the seller is entitled to his money as soon as that deed is recorded (and the seller's agent is entitled to his commission at that exact moment, also). Neither the seller nor his agent should have to wait for the seller to "requisition a check"; the buyer was not entitled to record the deed without first paying for it.

I agree. Well, almost. A normal timeshare escrow closes and the seller is paid once Starwood's records are updated. Not when the deed is recorded. But, otherwise, agreed.

 

[jarta]

Fredm, ... "Starwood does not play by these rules because it does not use an independent escrow agent."

Doesn't Starwood pay the ROFR money into the escrow set up by the seller's closer? Doesn't that mean that the escrow agent is independent from Starwood?

Or, does Starwood make the payment directly to the seller? If the check is sent from Starwood directly to the seller, how does the broker obtain payment from the sale proceeds? Wouldn't the broker then have to chase the seller for payment?

Or, does Starwood just net check the seller and send a check directly to the broker and closer? ... eom

 

[Fredm]

Fredm, ... "Starwood does not play by these rules because it does not use an independent escrow agent."

Doesn't Starwood pay the ROFR money into the escrow set up by the seller's closer? Doesn't that mean that the escrow agent is independent from Starwood?

No. Starwood administers the escrow and closing. The sellers closer is cut out of the transaction. Their involvement ends by returning the original buyers deposit funds.
Because of the frequency of ROFR with Maui and Princeville our closer does a lot of work they would not get compensated for.
So we compensate our closer in this situation from our commission, when we get paid.


Or, does Starwood make the payment directly to the seller? If the check is sent from Starwood directly to the seller, how does the broker obtain payment from the sale proceeds? Wouldn't the broker then have to chase the seller for payment?

Yes and no. Starwood's policy is to send all funds to the seller at close, including broker commission, unless the broker is an approved and registered vendor.
So, yes, the broker must collect the commission directly from the seller after they receive the proceeds from the transaction.


Or, does Starwood just net check the seller and send a check directly to the broker and closer? ...

As mentioned, if the broker is a registered vendor then Starwood will net the seller and forward the commission directly to the broker. This requires some additional seller authorization on the front end, but otherwise works.
I am now a registered vendor, so I no longer have to invoice the seller and pursue payment.

At the end of the day these closings take much longer than anyone would like.

 

[abdibile]

Sorry I am still confused, so perhaps we can go through an example.

Let's assume the original contract states:

Purchase price of the week (to seller): $10,000
Buyer pays closing company: $500
Buyer pays comission to broker: $1,000


Buyer pays: $11,500

Seller receives: $10,000

Closing company receives: $500

Broker receives: $1,000



If they exercise ROFR, what do they pay to whom?

Starwood pays to seller: $11,000

Seller pays to broker: $1,000 (hopefully! Probability of this happening is below 100% while it would have been 100% if closer/escrow had been involved as agreed in the original contract)

Closer gets nothing (or gets a little bit from broker if broker wants to do frequent business with this closer)

Starwood pays less than original buyer would have paid including all costs.



So broker and/or closer always lose when they exercise ROFR????

Did I get that right?

 

[Fredm]

Sorry I am still confused, so perhaps we can go through an example.

Let's assume the original contract states:

Purchase price of the week (to seller): $10,000
Buyer pays closing company: $500
Buyer pays comission to broker: $1,000


Buyer pays: $11,500

Seller receives: $10,000

Closing company receives: $500

Broker receives: $1,000



If they exercise ROFR, what do they pay to whom?

Starwood pays to seller: $11,000

Seller pays to broker: $1,000 (hopefully! Probability of this happening is below 100% while it would have been 100% if closer/escrow had been involved as agreed in the original contract)

Closer gets nothing (or gets a little bit from broker if broker wants to do frequent business with this closer)

Starwood pays less than original buyer would have paid including all costs.



So broker and/or closer always lose when they exercise ROFR????

Did I get that right?

Starwood is paying the seller the full purchase price. The broker must collect the commission from the seller.

The original closing agent is cut out of the process. Starwood, as the new buyer, nonetheless incurs some cost for the closing. At a minimum a tile search must be performed, transfer tax and deed recording fees must be paid. Needless to say, Starwood is also paying someone a salary to administer the closings.

So, yes, the original closer loses the business. They do not do nearly as much work as they would have. But, they still do some for which there is no billable compensation.

An additional comment about closing agents.
I view our independent closing agents as our most important business relationship. How they perform is, oftentimes, how we are remembered. A smooth, professionally executed sale and closing is a team effort. So, when the closer is cut out of a transaction we initiated, we compensate them out of our commission because they are still part of the team.

eta: I don't know if, or how much, others compensate closing agents in such circumstances. It is none of my business.
But, I don't think it is entirely accurate to say: "So broker and/or closer always lose when they exercise ROFR????"

It is true, to the extent that we compensate the closing agent from our commission, we net less than we otherwise would have.
It is also true that the closing agent would have earned more had the ROFR not been exercised.
But, it is also true that we sometimes sell the original buyer another, higher priced, timeshare in place of the one exercised by Starwood. So, another commission is earned, and the closing agent does get a full closing fee on the subsequent transaction that passes ROFR.

It is just part of the business landscape. Overall, our brokerage business has benefited from Starwood's ROFR activity. To the extent that the closing agent is also compensated, they also benefit overall from the ROFR activity.

 

[Henry M.]

Fred,

In your opinion does ROFR end up raising resale prices or not? As word gets around of the prices at which Starwood exercises ROFR, do people offer a little more to ensure getting what they want? Does ROFR matter at all to the market price of a timeshare?

 

[Fredm]

That's a question that will never be resolved here on TUG.

The "market" is too fragmented for word to get around.
But, my personal observation is that sustained exercise of ROFR at a particular resort does have the effect of increasing sale prices over time.
Erratic exercise won't do it. Buyers must be convinced that low offers are a waste of time. And the most common way they come to that conclusion is to have a purchase or two taken away by an ROFR.

By way of example, we recently sold seven Princeville eoy's to 3 buyers. The first four were exercised. Each of the buyers then raised the amount they were prepared to offer. Each were ultimately successful in acquiring a share for ~40% more than their original offer price.

Some say that ROFR discourages buyers from making an offer, so reduces demand. That may be so. But, that is not what drives the sale price IMO. It is the buyer who wants to own it at the best price they can actually buy it for, per my example above.

That said, offer prices are generally driven by the low list price in the market. There must be enough sustained exercise of ROFR to remove this inventory (sorry for being repetitive about this, but it is the key to your question).
This is currently happening with Maui and Princeville.

Those willing to take less are going to be the first to sell. And what the "market" sees is the low sale price. Not the price it took to buy it.

Does this translate to a higher or lower market price? I don't know.
I do know that for those we do business with, the end result is that sale prices increase when an ROFR is active and sustained over a long period of time.

 

[Henry M.]

Seems logical, and I do agree it would have to be sustained exercising of ROFR. Hopefully that will be the case in Maui, now that they've run out of new inventory.

 

[Fredm]

Seems logical, and I do agree it would have to be sustained exercising of ROFR. Hopefully that will be the case in Maui, now that they've run out of new inventory.

It currently is the case with Maui. Prices are up at least 25% from 2010 lows.