When you’re buying or selling a timeshare, the “Right of First Refusal” (ROFR) clause in many timeshare contracts could affect you. What is this, how does it work, and what does it mean for you? (Spoiler alert – it’s probably not good…)
What is “Right of First Refusal”?
ROFR is a clause in your timeshare contract that states that the company that sold you the timeshare has the right to get it back under certain conditions.
If you enter into an agreement to sell that timeshare to a third party (Buyer X), then the company has the “right of first refusal” on that contract. That means they get to accept or refuse that agreement first, before the deal with Buyer X can go through.
- If the company wants your timeshare, then they exercise their Right of First Refusal, and they become the buyer. You still end up selling at the agreed price, except that you’re selling it back to the company. The deal with Buyer X is dissolved, and they get back whatever they’ve paid.
- If the company doesn’t want your timeshare at the price you agreed with Buyer X, then they refuse it. Your sale to Buyer X passes the Right of First Refusal, and that deal goes through.
How ROFR can benefit the company
Let’s say you own a timeshare at a resort where the company still has an active sales department. Here’s an example of how the Right of First Refusal scenario plays out in their favor.
- They’re selling timeshares at full retail prices. Let’s use $40,000 as an example.
- You’re selling your timeshare as a resale, and resale prices are typically quite far below the original retail. Let’s say the going resale price for yours is $10,000-$15,000.
- When you find a buyer for your resale at $10,000, the company can step in and purchase it for that price.
- They can then resell that $10,000-$15,000 timeshare for the $40,000 retail price. Nice profit, right? In theory, they could do this over and over again as consumers buy and sell the same timeshare.
Buying up resale timeshares gives the company a cheap way to boost their available inventory of timeshares to sell. Why go through the lengthy and expensive process of getting property, designs, permits, and building new resorts, when you can pick up inventory to sell so much easier using ROFR?