I just got my bill for next year's maintenance fees, and it made me wince, since they always seem to go up. I got a couple pages of fine-print paperwork from my timeshare company explaining everything, but I'd have to be a CPA to understand it all. What can you tell me about these fees? Are they justified?
Just in time for the holiday season, most timeshare owners get friendly reminders right after Halloween that their maintenance fees — for next year — are due, usually around Jan. 1. The timing is awful because most middle-class folks have minimal extra income around the holidays to pay for a vacation that they'll use months after payment. But that's the way it is. Maintenance fees are a fact of life for timeshare owners, adding to the overall cost of ownership, every year.
Prospective buyers at sales presentations, meanwhile, typically don't know or learn much about maintenance fees during the pitch. Having attended several tours recently, RedWeek can testify that the fees are disclosed, casually, but not discussed in detail — because it might spoil the sale.
How Are Maintenance Fees Increasing?
On average, maintenance fees increase 2 to 5 percent each year, but those averages mask double-digit increases at resorts that run into severe problems that can only be fixed by an urgent assessment on owners. Hurricanes and flooding damages are the most common culprits, but fees can jump at any resort that is subject to weather — and the weathering of old age.
In a 50-year-old industry that has hundreds of old-school resorts, maintenance fees become a bigger and bigger issue every year, particularly among older owners who now live on retirement incomes and are likely to travel less, than more, in future years. We know of many so-called legacy resorts whose boards deliberately defer high-dollar repair projects — like new roofs and building renovations — so they can keep maintenance fees below $1,000 a year.
That figure, curiously, is the reported industry average for maintenance fees. But at resorts in high-value destinations, those annual fees can run $2,500 to $3,500 a year, or more, for one week's worth of usage. Savvy consumers who use Internet travel sites know that they can rent their very same timeshare week, at their home resort, for the same money, or less, than they are obligated to pay in maintenance charges. These bargains can easily be found on RedWeek.com, as well, for rentals and sales. (Sometimes, selling prices are below annual maintenance fees, but that's a different story).
It's a consumer quandary that did not exist 25 years ago, prior to the rise of the Internet. It's also an increasingly touchy subject for a $10 billion developer industry that is enjoying its tenth straight year of sales growth selling intervals that average $21,455 per week. Thus, it is no surprise that Westgate Resorts recently published an explanation of where and why maintenance fees are spent.
Westgate's Report on "8 Things You Never Knew" about Maintenance Fees
Citing its mission to educate and empower owners about dream vacations, Westgate recently published a layman's explanation of maintenance fees. Here's the list of how owners pay their bills.
- Property Administration - includes accounting, IT and reservation services, purchasing and HR
- Maintenance - includes housekeeping, laundry, and repairs (which can be enormous). This also includes wages and supplies for workers.
- Utilities - electricity, gas, water, telephone, cable TV, and trash services
- Insurance - an admittedly boring subject (according to Westgate) that eats up more and more owner fees every year to cover liability and property damages.
- Security - pays for the security guards patrolling your resort
- Other services - including activities, front desk, landscaping, transportation, and other guest services provided to owners.
- Reserves - generally increase year-to-year as resort managers tuck away money to pay for future big-ticket repairs and unit upgrades, including new beds, carpets, furnishings, appliances and paint jobs, among other projects. A resort with healthy reserves — in the millions — protects owners from having to pay whopping single-year special assessments to cover major repairs.
- Management fees - the final item in Westgate's accounting of annual resort bills, tend to be the largest single item in the budget. While the industry average ranges between 10 and 15 percent, management fees can consume 20 percent of all owner maintenance fees at some resorts. And those are typically pure profit centers because, in many cases, the brand-name developer also serves as the management company for the resort.
ARDA Report Sheds More Light on Maintenance Fees
The timeshare industry's lobbying arm, known as the American Resort Development Association, publishes an annual "state of the industry" survey on all aspects of timeshare, including sales, resorts, and trends. It also digs deeper into the fees that owners pay, annually, to keep resorts in great shape.
Over the past five years, maintenance fees have increased 4 percent per year, from $880 per interval in 2014 to $1,000 in 2018. Maintenance fee decisions, at 67 percent of all resorts, are controlled by developers or developer-affiliated management companies. Third-party, non-developer management companies run operations at 28 percent of all resorts (these are typically at older resorts governed by homeowner associations). According to ARDA's survey, the median management company fee in 2018 was $85,800 at small resorts (less than 50 units), $328,500 at mid-sized resorts (50 to 100 units), and more than $1.2 million at large resorts (more than 100 units). At 59 percent of all resorts, management company fees are a percentage (such as 10 percent) of the overall budget. At 21 percent of all resorts, management fees are a fixed amount.
Among the 1,500 timeshare resorts in the US, 18 percent report maintenance fees below $700. At the higher end, 18 percent charge annual fees in excess of $1,300.
As stated before, some maintenance fees are staggering. At the Westin, Marriott and Hyatt resorts on Maui, for example, owners pay $3,000 or more per year, just for the privilege of trying to reserve their oceanfront unit for a week. Fees for fixed high-season weeks at world-class ski resorts can run even higher. At Marriott's Newport Coast resort in California, where all units are two-bedroom lock-offs, one-week fees are just under $1,400 per year.
Bottom line, maintenance fees vary all over the timeshare map. Older legacy resorts with risk-averse owner HOAs tend to keep budgets as tight as possible, sometimes forsaking needed upgrades just to control fee-inflation. Brand-name resorts still in active sales, however, tend to spend whatever is needed to keep their resorts in A-grade condition.
"Maintenance fees are never arbitrarily set; they're pinned to identified operations and actual fiscal need," Westgate said. "Just like homeowners set aside money and build reserves... we prepare and plan to keep our resorts the best they can be."
A longtime timeshare board member in California, appearing at a recent industry conference, described maintenance fees as a legitimate flashpoint for owners who are concerned about paying their bills. But at the same time, he said, resorts must build reserves --- a rainy day fund --- to cover future repairs that are bound to surface. Put more bluntly, he said, "If your maintenance fees aren't going up every year, your resort is going downhill."
