Make your game plan to avoid the obstacles steps to boat ownership
Issue 17 : Mar/Apr 2001
A year ago, I bought my first sailboat. In the months preceding the purchase, I was filled with countless questions about the process of achieving this dream. I didn’t know how much boat I could afford. I didn’t fully understand the role of the yacht broker. I had no idea what a boat surveyor does for a living. In short, I went into the acquisition process ignorant of the procedure that would allow me to realize my dream.
It’s not that I didn’t attempt to educate myself. I researched the boating magazines, talked to my friends, and purchased a few books. These sources offered plenty of suggestions on what to look for in a boat, but none of them outlined the buying process and the roles of marine finance companies, yacht brokers, surveyors, and insurance companies. If you finance your boat, you’ll be dealing with all these people and organizations. If you know exactly which boat you want, are paying cash to the seller, and don’t need marine insurance, you can skip most of the steps. Here’s what I discovered:
STEP 1. Find out how much boat you can afford.
Walking down the docks looking at beautiful yachts and picturing yourself at the helm can be a heartbreaking endeavor. Sailboats can be expensive. My troubles began when I ogled a 103-foot floating mansion docked in Ft. Lauderdale. Then I leaned the owner pays more than $100,000 a year in slip fees. I continued my search.
Fortunately, countless sailing magazines offer boats for sale. Pick up a few and thumb through the classified sections. You’ll quickly get a sense for the type of boats in your price range. Look specifically for Soundings magazine and the local Boat Trader publication, and search for listings on the Internet. Regional magazines typically contain black-and-white pictures of hundreds of boats, along with asking prices from individual sellers and brokers.
Once you have some idea of how much your dream will cost, contact a marine finance company. These organizations are similar to home mortgage companies, but they deal specifically in financing boat purchases. They often advertise in sailing magazines. Most of them have an Internet presence; just type in “marine finance” on any search engine.
Your goal should be to find out if you qualify for a loan matching the asking price of the boats you’ve seen advertised. The first thing they’ll want is a financial statement that lists your income, debts, and tax returns for the past two years. It will speed up the process if you have this information prepared beforehand.
In my experience, the finance companies needed to know exactly which boat I planned to purchase in order to run my application through their systems. Since I had no idea which boat I would eventually choose, I asked them to “make up” a boat for me that perfectly matched my target spending cap. Not all finance companies will do this, so it pays to shop around. The CIT Group was especially helpful and willing to play this game with me, and I learned in a half-hour that I would qualify for a loan. The type of boat didn’t really matter . . . now I had a pre-qualified loan and could begin shopping for my dream boat.
STEP 2. Contact several brokers.
Now that you have a spending cap, it’s time to start contacting brokers. The role of yacht brokers is very much like that of real estate agents. They serve as the intermediary between the seller and buyer. Many states require them to carry a special license. Like finance companies, yacht brokers advertise in boating magazines, on the Internet, and in the Yellow Pages. Find one who’s interested in spending time listening to your boating requirements and in helping you find what you’re looking for.
Some brokers will want to know if you’ve been pre-qualified for a loan. It’s their way of determining how much time they should spend with you. They are busy people. If you can’t afford the boats they want to show, why should they waste their time? I did most of my broker searching through the Internet; Yachtworld is a great place to start. In general, their Web pages show pictures of the boats being offered, asking prices, and the boats’ locations. I sent email messages to brokers who seemed to deal in the type of boat I was looking for. In the messages I described my spending range, desired amenities (watermaker, electrical generator, air conditioning, and so on), my plans for the boat, and the dates I would be available to visit them. It didn’t take long to get appointments with several brokers in my area.
STEP 3. Visit a lot of boats.
The broker’s job is to show you several boats with the hope that you will be hooked on a particular vessel. First you’ll meet in the broker’s office. You’ll be offered coffee and exchange pleasantries. He or she will ask questions about the type of sailboat you’re interested in buying, how much you want to spend, and so forth. Then you’ll be loaded into a car and driven to various marinas to see four or five boats.
When you go aboard these vessels, don’t hesitate to look in every nook and cranny. Lift the floorboards to see if there’s a lot of water in the bilge (if there is, ask why). Check the hoses — if they’re as hard as rocks, they’ll need to be replaced soon. Flush the head. Turn on every light to make sure they work (don’t forget the spreader lights on the mast, the anchor light, and navigation lights). There should be an electric bilge pump — turn it on to make sure it operates.
If there are electrical outlets, plug something in and turn it on. Turn on the refrigerator to make sure it’s operating. Open and close every hatch to make sure that the seals are tight and the hinges work properly. Turn on every faucet. Turn on the shower. Ask the broker to run the engine for a few minutes. Lie down in the berths to make sure they have enough room for you to get a good night’s sleep. If you have a significant other, make sure there’s enough room for both of you. Test the depth sounder, radar, Loran, GPS, and wind indicator.
Ask lots of questions about the boat. The most important things to know are the length overall, displacement, draft, age of the vessel, number and types of sails on board, and price. Also be sure to ask if there’s any equipment that is presently on the boat that will be removed by the owner prior to the sale. Some owners will remove electronics such as televisions, GPS systems, and even radios. I spent approximately 90 minutes aboard the boats that interested me. Do not be afraid to spend as much time as you like aboard any boat you’re visiting. You aren’t wasting the broker’s time . . . this is part of the job.
The more boats you see, the harder it will be to remember the particulars of each, so bring a video camera with you to record your visits. It is important to record the broker’s “sales pitch” while he is explaining the various features of the boat. The camera will help keep him honest, and it will help you remember the various features you’ll see.
STEP 4. Make an offer.
Once you’ve seen a lot of boats you’ll know which one is right for you. It’s like falling in love . . . you’ll simply “know,” through some primordial sixth sense, which boat is the perfect match for you. For me, this happened as soon as I set foot on Prairie Dream, now Candide, a 38-foot Hans Christian. What sexy lines she has! A hull so sleek and firm she made my knees weak. When I saw her interior and gazed into all that polished brass, I knew I was hopelessly lost.
The next step is to make an offer. In my situation, the asking price was about 30 percent more than I had been approved for. So I made a call to the finance company and asked for a larger loan. In a half-hour, I was approved for the extra amount.
Now comes the bargaining stage. Call the broker and say you’ve narrowed your decision down to three boats (perhaps this is a white lie — welcome to the bargaining table). Give some details about the other two boats, and what a great deal the other brokers have already made. Explain that you really like this particular boat but that you’re concerned about her price. At this point, you’ll most likely be asked to make a formal offer. Remember that the price of the boat is simply “made up” by the seller, usually with some help from the broker. Everything is negotiable. Offer 80 percent of the original asking price.
Most likely, there will not be a reaction from the broker. It’s not for brokers to accept or reject your offers. It’s their job to tell the seller that an offer has been made. The broker will ask for a check for 10 percent of this amount, which will be kept in an escrow account. Now it’s time for you to “put up or shut up.” You should have at least 10 percent of the asking price in your bank account. You’re about to launch a huge process, and the people involved (including the seller, broker, and financial institution) want to make sure that you’re not pulling their legs. Write the check and have it wired to the broker’s account. Don’t worry, the money still belongs to you, and it is fairly easy to get back if the deal falls through.
You may consider hiring a lawyer to review the documents that you’ll be asked to sign when making the offer and submitting the check. My lawyer included a clause that provided for a penalty of $500 per day if, for any reason, the money in the escrow account was not returned to me if the deal was not completed by a certain date.
Once the broker has received your check and signed the contract (a Purchase and Sale Agreement), your offer will be relayed to the owner, who will have a screaming fit. Fortunately, you won’t have to listen to this. By this time, the broker will have figured out a few things. He or she will tell the seller, “Gee, I think we can get 95 percent out of this buyer.” The seller will say, “Make it so.”
The broker will call you back and relay the message. My suggestion is to counter-offer with 85 percent of the original asking price. The broker will call the seller, and this process will ping-pong back and forth until agreement is reached. How did I do? Well, I managed to work the seller to 93 percent of the original asking price. Not necessarily a fantastic deal, but this is only the first round of negotiations! Read on . . .
STEP 5. Choose a surveyor.
Before representatives of any financial institution will write a check to the seller, they will demand that a certified marine surveyor inspect the boat from stem to stern. Do not let the broker choose the surveyor. It is in your best interests to find one on your own. Locating a surveyor should not be too difficult. Find a brokerage firm that sells ridiculously expensive luxury yachts. Call them up, be polite, and explain that you’re looking for a reputable surveyor in the area. They’ll give you a list of names.
Contact the surveyors and explain your situation. Ask how much they charge (typically, they’ll charge by the length of the boat). Ask if they’ll climb the mast (an important part of the process that many surveyors won’t do). Have them send you a sample survey report that they’ve prepared for another buyer. You probably shouldn’t hire an illiterate surveyor. The report will be extremely important to your finance company and insurer. The broker, surveyor, and you will agree to a certain date on which the boat will be taken out to sea. The seller will most likely not be present.
STEP 6. Take the boat for a sail.
You’ll meet early in the morning, and the boat will be hauled out of the water for inspection. The surveyor will use a rubber mallet to tap along the hull, checking for weak spots under the waterline and noting any significant blistering. When the surveyor is finished banging on the hull, the boat will be launched, and the fun begins. The broker will sail the boat. You should be below with the surveyor, watching every move and paying attention to every comment. The surveyor will remove every cushion, open every drawer and floor plate, examine every wire and hose, and check every seam between the bulkheads and hull. He or she will also go above deck to examine the sails, rudder, GPS, radar, and every other part of the boat. A good surveyor will spend at least an hour with the engine — verifying the propeller-shaft speed, checking the temperature of different engine components, and examining the wires to make sure they’re in good shape. The water systems, holding tanks, and fuel tanks will also be checked.
Basically, the surveyor will go over every square inch of the boat, and you should be right there to watch. Offer to take notes or to move those floor plates and hold the flashlight. It’s in your best interests to make sure of the most thorough job possible.
When you return to port, and while the broker is not around, ask the surveyor for an honest opinion about the condition of the boat. Don’t hesitate to tell how much you’ve offered to pay for the vessel. The surveyor’s on your side, and you’ll get an honest appraisal.
STEP 7. Renegotiate the price.
Within a few days, the surveyor should send you a typewritten report that describes all the things that need to be fixed on the vessel. You may be surprised at the number of things that were found to be objectionable. In my case, the surveyor returned a 15-page document that listed everything from blisters below the waterline to wiring that was too close to the propeller shaft.
I decided to concentrate on the two or three things that seemed particularly significant. I called the surveyor and asked how much it would cost to fix these problems, and he guessed at a price of a few thousand dollars. This was enough information to return to the broker and renegotiate the price of the vessel. I explained to him that I was very serious about proceeding with the purchase of the boat, but I hadn’t budgeted for these unexpected repairs. Would the seller be willing to make these corrections or lower the price so I could pay for these repairs myself? An hour later, the broker had contacted the seller, who agreed to meet me halfway on the repairs and reduced the price by $2,000. Over the phone, we agreed that I would purchase the vessel. My dream was quickly becoming a reality.
STEP 8. Find insurance.
Even though the boat isn’t officially yours, you will be required to purchase insurance for it immediately after final price negotiations. This is for your lending institution. Most finance companies won’t write a check to the seller until the buyer can show proof of insurance.
I suggest that you first check with your homeowner and automobile insurance companies to see if they insure boats. Many insurance companies will give discounts if you already have a policy with them. Your yacht broker may also be helpful in identifying insurers. Ask him for a list of marine insurance brokers for you to contact, and start making telephone calls.
The insurance people will want to know what kind of boat you’ve purchased, how much you’ve paid for it, how much sailing experience you have, and whether you’ve taken any official sailing certification classes. All of these things will affect the premiums you’ll pay. If you’ve only purchased automobile or homeowner’s insurance in the past, you’ll most likely be displeased at how marine insurance companies operate. They will most likely require the entire year’s premium up front. Be prepared to write a very large check.
STEP 9. Sign the documents.
Finally, the boat is nearly yours. All you have to do now is sign the agreements. I was truly amazed at the contract I received from the finance company. In all, it contained about 40 pages that described my obligations. They included not being able to sail the boat out of the country with no intention of returning, having to pay for insurance up-front for the entire year, no chartering of the boat, and so forth. Each page had to be initialed by me, and there were 11 places that had to be notarized.
You may also want to have the vessel documented by the U.S. Coast Guard. The finance company can arrange this, but be prepared to fork out $500 or so for the paperwork. For more information, see the U.S. Coast Guard website.
Lastly, be prepared to pay sales tax on your purchase. You will pay taxes either in the state where the purchase was made, or you’ll pay them in your home state. There is no lawful way around this obligation. The good news is that most finance companies will allow you to borrow the taxes on top of the boat’s price.
When you’ve returned the documents, the finance company will write a check to the previous owner, and the dreamboat will (at last!) be yours.
Robert Doty lives and works aboard Candide, his 38-foot Hans Christian in Jacksonville, Fla. He’s an avid traveler and dreams of making a circumnavigation before his 40th birthday. Single, he’s always on the lookout for potential sailing partners. He maintains a Website dedicated to the liveaboard lifestyle.
Thank you to Sailrite Enterprises, Inc., for providing free access to back issues of Good Old Boat through intellectual property rights. Sailrite.com
