The Innocents and the timeshare (I)

Two years ago we went down to Puerta Vallarta on one of those all-inclusive packages which allow you to fly in and stay for a week at a three star hotel for about the normal cost of the airfare. When we landed we somehow got signed up for a timeshare presentation in exchange for a handful of free activities. It seemed like a no-brainer. Three hundred dollars worth in excursions in return for a few hours of our time. What could we lose?

As it happened, we almost lost the price of a timeshare. Until I experienced it, I never would have given that much credit to the ability of an accomplished sales team to finesse me into buying something I didn't really want. In the end, my wife saved me. She usually defers to my judgment in matters financial, but as we moved through the steps of the purchase, I noticed that she looked more and more uneasy.

If I have learned nothing else in our married life, it is to respect Diane's gut instinct, so I woke up and dug in my heels. It took a hour and several sessions of the rack and thumbscrews to get the staff to unwind a deal which we had already signed, but in the end we left free and unencumbered by both a property we didn't need and a debt we couldn't really afford.

Later in the week, we were approached in downtown Puerta Vallarta by a hawker who offered us $300 cash to go to yet another timeshare presentation. When I respectfully declined, he asked why.

"I've already done that. Too much pressure."
"Where did you go, Señor?"
"To Grand Mayan."
"Oh, Señor, they are the hardest sales team. They have a saying: 'Make the prospect buy or cry.' If you can resist them, you can handle my timeshare people, no problem."

So we moved on, having learned two valuable lessons. One, that if we ever ended up broke and stranded there, we could survive by taking money off Mexican timeshare hawkers; and secondly, that we were now well and truly immune to such sales tactics....

.....until we went to Hawaii last month, that is. And then somehow we did it again!

It started the same way as in Mexico. When we went to book the standard activities - the luau, the snorkelling, the trip up the volcano, we found that cost was much cheaper if we would only agree to attend a timeshare presentation up in Kahana. Diane was reluctant but I was confident that we would be in and out in 90 minutes, no problem. After all, we had survived the Grand Mayan!

As it happened, the affair lasted 4 hours, and once again we signed on the dotted line. I won't go into our mental processes, but I'm sure it would the subject of a fascinating psychological study. If scientists can figure out why we purchased a timeshare after walking in determined not to buy anything, then perhaps we would be able to understand why Adam and Eve bought the serpent's bill of goods.

The one thing I will say in our favour is that we signed knowing that under Hawaiian law we had seven days to rescind the deal without penalty. That was almost precisely the time we had left in Maui, so we had time to think things over before leaving the island.

The deal had two basic elements: the use of the timeshare and membership in a timeshare exchange program. Each element had an attractive aspect as we understood the sales presentation: (1) should we wish not to use it, we could rent out the studio unit we had bought into without restrictions for upwards of $200 per night, allowing us to net $700 after maintenance fees for our annual week; and (2) the property would be rated as a 5-star one bedroom suite in the exchange program, allowing us to change out our week in Maui for a week in a high-end resort anywhere else in the world. As a bonus, we would able to book additional weeks in similar properties elsewhere for only $400.

However, before finalizing the deal we had to check those understandings against reality, so on Day 5 I sat down with my laptop in the Maui Lu lobby and did some online research. I was unable to assess the quality of the exchange program because we had not yet received a user id for their website, so I looked at timeshare itself. As I did, I found that our understanding was false in two respects:

1) The unit we had bought into rented on VRBO for only $130-140 per night in high season. Since our maintenance fee was $656 per week, that meant that the incremental benefit of ownership over renting was only $300 per week. This little bit of information fundamentally changed our perception of the deal.

On these terms payback on the purchase price of USD 13,500 would take 45 years - without taking into account the time value of money (please forgive me if I turn a little geeky here; this sort of thing is what I do). If I assumed a fairly modest annual discount rate of 5%, the value of the cash flow in perpetuity was still only $6,000. (This was confirmed by further research after we returned to Canada; the identical unit was listed online for as low as USD 6,500.)

2) So maybe the timeshare itself wasn't a great deal, but perhaps the exchange program would make up for it? However, the same vacation rental sites we referred to also described the property that our unit was in as a 3-star.

This planted doubts in our mind as to the validity of the benefits promised in the program. If we could change out out our 3-star studio for a 5-star one bedroom elsewhere, someone was getting scammed. Or would we be receiving tarted up 3-star accommodations in exchange ourselves? Regardless of the answer to that last question, the trust factor was gone, and without trust there is no transaction. We decided to revoke our purchase.

At first I was annoyed at the salesman's bald misrepresentations, but as I reflected I realized that I was the victim of something much more subtle. The salesman's sin was one of omission, not misrepresentation. The information he had given us was in fact correct - for the property in which the initial sales presentation took place. But somewhere along the line we had been moved over to an adjoining building where the unit we eventually bought was located, without being advised of the difference between the 2 locations. It was a variation of the old bait and switch.

On Day 7 we returned to the timeshare sales office with the completed rescission form in hand....

To be continued.....