Do Your Homework Before Buying a Timeshare

Full disclosure: I've always been somewhat skeptical of timeshares. I understand the appeal of having a guaranteed vacation home in an area you love and being able to swap your unit for a place halfway around the world.

But I worry that many buyers don't consider all associated costs and mistakenly think timeshares are sound financial investments that will appreciate in value. In fact, sellers rarely make a profit – some only get pennies on the dollar. Plus, the waters are filled with sharks eager to rip off people desperately trying to unload unwanted timeshares.

Before you buy a timeshare, understand how they work, challenges you may face when trying to resell and scams to avoid:

Timeshares are usually either:

• "Deeded," where you own a share of the property, usually for a particular unit for a specified time period – typically one or two weeks a year. Depending on your contract, you either own it for life, for a specified number of years, or until you sell it.
• "Right-to-use," where a developer owns the resort and each unit is divided into "intervals" – either by the week or for a certain number of points. You purchase the right to use an interval for X number of years but don't own any real property. Many allow you to use your points to stay at an affiliated resort (swapping).

The price for buying a new timeshare can vary widely, depending on the area and amenities offered. A typical one-week share might cost $10,000 to $25,000 – or many times that for a posh unit in Aspen or Kauai.

Plus, you'll be responsible for various other expenses:

• Annual fees for maintenance, utilities and property taxes.
• Assessments for major repairs or improvements.
• Fees to swap your share for someone else's or sell it.
• Don't forget travel costs to and from the property each year.

The Federal Trade Commission (www.consumer.ftc.gov) offers many helpful tips, including:

• Compare the costs of buying and maintaining a timeshare with renting a similar property. Perhaps rent a unit first to make sure you like the complex.
• Evaluate the resort's location and quality by visiting and talking to current owners about their experience.
• Check for complaints about the seller, developer and management company with the state Attorney General's Office (www.naag.org) and the Better Business Bureau (www.bbb.org).
• Make sure all sales agent promises are contained in the contract.
• Don't act on impulse or be swayed by high-pressure sales tactics. If possible, ask a lawyer or real estate professional to review the contract before signing.
• Like new cars, new timeshares quickly depreciate, so consider buying one used.

A few cautions when selling a timeshare:

• If you're going through a reselling agency, don't pay more than a nominal upfront fee for appraisal, advertising, etc. Look for companies that take their cut after the sale.
• Before setting your price, find out what comparable properties (at similar time periods) sell for so you don't overprice.
• Watch out for scams, such as: an agency cold calls you and claims it has buyers waiting in the wings; or someone claims you're entitled to a settlement from an FTC lawsuit brought against a scammer.
• If you didn't pay cash, you'll probably have to pay off your loan before being able to sell.
• Beware of offers to accept your timeshare as a tax deduction for a fee – often thousands of dollars. The IRS only allows you to deduct "fair market value," which is probably significantly less than you paid for it.