Is there any scenario in which a guaranteed buyback program could work

[boyblue]

Is there any scenario in which a guaranteed buyback program could work for the developer & TS owner?

As a developer how would you structure a guaranteed buyback program?

 

[JudyS]

Blueboy, I'm glad that you brought this up.

I've been toying with the idea of starting a timeshare resale business. The business model would be to help customers find a low-cost timeshare that trades well and fits their needs, but to charge substantially more than if the customers researched timeshares on their own and bought off of, say, eBay. The problem is convincing people that the timeshare is actually a good deal, and that I'm not lying. When I tell people the sort of trades I've gotten with some of my timeshares, they say it sounds too good to be true, so getting people to believe that I'm telling the truth would be a serious obstacle.

I figure that offering a money-back guarantee would be one possible way around the "too good to be true" problem. However, I see the following problems with a seller offering a money-back guarantee: 1) This is a real estate transaction. Unless the seller was willing to "eat" the closing costs, it would not be possible to refund all of the buyer's money. One solution to this would be to offer a refund of all but the closing costs. 2) The buyer might use, rent or deposit one or more weeks at the resort, and then try to return the week. There would have to be some provision saying that the buyer is responsible for annual fees on any week used, and perhaps on any week that isn't returned a certain amount of time before check-in on the next use date. The seller might want to levy a fee for any week that has been used. 3) The seller would probably want to put a time limit on the money-back period. One year should be plenty for buyers to tell if the resort fits their needs.

Of course, if the seller charges closing fees, a fee for used weeks, etc., then this partially defeats the purpose of offering a money-back guarantee. Still, offering most of the money back should increase confidence somewhat.

From the buyer's point of view, a big problem is ensuring that the seller will really refund the money. Think of all those "fee up front" timeshare "brokers" who promise to refund the money if they can't find a buyer, and then just take the money and run. For full protection, the buyer should really ask that the money be kept in escrow. However, doing this raises the seller's costs substantially, because they will have a huge amount of money tied up in escrow, and would have to borrow for their capital needs.

 

[CaliDave]

Seth Nock has a money back guarantee. 80% minus closing costs.

http://www.sellingtimeshares.net/guarantee.asp

I don't think he has updated the date in a while.

 

[T_R_Oglodyte]

Is there any scenario in which a guaranteed buyback program could work for the developer & TS owner?

As a developer how would you structure a guaranteed buyback program?

Sure. The developer determines the price point at which recquired units can be profitably recycled. That becomes the option price.

The developer may want flexibility in the program. The price the developer is willing to pay may change over time, or the developer may not want to commit to purchasing all of the inverntory that might be made available. In that case, the developer sends out a notice to owners each year saying what the developer's buy-back rice is and how many units they are willing to buy back at that price. It could easily be included in the statement that goes out with annual dues notices.

 

[boyblue]

Boy two great ideas right out the gate.

The Seth Nock example is simple & effective. Steve your Idea is brilliant. Is this something that you have thought about in the past or was it off the cuff?

If you think about it, for those of us that bought developer, if we had been guarenteed buyback at 50% we would have dismissed it; but I know in my case that 50% is more than twice what I ended up selling my week for.

 

[BocaBum99]

There is no scenario that a guaranteed buyback program would work better than ROFR for the developer.

In ROFR, they can pick and choose what they want to buy back. Guaranteeing a buyback would cause 3 serious problems for the developer.

1) Whatever price they set, would force the timeshare buyer to think. As we all know, timeshare sales from the developer are emotional purchases, the less the buyer thinks, the higher probability they have of buying. So, guaranteed buyback means less sales than ROFR.

2) If they have a guaranteed buyback, the CANNOT recognize the revenue for that full sale. They have to earmark that cash as a potential liability should the buyer exercise their buyback right.

3) If there is a buyback level, the developer must tell them the buyback level. If they set it too low, they don't make a sale. If they set it too high, they don't make any profit due to reserved cash for returns.

So, guaranteed buybacks make no sense. Why guarantee something when you can get it if you want?

 

[boyblue]

There is no scenario that a guaranteed buyback program would work better than ROFR for the developer.

In ROFR, they can pick and choose what they want to buy back. Guaranteeing a buyback would cause 3 serious problems for the developer.

1) Whatever price they set, would force the timeshare buyer to think. As we all know, timeshare sales from the developer are emotional purchases, the less the buyer thinks, the higher probability they have of buying. So, guaranteed buyback means less sales than ROFR.

2) If they have a guaranteed buyback, the CANNOT recognize the revenue for that full sale. They have to earmark that cash as a potential liability should the buyer exercise their buyback right.

3) If there is a buyback level, the developer must tell them the buyback level. If they set it too low, they don't make a sale. If they set it too high, they don't make any profit due to reserved cash for returns.

So, guaranteed buybacks make no sense. Why guarantee something when you can get it if you want?

It’s a what if kinda thing BB. I guess I should have prefaced my inquiry with the phrase "In a perfect word".

Of course when the perp (TS salesman) paints a picture of ROFR what the vic (new owner) envisions is guaranteed buyback. This phenomenon requires slight of hand. What if we got rid of all the lies & innuendo?

 

[T_R_Oglodyte]

Boy two great ideas right out the gate.

The Seth Nock example is simple & effective. Steve your Idea is brilliant. Is this something that you have thought about in the past or was it off the cuff?

If you think about it, for those of us that bought developer, if we had been guarenteed buyback at 50% we would have dismissed it; but I know in my case that 50% is more than twice what I ended up selling my week for.

I would put a 50% buyback right into the sales pitch. Guaranteed buyback at 50% of purchase price. Here's the excerpt from the sales training manual:

Even after you purchase your timeshare from us, we ensure that you will be able to receive value from it and we protect the value of your investement. As a minimum, at any time between now and 2020, we will buy back your unit, no questions asked, for 50% of your purchase price.

Of course, our units resell for more than that so we seldom need to buy back any units.. [At this point pull out your copies of recorded deeds for resales that have been copied from the county recorder's records. The resort will buy back some units at higher levels just so some sales can be shown at that level.] And it wouldn't surprise me if those values increased substantially in the future as real estate prices appreciate overall. [Note the careful wording of this statement to avoid making a promise of future returns and to avoid selling the timeshare as an investment.]

Our buyback program is really there as a safety net for you and your family to protect your vactioning investment. Most of the time units will sell for more than our buyback amount. But, frankly, it may take some time for you to close a deal on your own. We also know that sometimes circumstances change, there may be a family emergency, etc. that requires that you be able to sell more quickly. Or yo umay not want to go through the effort and time involved in marketing and selling the unit yourself. That's where the real value of our buyback program comes in - you can create a sale with us for 50% of the price in short order. Think of it like trading in a car when you buy a new car. You can get more money for your old car if you sell it yourself, but many people will trade in their old car because of the conveniennce of not selling the car themselves. Our buyback operates much the same way.

And we have another buyback program - that is our up grade program. If you decide you want to upgrade your ownership [e.g., from a one-bedroom to a two-bedroom or from off-season to peak season], we will buyback your current from you at the full price you are paying today, and credit the full amount against the sale price of the upgraded unit you are buying.

Classic sales technique. Turn the reason you shouldn't buy into the very reason you should buy.

 

[BocaBum99]

I would put a 50% buyback right into the sales pitch. Guaranteed buyback at 50% of purchase price. Here's the excerpt from the sales training manual:

Classic sales technique. Turn the reason you shouldn't buy into the very reason you should buy.

And, at the very moment you mention that, you lose the sale because the buyer says "what? It's only worth 50% of what I am paying?"

If you think this is a good sales technique, you clearly are not in sales. LOL.

 

[boyblue]

That's pretty good Steve. Judys there's your buyback strategy.

 

[boyblue]

And, at the very moment you mention that, you lose the sale because the buyer says "what? It's only worth 50% of what I am paying?"

If you think this is a good sales technique, you clearly are not in sales. LOL.

How so? He's only offering a bit of insurance?

 

[BocaBum99]

It’s a what if kinda thing BB. I guess I should have prefaced my inquiry with the phrase "In a perfect word".

Of course when the perp (TS salesman) paints a picture of ROFR what the vic (new owner) envisions is guaranteed buyback. This phenomenon requires slight of hand. What if we got rid of all the lies & innuendo?

Boyblue,

You're perfect world is kinda weak. It only includes guaranteed buybacks from the developer.

My perfect world has things in it like:

1) World Peace.
2) No hunger
3) A cure for cancer
4) Nobody is considered ugly, and all people are beautiful.
5) Nobody overweight
6) Everyone in perfect health.
7) A one-day work week.
8) Everyone is rich.

Stuff like that.

 

[BocaBum99]

I was wrong.

There is one very nice buyback program. That is Disney Vacation Club. They guarantee that they will buy back your timeshare in 2042 and 2054 for $0. They take it completely off your personal balance sheet.

 

[BocaBum99]

How so? He's only offering a bit of insurance?

Why would you need insurance on an asset that is positioned as increasing in value? You don't need insurance if it is implied that it will increase in value. After all, prices are only going up. We have price increases 4 times per year. Timesharing is a today business. If you don't buy today, you will only pay more later.

He doesn't need insurance. It's guaranteed. Guaranteed that he will lose that sale as soon as he makes the 50% offer.

 

[T_R_Oglodyte]

And, at the very moment you mention that, you lose the sale because the buyer says "what? It's only worth 50% of what I am paying?"

If you think this is a good sales technique, you clearly are not in sales. LOL.

Actually I am in sales. When I was heavily involved with a previous employer I did between $1 MM and $5 MM per year.

I would not make buyback part of my basic presentation. I would use it to anwer objections to the sale - specifically for the buyer who asks about what happens if he wants to get rid of his unit. First I mention that it's a deeded asset that the can sell. If he needs additional information then I get into the particulars.

It works perfrectly well if you sell it as the "safety net". It doesn't change the existing sales pitch one bit. The sales person says everyithing they are currently saying about the value of their "vacation investment". It gives the sales person one more "arrow in the quiver" they can shoot if needed to close the sale.

It makes a heck of a lot better response than the sales person can usually offer now if you ask them about reselling your unit.

 

[T_R_Oglodyte]

And, at the very moment you mention that, you lose the sale because the buyer says "what? It's only worth 50% of what I am paying?"

If you think this is a good sales technique, you clearly are not in sales. LOL.

And if you've never been involved in dealing with buyer objections when you are selling something that has an intrinsic value that's worth only 50% of the sales price, it's clear that you are not involved in sales. LOL.

You have to be able to provide reasons the buyer should purchase when he or she raises "intrinisic value" objection. Most timeshare sales people don't have a good answer to that objection. My suggestion provides a far better response to that objection than any that I've ever heard in a TS presentation.

 

[BocaBum99]

And if you've never been involved in dealing with buyer objections when you are selling something that has an intrinsic value that's worth only 50% of the sales price, it's clear that you are not involved in sales. LOL.

You have to be able to provide reasons the buyer should purchase when he or she raises "intrinisic value" objection. Most timeshare sales people don't have a good answer to that objection. My suggestion provides a far better response to that objection than any that I've ever heard in a TS presentation.

You are making a logical argument which kills a sale based solely on emotion. It won't work. Go ahead, ask any top timeshare sales guy. I know several who make over $200,000 per year. They would NEVER make that argument. The timeshare saleman doesn't care about making a good argument relative to resales and intrinsic value. They only care about making a sale based on love or a dream vacation and doing their best to keep that person from thinking because one of the top reasons people don't buy at the TS presentation is "we need to think about it."

The response a great timeshare salesman will make to an inquiry on timeshare resales is this. First, they say that they can sell their timeshare through any broker just like real estate. And, that they are selling deeded property and prices go up 4-6 times per year. So, you need to buy today to get the incentives that go away if you don't buy now. They completely avoid the question of what it is really worth. And, they avoid whether or not it is an investment except for an investment in the happiness of your family and an insurance policy to spend more time together each year. If the prospect already knows about the resale market, they aren't buying anyway. So, intentionally misleading statements that are technically not lies is the norm.

I have seen the training manual for a timeshare sales company. They tell you upfront and outright that timeshare sales is an emotional sale. In fact, they won't hire logical people. You need to take a personality test before getting hired and they screen out the logical ones. They teach you that you position timesharing as a way to ensure that you spend quality time with people you love. You don't need to think about whether or not you love someone. If you bring up the intrinsic value of the the timeshare, you bring it to logic and you lose the deal because they need to "think about it". The key to a timeshare sale is to heavily appeal to emotion and provide just enough logic to justify that emotional desire.

 

[T_R_Oglodyte]

I have seen the training manual for a timeshare sales company. They tell you upfront and outright that timeshare sales is an emotional sale. In fact, they won't hire logical people. You need to take a personality test before getting hired and they screen out the logical ones. They teach you that you position timesharing as a way to ensure that you spend quality time with people you love. You don't need to think about whether or not you love someone. If you bring up the intrinsic value of the the timeshare, you bring it to logic and you lose the deal because they need to "think about it". The key to a timeshare sale is to heavily appeal to emotion and provide just enough logic to justify that emotional desire.

I don't disagree one bit. That's why I said you don't bring up the intrinsic value in the basc presentation. You deal with it as a response to the intrinsic value objection. (You do understand the difference between a primary sales presentation and responding to an objection? You do understand that having an answer ready for a buyer who raises an analytical objection does not convernt a hot presentation into a cold presentation?)

The "sample" I did is crafted exactly that way. It's designed to fit into a hot sale. It's constructed around security and protecting your investment. It's not saying "this is what your timeshare is worth". It simply provides a next level of response after you've already presented the basc information about reselling your timeshare. It also redirects the analytical question away from basic economics and toward "security and protection of vacationing investment" - not protection of your financial investment, but protection of your vacation investment. (I'm presuming that the sales person has already demonstrated the present and future value of vacation in exchange for the money being requested. If that value proposition hasn't already been established, the sales presentation was doomed long before the presentation reached the intrinsic value objection.)

BTW - there is no such thing as an objective sale. All sales are emotional sales. I learned that lesson really quickly when I started making outstanding analytical sales to objective buyers and continually saw the contracts awarded to inferior proposals and presentations that happened to hit the hot buttons. Always, always, always ... a person buys when they feel OK about committing to the purchase. The only difference between "emotional" and "logical" buyers is simply the path they follow to arrive at a place where they feel comfortable making a decision. In a cold presentation you still have to hit the hot buttons - you still need to make the buyer feel secure.

I've done enough big ticket sales of technical services to analytical people to know that emotion is the dominant factor in any sale. In fact, the most rigorous analytics are usually the most emiotional. It's just different things that get their emotions stirred. One of the sales professionals key tasks is to discern how the prospect reaches his or her emotional comfort level and adjust the presentation accordingly.

 

[boyblue]

Boyblue,

You're perfect world is kinda weak. It only includes guaranteed buybacks from the developer.

My perfect world has things in it like:

1) World Peace.
2) No hunger
3) A cure for cancer
4) Nobody is considered ugly, and all people are beautiful.
5) Nobody overweight
6) Everyone in perfect health.
7) A one-day work week.
8) Everyone is rich.

Stuff like that.

That would all happen if developers guaranteed to buy back

 

[boyblue]

All things being equal which is better amunition for a salesman? ROFR or Guaranteed buyback?

 

[Gadabout]

All things being equal which is better amunition for a salesman? ROFR or Guaranteed buyback?

The trouble is, if a person is intelligent enough to ask about a buyback, or what ROFR is (and assuming they get an honest answer about exactly how ROFR works, which is doubtful at best), they will have another question, which is:

"Why can't I buy it at the guaranteed buyback or ROFR price instead of this vastly overblown price you just quoted me? I'm not stupid, don't insult me."

 

[JudyS]

All things being equal which is better amunition for a salesman? ROFR or Guaranteed buyback?

I see ROFR and Guaranteed Buyback as having two very different purposes.

ROFR protects the seller (developer) by ensuring that low-priced resales do not compete with the developer's product. I see ROFR as a "mixed blessing" for buyers. (See the ongoing ROFR thread for this.) ROFR might increase buyer's confidence, or then again, it might not. My impression is that sellers don't generally use ROFR as a marketing tool, although I've only been to a few sales presentations at resorts with ROFR.

Guaranteed Buyback, on the other hand, is a marketing tool. It's designed to make buyers feel that there is no risk in purchasing. Because of this, I feel that the Guaranteed Buyback has to be pretty close to the original sales price if it's going to instill buyer confidence. As for setting the buyback value at 50% of the purchase price, I'm with Boca that this will make the timeshare seem worth only 50% of the original price.