Hampton Roads Fleet 30 Newsletter, May 2010

“Boat buying 101” 

By Capt Frank Lanier

The basics: 

            The basic steps for buying a boat sound simple enough – find boat, fall in love, buy boat, sail into the sunset in search of paradise (and those drinks with the little umbrellas in them).  Things tend to be a bit more complex in reality however, particularly as the days of purchasing a boat on a handshake and a man’s word are long gone.  In addition to the owner, today’s buyer can expect to deal with yacht brokers, marine surveyors, bankers, underwriters and lawyers, as well as plenty of paperwork (purchase contracts, survey reports, documentation requirements and the like).

            Even the simplest deal will typically involve at least three people; the owner, a yacht broker, and a marine surveyor.  In this article we’ll look at the key elements of a basic boat purchase and what you the buyer can/should expect from the various people involved.  Although our example focuses on buying a used boat, much of it can be applied to new vessel purchases as well.

            In a typical boat buying scenario the buyer makes an offer to the owner (via the broker) in the form of a purchase contract, a document that formally conveys the proposed terms of sale (amount offered by the buyer, conditions of acceptance, closing dates, etc).  The purchase offer is normally accompanied by a good faith deposit (generally 10 percent sale price) which is then placed into a bank trust fund or escrow account administered by the broker.  After the purchase contract is received and reviewed the seller either accepts it, rejects it, or proposes a counter offer.  

The purchase agreement:

            Once signed by both parties, the purchase agreement becomes a legally binding contract between buyer and seller.  As with any business transition the cardinal rule is to get everything in writing – payment terms, accessories that convey with the boat, obligations agreed to between buyer and seller (as well as when they’ll be fulfilled) should all be in there.  The purchase agreement is a broker drafted document that should reflect what the buyer wants to communicate.  In other words, don’t be afraid to insist it be modified to include terms you want (or exclude stipulations you don’t) prior to submission to the owner. 

                A key example of the above is inclusion of language stating that sale of the vessel is contingent upon the findings of a marine survey.  With this, the purchase contract now additionally serves as a safety net, allowing the buyer to cancel the deal without penalty (should serious defects be found during the survey) or renegotiate selling price with regards to the correction of less serious problems. 

The broker:

            When called to discuss a boat listed, a professional broker will listen closely to the potential buyer to help determine if the boat they’re calling about is the best value to meet their wants and needs.  They should also objectively describe the condition of each vessel beforehand (to help the buyer decide it it’s worth a look) and provide amplifying information such as the vessel’s history, outfitting, how long it’s been on the mark et, and how motivated the seller.

            Professional brokers will additionally assist with the required paperwork to make the sale as efficient and painless as possible, from the initial purchase offer to the bill of sale, as well as licensing and registration (or documentation and titling), taxes, certificates of ownership, etc.  They’ll also manage the escrow account, which helps both buyer and seller avoid potential problems that may occur in private sales (i.e. the buyer fails to honor the offer and deposit or the owner absconds with the funds prior to sale).

            It’s important however, for the buyer to keep their relationship with the broker in perspective.  Yacht brokers are essentially the marine equivalent of a real estate agent in that boat owners hire them to list, represent, and sell their property.  Like real estate agents they also work on commission, meaning that while they have a duty to both buyer and seller during any transaction, it should never be forgotten that they work for and are paid by the seller to make the deal happen.

            Buyers have the option of retaining a broker to represent their interests while helping to locate and purchase a boat.  Good ones not only step you through the entire boat buying process, but also help determine and find the type of boat that best suits your needs, assist with financing, and help negotiate a contract with the seller’s broker once a boat is found. 

The marine survey:

            Once the purchase offer is accepted and agreed to by both parties, the next step is having the vessel surveyed by a competent marine surveyor.  Inexperienced buyers may view a marine survey as just one more red tape festooned hoop they’re forced to jump through to purchase or insure the boat of their dreams, but in reality the money spent for a good marine survey is the best investment they’ll ever make when purchasing a vessel. 

            Blisters, delamination, and rot are just a few examples of what can be hidden beneath that new paint job or shiny coat of varnish.  A competent marine surveyor can ferret out such is sue s BEFORE they become the buyer’s problem, often saving them potentially thousands in repair costs (while subsequently paying for the cost of the survey many times over).

             Finally, if the vessel being purchased will be financed or insured a survey will almost always be required by the bank, underwriter (or both) in any case.  As such, it only makes sense to have the survey conducted prior to purchase – at least then the buyer has the option of negotiating repairs and such with the owner (or finding a better boat). 

            A pre-purchase condition and value (C&V) survey is likely the most comprehensive inspection a vessel ever receives.  A typical C&V survey includes examination of the vessel's structural integrity, electrical systems, electronics, propulsion system, fuel system, machinery, navigation, and other miscellaneous on board systems, as well as examination of the vessel's papers, registration, hull number and all safety equipment.  The haul out portion of the survey includes an inspection of the hull and all underwater machinery (props, shafts, rudders, etc.) while the sea trial provides the surveyor valuable insight on how a vessel and her systems operate and interact in the real world.

            Each survey report will include a recommendations section listing deficiencies and problems noted during the survey.  Coupled with the personal observations of an experienced surveyor, the findings of a C&V survey are an excellent tool to aid the buyer in assessing whether a vessel meets their particular needs.  What the survey won’t say however, is whether or not to purchase the vessel.  The surveyor’s role is to provide an unbiased, expert analysis of the vessel’s condition to assist the buyer in making an informed decision on whether or not to proceed with the purchase. 

Finding a marine surveyor:

            It’s the buyer’s responsibility to research and select the best surveyor to represent their interest.  The best recommendation for a marine surveyor is reputation and word of mouth, however even then you'll want to research each possible choice to ensure you select the most qualified surveyor to inspect your particular vessel.  Even highly competent surveyors can have different backgrounds or specialties – if buying a racing sailboat for example, you probably don’t want a surveyor whose primary experience or field of expertise deals with commercial fishing vessels.

            While marine surveyors are not licensed by any state or federal agency, they can be accredited or certified by certain membership organizations.  A good place to start your search for a reputable surveyor is by contacting the Society of Accredited Marine Surveyors (SAMS) or the National Association of Marine Surveyors (NAMS) and obtaining a list of member surveyors in your area.  Some banks or insurance companies may provide a list of surveyors they accept, but you’ll still want to research the qualifications of any surveyor before hiring them.

            Brokers may also supply a list of recommended surveyors.  In most cases this is provided in a good faith effort to help the buyer find the right surveyor, however be aware that in some cases surveyors may be listed because the broker has found them “easier” to work with in that they may be a bit more lenient when surveying a vessel. 

            In any event, you’ll want an independent surveyor whose only interest in the vessel is to provide you the buyer the best survey possible.  Research any surveyor thoroughly (regardless of what list they’re on) and make your own decision based on the results.  

What to expect:

            Buyer expenses to this point typically include the surveyor’s fee and cost of the haul-out, which normally takes place at a yard chosen by the owner.  The owner in return is normally responsible for transporting the vessel to and from the haul out facility, as well as any costs associated with the sea trial (vessel captain, fuel, etc). 

            The broker will orchestrate the survey, haul out, and sea trial in efforts to ensure each goes smoothly, however it’s a good idea for the buyer to be present during all phases of the survey.  This provides the opportunity to observe firsthand the surveyor’s inspection of the vessel, as well as ask any questions that may come up during the survey.             Buyers should however, refrain from bringing anyone who does not have a direct interest in the purchase (friends, relatives, small children, pets, etc) as they can cause unnecessary distractions for the surveyor.  If a potential surveyor flatly refuses to allow clients to accompany them during the survey, find another one – you are paying for survey after all, and should be able to observe all phases of it if desired. 

After the survey:

            Upon completion of the survey, the next step is discussion of the problems and recommendations noted in the report.  Resolution of a problem generally falls into one of five scenarios: 

1. The seller corrects the problem.
2. The seller reduces the sale price and the buyer corrects the is sue .
3. The seller splits the cost of repair with the buyer.
4. The buyer takes the repair cost out of hide (an option some may consider palatable if the vessel is a particularly sought after model or the price is already just too good to pass up).  
5. The buyer cancels the sale and is refunded the deposit, minus any agreed upon fees paid out by the broker on the buyers behalf.

          Once resolution of issues have been resolved to both buyer and seller satisfaction, the sale is concluded and the search for those tropical drinks can begin in earnest!