Thursday, March 03, 2005

The timeshare developer's first right of refusal

Many timeshare developers have it written into the resort documents that when the owners goes to sell, the developer must be given the first right to purchase the ownership, at the same price.

Although it used to be very rare for a developer to exercise their right of first refusal, it is becoming more common, especially for the high-end luxury resorts such as Hyatt, Marriott, Disney, Embassy and others.

Of course the developer only excercises the right of first refusal when the price is very low compared to the price the developer can re-sell the unit.

The result is that the orignal buyer is prohibted from completing the sale, and the developer steps in at the same price and terms and completes the transaction. For ethical developers if the sale was negotiated by a broker, the broker still receives his commission because he was the procuring cause of the sale in the first place.

There have been instances, however, by a small number of unethical developers, where the purchase is made at a lower price than was agreed (the resale broker's commission being illegally elimated) which leaves the seller in the precarious position of still having to pay the commission.

If you are a buyer looking to buy in a resort that has the first right of refusal, it is wise not to try to buy it at too low of price, because the developer will purchase it out from under you.

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