Boat Purchasing

I have owned a few boats over my life, a heavily used dive boat in Jacksonville, Florida (as a young person) and a couple small sailboats in Oceanside.  A pre-purchase inspection of a sailing catamaran in Fiji twenty years ago, attended by my wife, began our chartering of similar vessels.  She and two of our children were prone to sea sickness and found the stable platform of a catamaran was preferred.  As we chartered with various groups of children and friends over the years, we came to love the catamaran’s social spaces, the interior and exterior bridge deck, the hard top helm and seating areas and the bow area provided ample space for this purpose and the cabins allowed for an escape and sleeping accommodations for larger groups.

My wife and I had primary charter partners who were interested in purchasing a vessel with us.  We considered purchasing a vessel in a large charter program, essentially a time share.  Like a time share it is worth it if you are an active user.  We and the partners are considering retirement, but none of us have actually retired.  We considered whether we wanted to take six or eight weeks of vacation for the next several years on a charter boat.  Yes, was our answer.

And then came Covid.  Ah, Covid.

On a charter trip in Tahiti in May of 2022 one of the partners asked me about the boat business and I answered,  “It’s great.  The increase in demand for boats and our service is more than I have experienced in my (thirty five year) career.  It’s been great for our prepurchase business.” 

“And what about the value of boats?”, asked my partner.

“Well the demand has created the most rapid rise in value I have ever seen.”

“And what do you think will happen to the value of those boats?” was their follow up question.

“Well I’m no economist… but things that go up usually go down”  She decided against buying a boat at that time. 

As Covid waned and the demand for recreational boats and prices dropped, we again began discussing a boat purchase.  To our surprise the partners sent my wife and I a listing for a boat for sale in San Diego.  It was a 2021 Lagoon 42, three cabin version, with Yanmar engines, sail drives and a lithium battery/solar charging system coupled with DC HVAC and refrigeration, and no generator.

 As an amateur, semi-hypocritical, amateur environmentalist, I was interested.  While I do my part by having a solar house and driving an electric car, I am no Greta Thunberg.  All of those charters we’ve done over the years, we flew to on commercial jets.  I’ve accepted enough surveying work in remote locations over the years to maintain some status with airlines and I understand the carbon footprint of those planes.  I digress. 

We went through the normal process of negotiation, using the listing broker as our broker.  The vessel was owned in an LLC, which had a benefit of avoiding sales tax but created other hurdles to jump.  Fun fact, when buying a boat via the LLC process, one of the last things done is cancelation of the vessel purchase contract and creation of a MIPA (Membership Interest Purchase Agreement) and the broker’s portion of the sale is defined as a boat consultation fee versus a commission.

The brokers and others humorously asked if I knew any good marine surveyors.  As I was buying this boat with partners, I decided to hire a thorough and competent marine surveyor, rigger and someone to help me with checking and understanding the lithium/solar system.  I once heard that a lawyer that defends himself has a fool for a client, probably accurate for a marine surveyor as well. 

We hired marine surveyor, Brad Destache, who was associated with our company for a few years near the beginning of his marine surveying career.  He surveys engines and does general condition and valuation vessel inspections and we hired him to do both.  I like Brad and respect his skills.  He suggested that oil samples be taken in advance as the laboratory that he used was having significant delays in processing.

Our company has a relationship with an alternate oil lab, so I took the samples in advance.   The engines were run and the sail drives were engaged until they were warm and the oil was “mixed” prior to taking the samples.  The oil samples from the sail drives appeared different and based on my experience the starboard side was “emulsified”.  I showed the samples to the seller and broker before shipping them; the drives had never been resealed but the owner was surprised. By the way, I could not see the difference between the samples on the dip sticks, but it was clearly visible in the sample bottles

The suspect sample tested with water and the seller was reasonable and agreed to have the drive resealed if we found no showstoppers during the survey.  We arranged to have the haulout at the end of the survey process, so we could leave the boat out while the drive was resealed.

My marine surveying partner, and nephew, Kells Manthei (yes, my sister named him after me) and I also did a marine survey on the vessel.  On survey day I was happy that I had chosen to have an independent marine and mechanical survey, as I was busy asking the seller, rig surveyor and electrical specialist questions.  Brad found a few things we did not and we found a few things he did not and generally we found the vessel was in good condition. 

Here’s link to both of our surveys: Destache Marine and Christian & Company.

The rigger, Chris Catterton came aboard at the slip, climbed the mast and discussed his findings.  There was unusual damage to the mainsail track and a few other normal conditions, but the sailing system was in good condition.  Here is a link to the rigging survey:  CC Rigging.

The marine electrical expert, Jim Dixon, is the local Victron distributor.  The vessel had a few Victron components, but not Victron batteries.  I learned a lot during the survey.  The most interesting detail was that the lithium battery level indicators are simply a monitor of the amount of charge in and the amount of charge out of the batteries, not really a measure of charge “volume”.  To accurately measure the condition of these batteries we discharged them to the point that the battery management system shut them down and then recharged them to determine what amount of charge they were capable of taking.  Their condition was determined to be “as new”. 

There was one electrical anomaly, Jim found that the buck-boost converter (allows the engines’ alternators to charge the lithium batteries with extra charge not needed by the engine batteries) was not functioning properly.  Upgrade Marine had installed many of the boat’s systems and they have been very helpful since.  At the sellers request, they responded and checked the buck-boost devices and found them properly functional.  It is unclear what caused the different findings.  The diagnosis is done via Bluetooth monitoring with a computer, I accepted the unknown and continued.  The link to Jim Dixon’s survey report: Dixon Marine Inc

Having the surveys done, interacting with the surveyors and buyer and being the customer of the surveyors heightened my awareness of the importance of our “bedside manner”, our choice of words in the report and the consequences of both.  This boat was relatively new and in good condition and our first (pre-charter) insurer required no marine survey.  However, we put the boat into charter and the charter insurance underwriter requested the survey and then a recommendation compliance letter.  We consider this outcome when writing our reports and try to craft the reports accordingly, but now have a fresh, personal, reminder of why.

The cheapest insurance quote came from a carrier that recognized our partners had insufficient experience and demanded the vessel be operated by a licensed captain for at least the first year, even though my experience was ample.  The next cheapest underwriter had no such limits.

We consummated the sale, became the members of the LLC and decided to put the vessel in charter with West Coast Multihulls until we have at least partially retired, and then we will likely go cruising.  Most of the pros who find out I’ve purchased a vessel say they thought I knew better but some offer congratulations as they realize boat is not just my vocation but also a passion.

Naming the boat was a challenge.  I spent hours on various websites trying to come up with a name that had meaning, creativity, relevance and humor. Check out Rhymezone if you are trying to name your boat.  I provided pages of choices to the other three partners, many relevant to our lives.  My wife is in finance and I suggested “Current Balance”, “Sunk Costs”, ”Job Tidal”  and “Hole in the Water”.  Our partners are a doctor and a nurse and I suggested “Floating Doc”, “Aye Doctor”, “Fluid Therapy”, “MediCation”  and she suggested “Boatox”.  I proposed we call the mothership “Make it a Double” and the tender “Chaser”.   “Barely Awake”, “Balance”, “Boomers”, “Greenish”, and “Running Mates” . My nephew and fellow marine surveyor suggested “KUL SEAS” because my electric car’s license plate is KULERTH (cool Earth).  All were dismissed.

We initially settled on “Tapped Out”.  For those unfamiliar with marine surveying (thanks for reading this), we percussion test fiberglass boats by tapping them with various hammers.  Since we bought the boat with cash, we were tapped out of money, we are tapping out of work and I had tapped out this boat.  We failed to quickly send in the papers and my three partners, in an act of mutiny, decided “Tapped Out” was out. 

The naming process started again with my wife and one partner persistently resolved on the idea of tenacity.  Eventually, after three of us were exhausted, my wife’s choice of “Tenacious Spirit” won.  I intend to use hammers for both of the “t’s” in the name.

As a side note, we often leave the testing of a tender and its outboard between our client and the sellers of the vessel. In the case of us purchasing the Lagoon, the sale included a tender equipped with a four stroke outboard engine. My nephew had made it a point that the item he looked most forward to testing was the tender, and unfortunately the weather had turned for the worse toward the end of the survey. We did launch the tender, start the engine and put it into gear to assure that it was functional and to test the davits, but that was it for the testing.  Well, the first time that we took the tender out to go and have some we had a problem, it turned out to be growth in the cooling passages below the powerhead.  Salt Away while flushing the outboard did not resolve it, and as the tender was due for its annual maintenance we had it taken care of at that time.

Note to self and boat buyers, it’s not a bad idea to take the tender out for a spin when it’s included in the sale.

I began my career as a marine surveyor working for a Ft. Lauderdale, Florida based marine surveying company in 1990. I was born in San Diego to a U.S. Navy family but “grew up” as an active boater in Florida. I moved back to California in 1993 and have lived in San Diego since.
Returning to California as a marine surveyor I noted the difference in the value of boats from coast to coast. I just returned from a trip to Florida where I surveyed a Cabo 35 for a repeat client. I was there for a family wedding and used the job as a therapeutic break and a write off. The job reminded me of the difference between boats on different coasts.
The Coast Guard’s recreational boating statistics (2014) state California has 728,679 registered boats and Florida has 873,507 registered boats. The California number declined significantly from the prior year and the Florida number increased slightly. I found several interesting websites with statistics, links are at the end of this article.
Putting values on boats in the early 1990s included researching B.U.C., N.A.D.A. and A.B.O.S. value guides. The value guides suggested upward adjustments for boats in California.
I independently noticed that vessel values were higher in California, often significantly more than the cost of transporting the boats. My recent survey follows this higher value pattern.
Boats in Florida are exposed to much harsher atmospheric conditions, more sun, heat and often more usage. The very top of Florida is 31 degrees north latitude and Key West is south of 25 degrees north. San Diego is 32 degrees north, the southernmost point of California.
The weather affects the California boating season (May through September) much more than Florida. The air and water temperatures are much higher, the sun does more damage and boats are used more often in Florida. Florida has an intercoastal waterway, allowing usage of many boats when the sea conditions are unfavorable for boating.
I have always noticed a higher valuation for California boats compared to Florida boats, with the delta in values reduced during recession years. Florida brokers report that inventory of quality boats is low, just like California. Both states were affected by the recession and accompanying lack of boat production six to eight years ago.
The takeaway is that a boat’s value is difficult to determine based on year, make and model alone. As we all know, condition is a significant factor and statistically our local boats have a higher value because they are in better condition than boats in Florida. Unfortunately for my recent client, even a California bred boat can be affected by the Florida sun and he passed on the deal.
While researching for this article I found many interesting statistical websites, including the number of registered boats, boats per capita, value of the marine industry overall per state and casualty statistics. One statistic suggested that Arizona has the most registered boats per capita, due to their state requiring registration of all types of watercraft including those without power. I also found it interesting how many more power boats there are than sailboats, also possibly an anomaly affected by the requirement to register boats with power.
uscgboating.org/library/accident-statistics/Recreational-Boating-Statistics-2014.pdf
nmma.org/assets/cabinets/Cabinet222/Florida_2015%20Infographics.pdf
nmma.org/assets/cabinets/Cabinet219/California_2015%20Infographics.pdf
statista.com/statistics/184587/number-of-recreational-boats-in-the-us/
phoenix.about.com/od/lakes/l/blboats.htm

A client who had a bad boat selling experience said, “The only power a boat seller has in the transaction is the right of refusal.” While ultimately true and though California law protects buyers more than sellers, there are ways to prevent many of the problems my client experienced.

He was unfamiliar with the process and made himself and the boat available to a potential buyer many times, got underway three times and then had an 11^th hour offer reduction of one third of the agreed purchase price.  The deal fell through and he came to me to discuss various survey findings and the apparent sales practice that he found distasteful.

For those unfamiliar with the boat buying process, it begins with an offer, then a counter, then an agreement with time constraints for marine survey and sea trial and then another time constraint to close the deal. Researching with the several local brokers, the average time from contract inception to survey and sea trial was 14 days and another 7 to 10 days to close.  The contract includes purchase price, refundable deposit amount and other terms.  Marine survey and sea trial are performed for the buyer to gain knowledge of the condition and value of the boat.  After the survey and sea trial many boat deals are re-negotiated.  The seller is not obligated to have repairs done or allow any concession in price, but they often do so if justified by the survey’s findings.

Our client’s problems were twofold; he gave more time and energy than most sellers during the sales process and then faced a significant reduction in the offer price after marine survey and sea trial. The reduction in the offer was based on findings during the survey and sea trial, per the buyer’s broker.  Several of the findings, including blisters on the hull bottom were known to the seller prior to the survey.

To avoid last minute re-negotiations for known conditions, I suggest full disclosure in advance of survey and sea trial. I don’t recommend putting all the boat’s warts on the published listing, but I do suggest disclosing them prior to survey, especially things like blisters.  Older boats come with blemishes and they are cheaper than new boats.  Price the boat fairly, disclose the known deficiencies of significance and many of the psychologically challenging aspects of the sales process will be removed.

Some sellers make it clear that they will not reduce the price after survey, often because they feel the offer is less than the actual value of the boat. Some sellers offer a maximum survey allowance in advance.  These tactics may prevent a low ball last minute offer reduction by an unscrupulous buyer by deterring them at the onset of the deal.

An English article on this tactic calls it “chipping” or “gazundering”. We can’t know if this tactic was consciously deployed in this instance or if the buyer just had a change of opinion of value, but the results for our client were the same, negative.

Find the article at http://www.thisismoney.co.uk/money/mortgageshome/article-2400872/Chipping-new-gazundering–buyers-reneging-agreed-sale-price-And-plain-wrong.html

Having been asked this question repeatedly at our booth in the recent San Diego boat show and many times over the years, I decided to publish my answer.

 

Since we are a marine survey company, a question we often field from prospective boat buyers is “Can I trust my broker’s recommendation for a marine surveyor?”

To use a baseball analogy, this is a “hanging curveball”. I’m at bat with bases loaded and no outs!  Boat broker and marine surveyors are often at odds and I have suffered the blows of many brokers’ verbal bats.

Still my answer is, “If you trust your broker, you should trust their recommendation for marine surveyor, lender, insurance company, boat yard, mechanic, etc…, After all you trust their advice on the boat, right?”

I ask if the potential boat buyer is working with a broker that found the boat for them or if they found the boat and the broker came along, becoming their broker and the broker for the seller. This doesn’t disqualify the broker‘s referrals but the new relationship will not manifest the same trust as one developed over time with someone searching listings for you and taking you out for viewings.

I see no ethical dilemma in brokering both sides of the deal – it is common, and the broker either is or is not ethical. Of course having one broker versus two creates some ethical challenges and raises the possibility of an appearance of a conflict of interest.  It must be tricky to advise the buyer on a proper offering price when the broker already knows the seller’s bottom line.  A dedicated broker could logically be more aggressive in negotiating but the shared broker might have more influence.

If there is any question that the broker’s referral(s) are not in your best interest, don’t dismiss them, but also do your own research. The marine industry is a “small world”, ask marine industry professionals for referrals.  We all know each other’s reputations.  Network with marine surveyors, lenders, insurance agents, boat yard operators, mechanics and maritime attorneys.

Ask for several referrals instead of just one and compare the lists. Ask your boating neighbors and friends.  Search the internet, but be careful to not be influenced by one fanatical supporter or detractor.   “Due diligence” in this case does not take long and is simple.

On the other side of the coin, I just met with a repeat (marine survey) client of mine who had a bad sales experience as a boat seller, and realized many of our clients don’t go through the vessel selling process often.

In Part 2 of this article, I will share my experience on the boat selling transaction side, which I hope will be helpful.

As professional marine surveyors we appraise boats daily. We follow professional standards and appraisal methodologies, but basically we look at comparable boats’ listing and reported selling prices and compare the subject boat to the comps. This appraisal method is formally referred to as market value analysis and the value is often called the fair market value or actual cash value. While it is important for us to follow the method and protocol, it is not necessary for you and the basic methodology is relatively simple and will provide your with a good idea of the value of your boat.

Boat values are required when a boat is sold, banks like to know values for loans, insurance companies use values when underwriting policies, and various others want to know how much your boat is worth, including your soon to be “ex”. If you would like to get a good idea of its value, here are some simple tips.

The most helpful information used to evaluate the boat is the basic specifications. Manufacturer, year, length, model, size and type of engines and major upgrades or accessories. The make, year and length will provide the basic search criteria, but different models and engines can result in a large range of values. You may be amazed at the range of values between a flybridge versus an express model or diesel versus gasoline engines.

Once you know the basic specifications search for comparable boats’ listing prices. The most common electronic multiple listing sites are Yachtworld and Boat Trader. These two sites handle a majority of the boats that are being advertised for sale and are your best bet for finding the most comparable boats for sale. Yachtworld is the brokers’ site and will generally have larger and more expensive boats. Boat Trader is populated by private parties and trailer boat brokers. (Have you noticed the Trader magazines have disappeared from the racks at the convenience stores and are strictly internet publications now.)

You can also do a Google search for your boat for sale and find numerous outlets and additional information. There are a multitude of lesser known web sites and many specialize in specific types of boats, performance boats, house boats, trawlers, and even mega-yachts (YachtCouncil.com). There are also boat value sites such as BUC, ABOS, NADA that provide valuations, some for a fee.

A search tip: search for boats a year older and a year newer, after about five years condition becomes more important that age and searching a year older or newer will provide more comps. If you have a very high production boat, you can probably stick to your model year. If you are searching a limited production boat, you may have to use a multiple year range. If you have an extremely rare boat, you may have to include other similar brands of boats in your search.

Boats have model years just like cars, 2012 boats are already for sale. Since 1984 the last three digits of the hull identification number (HIN) indicate the year of production and model year. A new boat with HIN ending 112 was built in 2011 but is a 2012 model year. A HIN ending with 111 was built in 2011 and is a 2011 model year.

Another search tip: try using a broader length range. Some listings will have length data entered with actual length overall and some will have lengths that have unknown origins. The “340” model may in fact be 34 feet long, or it may be 38, including the bow plank and swim platform. Remember you are searching with a computer, a human entered the data, and another human is searching the data. The computer works precisely, it is not your spouse and does not know what you are trying to communicate. Sometimes one of the humans misspells the manufacturer or puts the length in the year field.

If you can gather a dozen or so comparable boats listing prices, you can establish a fairly accurate value. The better the comps, the better the evaluation. We use to average these asking prices and deduct ten percent for the built in “negotiating buffer”, however the listing prices have not recessed as much as the selling prices in the past three years, and a twenty to twenty five percent reduction from the asking price is not uncommon in today’s market.

A better data base includes reported sales prices, not just listing prices. These proprietary data bases are generally not available to the boating public, but are available to sales professionals and marine surveyors. While these data bases are not as accurate as the recorded sales prices for real estate, they do provide more useful sales data.

If you are planning on selling your boat, ask your broker for their opinion of value, they are very capable of this task and will do it as part of their service to you. If you need a professional appraisal, most institutions will request a marine survey and many will require an “accredited” marine surveyor, in an attempt to legitimize the appraisal. The surveyor will likely provide a market value analysis and should keep a copy of the research in their file or include the comparables in the report, to support their opinion.