The Boat Buying Process Part 1
Posted on Aug 27, 2019
Posted on Aug 27, 2019
A step-by-step guide to the boat buying process by C. William (Bill) Watson, CPYB, Florida licensed Broker, United Yacht Sales' Stuart, FL office. The purpose of this guide is to provide potential boat buyers with insight into the yacht brokerage sales process and to set expectations, especially for first time buyers.
You've made the decision, it's the right time to buy a boat! You are ready to make your dream a reality. But how do you find the right boat? It can seem like a daunting, "needle-in-haystack" search! Similar to purchasing a home, you do a search online and contact the Broker! That basic search brought you to United Yacht Sales, a prestigious yacht brokerage firm with strategically located offices in Stuart, Martin County also known as the "crossroads" of Florida! Every year, literally hundreds of cruising yachts pass through the Okeechobee Inland Waterway to cross from Florida's Gulf coast to the Atlantic Intracoastal Waterway and/or St Lucie Inlet to the Bahamas! So how do you navigate your way to your dream boat? With a great captain and crew, of course! And one of your crew is a good Yacht Broker.
Competent. CPYB Certification is the mark of excellence for yacht sales professionals throughout North America. A Certified Professional Yacht Broker (CPYB) will have met professional standards, successfully passed a stringent 3 hour exam, maintains a dedicated escrow account, in addition to complying with a professional code of ethics, to have earned this designation. It also requires continuing education courses to keep abreast of industry best practices and changes, especially in legal matters. Florida State DPR also requires bonding and fingerprint recording.
Experienced. Experience is the best instructor! The United Yacht Sales team of over 165 Brokers KNOW BOATS! Especially cruising vessels, both power and sail. With so many makes and models of boats available, the choice can be overwhelming; you need a Broker who has spent significant time boating and living aboard his own boat, and understands the cruising lifestyle to assist you with the process.
Knowledgeable. Not only does a good Broker understand the lifestyle, but he has extensive knowledge ranging from vessel hull and construction specifics, marine mechanical and electrical systems, marine electronics, to provisioning for extended cruises! And he knows the brokerage market inside out!
Trustworthy. The key to any relationship is TRUST, and it must be mutual. Buying a boat is a major decision and capital outlay, involving the disclosure of personal and financial information. It is your Broker's obligation to absolute fidelity and to deal fairly and discreetly with all parties in the transaction. United Yacht Sales is firmly rooted in yachting's traditions of personal integrity and respect, cultivating "trusted advisor" status in ongoing relationships with hundreds of satisfied clients. Our business is based on a win/win outcome for all parties involved; Buyer, Broker and Seller! Bill Watson has a solid track record of over 750 boats sold in the past fifteen years-many are repeat customers.
Our brokerage firm has access to specialized marketing tools, similar to the real estate industry, giving customers a great advantage in the selection process. United Yacht Sales is a member of YachtWorld.com, the global Multiple Listing Service of the boating industry. We are able to do comprehensive research, and provide you with all boats available that meet your criteria, not just our own listings.
Working with a Certified Professional Yacht Brokerage office, your United Yacht Sales Broker will keep current with market conditions and will do the "homework" and due diligence for you, to ascertain fair market value and assure an equitable outcome for both Buyer and Seller. Years of experience have led to the development of a "decision matrix" set of questions that a United Yacht Sales Broker uses to help you drill down to the most important requirements for your boat. Questions such as, "Where will you be boating? What are your hull and interior preferences? Single or twin engines? Cruising speed preferences? Sleeping requirements? What is your budget? Will you need financing? Where will you be keeping the boat?" And more, until together we have a clear picture of "The Boat!" Now we can do a focused search and schedule showings of the boats that meet your criteria.
Your Broker will look at the boats with you, giving you an expert objective opinion, and point out features/benefits and also any negatives. After looking and comparing a host of available boats, THERE SHE IS! The one that sets your heart pounding! You (and your spouse or significant other) know it's "The Boat!" Together we have looked at current market comparables and recently sold boats to establish a fair offer.
When each of these variables are agreed upon and the document is signed by Buyer and Seller, it is eventually followed by a Survey and Sea Trial, a Vessel Acceptance, then finally the Closing. Up to, but before signing the Vessel Acceptance, there is no money risk on the Buyer's part - just commitment, which is 10% of the offering price.
For instance, if you made an offer of $185,000, the Broker must receive your deposit of $18,500 accompanying your Purchase and Sale Agreement. If the selling price is then negotiated to $210,000, your deposit must be increased to a total of $21,000. A Seller rarely accepts the opening offer. The deposit sits in our brokerage firm's escrow account until the closing date, at which time you make up the difference of the deposit and the negotiated selling price (plus tax, closing costs, title search, etc. - basically all the same fees you would expect in a real estate transaction). You would, of course, make any offer contingent upon Buyer inspection and satisfactory Survey and Sea Trial.
This entire offer process can occur by fax or email. You would sign a Purchase and Sale Agreement and fax or email (scan and convert to PDF) it back to United Yacht Sales along with a copy of your deposit check. Negotiation usually occurs by phone calls between Buyer's Broker and the Seller (or Seller's Broker) and the Buyer, until a mutual agreement is reached on price, dates and contingencies. If no agreement is reached, we return the Buyer1s check, which, if it was faxed or emailed, couldn't be deposited anyway. If an agreement is reached, the Purchase and Sale Agreement then needs to be counter-signed by both the Buyer and Seller, which again could all happen by fax or email with the document converted to PDF. Digital signatures are valid.
Then, United Yacht Sales must have the deposit funds wired into our escrow account within three business days, or a bank or personal check must be sent overnight to us. If we don't receive funds into the Escrow Account, you could be precluded by another Buyer who deposits funds into escrow before you do. Funds in escrow, "locks up the boat" for you until you get to see it (if you haven't already) and decide if it is acceptable; then move on to Survey and Sea Trial. Brokers can still accept backup offers from someone else, but you are first in line, even if another offer is higher.
Written Acceptance is the next step (usually within two weeks or so) and only occurs after the Buyer has seen the boat, surveyed/sea trialed it, and signed a Vessel Acceptance Form (or Conditional Acceptance Form); then proceeds to Closing on the agreed Closing Date. All deposit money accompanying an offer is refundable to the Buyer (minus any Buyer approved unpaid expenses), if Buyer requests the return of his deposit any time before Written Acceptance.
Negotiating a Selling/Buying Price. All that having been said, remember... The Buyer is the one who sets the tone for the negotiation process. The Broker is obligated to bring any and all written offers to the Seller. If your initial offer is so low that the Seller gets upset, you may not get a counter offer and obtain your desired response. Sellers have feelings too. Very strong ones, I might add. After all, you name your children, your dog, your cat... your BOAT! Owners are very passionate about their boat, just as you will be.
If you really want to buy the boat, try to put yourself in the Seller's mindset when making an offer. You know the top price you would pay for the boat, given your financial situation, the listing price of other boats on the market, and the sold price of comparable boats. Obviously YOU want to buy the boat at the best price you can-so present a "reasonable" opening offer, knowing the Seller is going to come down and you are going to move up. Sooner or later, one of you will put "best and final" on a dollar amount. In doing so, we are a whole lot closer to knowing where someone will settle.
If financing, being pre-approved for a boat loan is a powerful bargaining tool on the Buyer's part. The Seller then knows "subject to financing" is not one of the "contingencies" of the offer and is much more inclined to accept a reasonable offer. If you do make "subject to financing" one of the contingencies, you need to get that approved as quickly as possible. It may be one of the dates that must be met in the Purchase and Sale Agreement. The Seller does not want the boat off the market for very long awaiting your financial approval and losing valuable selling time, should you be unable to secure financing.
Sure, Brokers can accept backup offers during that time. However, experience is that potential Buyers don't want to even look at a boat under contract, pending sale. They don't want to get their hearts set on a boat, only to be disappointed when the original contract comes together. Buyers would rather wait until the boat is back on the market and/or buy something else in the meantime.
Once the negotiations are complete and the P&SA is signed by both parties, the Survey and Sea Trial date is scheduled, typically to occur within a week or so (your Broker coordinates all this under your direction). This needs to be accomplished at least four days before the on or before date of the Acceptance Date. Since no one knows when Surveyors are available at P&SA negotiation time, an Acceptance Date is chosen, assuming we can schedule a survey prior to Acceptance Date. Schedule conflicts are then resolved, date changes marked and initialed by both parties to validate the P&SA. Customarily, the Closing on or before Date is typically one to two weeks after the Acceptance Date.
When you negotiated the sales price at P&SA time, you anticipated "normal wear and tear" on all items on the boat. The Survey will either verify that, show some items as beyond "normal wear and tear," or determine some items inoperable. These items may be re-negotiated after the Survey. They may not necessarily be re-negotiated at the full price of new replacement, but possibly at some percentage. If the Survey reveals something you do not want to deal with, you could, of course, walk away from the boat altogether with no financial penalty.
Remember... Until you sign the VESSEL ACCEPTANCE FORM, you can elect to back out of the purchase with no risk of losing your deposit. If you decline to purchase after you signed the Acceptance Form, you risk losing your escrowed deposit.
Sample verbiage of the Acceptance Form: I, in my personal capacity or as authorized signatory of (Buyer Name), Buyer of the Vessel named (Boat Name), HIN# (Hull Identification No.), USCG Doc# (Doc #), a (vessel description), do hereby accept said Vessel and hereby agree to perform all other conditions of the Purchase and Sale Agreement dated (Original P&SA date)...etc.
United Yacht Sales can provide you with a list of local General Surveyors (budget $18 - $22/ft.) and Engine Surveyors (approximately $250-$500/engine) for you to call and interview on the telephone. Most good Surveyors have resumes, rate sheets and service expectation sheets. We can, of course, give recommendations, but you should know they also work under a strict code of ethics and Surveyors are not in collusion with Brokers. They are paid by you and work for you, and thus are loyal to you (as it should be). You want an unbiased evaluation of this sizeable investment you are about to make. Your judgment may be clouded with emotion over the boat, while theirs is not.
The survey is also a learning experience for you about the boat, its mechanics and electronics. We recommend the Buyer be present (as your Broker will also be) and communicate with the Surveyor during the day. The Surveyor is not there to train you on the inner workings of the mechanics and electronics of the boat; his job is to provide you with an overview to evaluate the boat. Pulling him away from the appointed task will diminish the quality and quantity of survey tasks he must perform on your behalf. Nothing should be a surprise when you receive the hardcopy of the survey from the Surveyor about three days later. Only oil samples may be a surprise when they are returned from the lab.
You can expect the General Hull Surveyor to check:
In addition, the General Hull Surveyor will give you an entire inventory of the vessel. Hopefully, the Seller will have all personal items off by then-so what you see is what you get, unless there is a list of Seller Exclusions. United Yacht Sales' staging items (if any) will also be removed.
The Survey and Sea Trial usually occurs all in one day, starting early in the morning (about 8:00AM). It begins with the Surveyor(s) making cold engine checks and general engine room inspection. Once all cold checks are accomplished, the engines can be started and operated cautiously until the boat is cruised over to the haul out facility. Usually the facility is fairly close by, and the choice of facility is always the option of the Seller. He still owns the boat and may have a preference. RPM's are not run up during this journey.
The haul out is at the Buyer's expense. If the bottom is dirty or has barnacles on it, the Surveyor will request you to have the haul out yard pressure wash the bottom and scrape the running gear (expect $9 - $11/ft. for hauling and pressure washing). You will be expected to settle with the yard that day, before re-launch. (No cash, no splash-as they say.)
The Surveyor has to see everything clean to properly check the running gear and "sound" the hull. Sounding the hull consists of rapping with a phenolic hammer on the entire hull below the water line to hear any discrepancies only a trained ear can detect. A moisture meter does not register properly below the waterline, as too much moisture is retained in the paint for months. Some blisters are normal and just require monitoring; others need to be addressed in short order. Size, depth and quantity determine that. Don't let blisters scare you!
Another problem detected by sounding is delamination. This is where the resin glue bond has broken down between layers of fiberglass matting and water has compromised these layers. Delamination is a distant cousin to blisters, but blisters are usually bulging little bubbles obvious to the naked eye, whereas delamination may not be visible.
The haul out (about 11:00AM) is almost always before any Sea Trial to ensure a clean bottom before the engine(s) are run up to their full RPM and under a load. If there are any barnacles blocking the engine cooling intakes, or barnacles on the running gear, you run the risk of overheating the engine, or loading up the engine too much, or both. You cannot get valid engine readings or boat speed, until you have a known clean bottom and running gear.
After the haul out and re-launch, a cruise to open water (not necessarily the "SEA," as the words "Sea Trial" is a bit of a misnomer) for an engine run up occurs. The engine(s) are run at various RPMs for checks of oil pressure, water temperature, true speed, true RPMs, etc. Wide open throttle usually occurs for 3-5 minutes while engine temperature is monitored with onboard instrumentation and with the Surveyor's portable laser device. If it is a sailboat, sails are hoisted and the boat checked out under sail. Sailboat or powerboat, here is a good opportunity for the Buyer to request a turn at the helm. Get a feel for what you are about to invest in and bond with her. Be cautious but don't be afraid of putting her through her paces...
After that, it's back to port for completion of all checks of systems (about 2:00PM). At the end of the day, (or before a Surveyor leaves, as the Engine Surveyor is usually done before the General Surveyor) the Buyer and the Surveyor (and the Broker, only at the Buyer's request) will sit down for a debriefing. Again, there will be no surprises in the Surveyor's follow-up report- there has been open communication all day.
We always encourage the Seller to be present during the Survey and Sea Trial to captain the boat (after all, he still owns it and is responsible for it). Also, if the Surveyor finds something amiss, maybe it's just because the Surveyor is not as familiar as the Seller is with that item; many times it can be addressed right then and there. If the Seller is not there to captain the boat, the Seller, at his expense, is responsible for hiring a Captain for the day.
However, a risk of having the Seller present, is that he is usually very personally attached to the boat. He has years of proud ownership and has had many good times with her. When you hire a Surveyor to specifically find things wrong, it sometimes can be taken personally by the Seller, and resulting friction may need management. This is the job of the Broker. Any Broker worth his salt will be present during the Survey and Sea Trial to represent the Buyer and/or Seller. NO RE-NEGOTIATION between the Buyer and the Seller occurs during the actual Survey and Sea Trial. Any re-negotiation must be taken off-line with the respective Brokers and their Customers. Believe me...
The Seller wants to sell, and the Buyer wants to buy.
Nobody wants things to go wrong during the Survey. Nobody wants to have the Surveyors find things wrong-but they will, that is their job. It is rare when they don't. Truth be told, if there is something major wrong with the boat, the Seller is just as surprised as the Buyer is disappointed. The Seller is usually very accommodating. This is where everyone has to keep an open mind, with diplomacy the order of the day. Things can usually be worked out. If not, and the Buyer decides it is just too much to contend with, the small percentage of the price of the boat spent on Surveyors and haul out was high value. Better to find out now!
Part of the follow-up hard copy (or emailed PDF) report will be a brief market analysis, giving the Surveyor's estimated market value of the boat. If you are financing the boat, this is an important number, determining whether financiers will fund this boat for the amount you have requested.
The Survey Report will have two major sections addressing typical issues:
Safety and USCG Regulations: These are mandatory items to be addressed. Things such as fire extinguishers are not tagged with current tags, 110v receptacles not having GFCI's, no waste management plan, running lights not working, etc.
Primary - Engines vibrate (check shaft alignment), battery terminals have no cover (install battery terminal covers), engine room hatch frame is rotten (renew rotten wood), engine room water intake strainers are not bonded to central bonding system (bond), gelcoat on bottom has two dozen blisters (repair large blisters), etc.
Secondary - galley ice maker arm is missing and door is misaligned (renew arm and realign door), minor corrosion on the water heater (prep and paint as necessary), both of the rudder stuffing boxes leak (adjust), port bow rail stanchion bases are loose (re-bed and tighten), etc.
The Safety and USCG Regulations MUST be addressed, for the boat to be insured. There may be other issues your insurance company requires you to address, requesting an action plan for repairs and timing; e.g., double hose clamps on intakes, hose needs replacing, sea cocks need freeing up, etc. Again, some of the above may be re-negotiable with Seller, though maybe not at full cost. Each situation is different. You may be getting a good enough price on the boat (and that was factored in originally), so you may want to avoid the issue. Or, there may be some "give and take" to satisfy both parties.
Vessel Acceptance Form (after receiving hard copy of Survey Report and oil analysis back)
Well, you have come this far, now it is time to make a final decision. Financing is all in place, and the yacht insurance company has provided you with a quote with a binder pending (for more on both topics-see below). You have been on the Survey, you've got the report, oil analysis is back, you've discussed it until you're blue in the face, you've slept on it, you've envisioned yourself cruising the Bahamas-now's the time to make a decision. You have to be comfortable with the decision. Usually it will be very obvious what you want to do. If she's a good boat worth buying, she will tell you that. Does she speak to you?
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