-by Scoop (September 15, 2017)
recently read an article written by a highly respected C-Level Executive in our industry who asserted that each year approximately 15% of all the new timeshare plans sold in the U.S. at the developer level cancel during the rescission period. Translated: For every 10 new owners/members who sign on the dotted line ‘today’, within days – before the ink dries, so to speak – about 1.5 of those buyers will terminate their newly formed business & vacation relationship with a U.S. developer.
So Here’s The Scoop: With few exceptions, IMPO, the vast majority of all cancellations within the rescission period are avoidable and I say that because most of those ‘kicks’ are emblematic of specific issues that continue to plague developers and their sales teams; but I shall not go ‘there’ this week.
I have also noticed that when it comes to the new owners/members who ‘kick’ it seems like some developers react as if having a few of their brand new shiny clients terminate their contracts is no big deal because (e.g.) those cancellations are just another example of the cost of doing business.
Besides, maybe those developers also believe that as long as the mandatory sales numbers are met each (e.g.) day, tomorrow will bring forth another opportunity to sell more slices of paradise when the next bunch of sales guests comes through the doors.
However there is another perspective developers should contemplate and for illustration purposes let us say each new owner/member who cancels within the rescission period had originally purchased a $20,000 timeshare plan.
Let us further say that each new owner/member put forth a minimum down payment of 10% and agreed to pay off the balance of their purchase agreement in 60 installments (5 years) at a 14% interest rate and each new owner’s/member’s annual maintenance fee (AMF) comes in around $900.
When those numbers are crunched – plus adding a modest 5% yearly increase to the AMF – then every new owner/member who buys ‘today’ and then turns around and cancels ‘tomorrow’ represents a gross loss (GL) to the developer, over (e.g.) a 10 year period, of about $40,452.00
Naturally when the cancellation notices arrive some of these developers will wisely task a person to immediately intercede on behalf of the developer and attempt to salvage the ‘deal’; and those developers – as well as the person assigned the task – are to be applauded for their effort.
But let’s get back to the “$40,452” (GL) every time a new owner/member kicks, because at the end of the day every 100 new clients who successfully exercise their lawful right to cancel within the rescission period that represents about a $4 Million GL to a developer.
Additionally, the American Resort Development Association (ARDA) tells us that recent data suggests, collectively, U.S. developers are currently selling around $9 Billion of ‘time’ each year and that the average sales price seems to be in the same neighborhood as my example of $20.000.
If true that would indicate that around 450,000 sales guests bought and/or will buy a TS plan in 2017 and if that 15% cancellation ratio within the rescission period is also correct then 67,500 new buyers in the U.S. will ‘kick’ shortly thereafter.
How many of those cancellations are ‘saved’ I do not know. However using those projected 67,500 cancellations and my $40,452 (GL) example, that suggests to me that a GL approaching $2,730,510,000.00 (Billion) was/is on the ‘table’ in 2017 – much of which was/is needlessly lost forever.
But the GL is much more because using my example over the next 60 months the potential GL to U.S. developers will approach about $13.6 Billion; and over the next 10 years that GL now becomes around $27,000,000,000.00 (Billion).
And yet, even on a small scale the GL is not chump change because if a (1) developer has a sales center open (e.g.) 360 days each year and if they ‘tour’ 50 sales guests per business day – about 18,000 folks will preview that developer’s TS plan.
Then, if (e.g.) 18% of all those sales guests buy a $20-K TS plan ‘today’ and then 15% of ‘em cancel ‘tomorrow’ – that still tallies up to a mostly preventable annual GL of about $19,660,000.00 (Million). I know, INCONCEIVABLE!
Hmmm – a GL up to $20 Million each year when a big chunk of that GL should have never occurred in the first place and in this example if we include the previous five years and the continued GL over the next 5 years – lets’ see now, this one (1) developer will incur a GL upwards, now check my math, of around $200 Million!
Stay tuned – coming soon –– “The $200 Million GL Resolution”.
Good Luck Out There
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