The Buying Process
Question: What
steps are necessary in order to purchase a sailboat?
"Oh, what a
tangled web we unveil, when first we desire to set
sail!"
-Yours Truly
The most difficult thing I've ever done financially is to purchase this sailboat. I went into the process completely blind; I had no idea what waited ahead. In order to help you, however, I will describe my 9-step process towards boat ownership. I hope you find it useful, but remember that your own experience may differ significantly (nonetheless,
PLEASE drop me a
line-I'd love to hear about your trials and tribulations towards owning your own boat!).
Step 1: Find out how much boat you can afford.
I had absolutely NO IDEA how much money I would be able to borrow. I knew that my credit was very good, but I had never asked to borrow more than the cost of my current second-hand car. I pretty much figured that I wouldn't be able to buy a multi-million dollar yacht, but I knew that I should be able to afford more than 12' dinghy.
In search of my spending cap, I contacted a few financial institutions and played "what if" games with them. As with any bank loan, the first step was to complete a financial statement that listed my income and debts. I returned this information along with my "target" spending cap. It is interesting that one has to have a particular boat in mind in order for them to process the application. Since I had no idea whatsoever about which boat I would eventually choose, they "made 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 price range and could begin shopping for my dream boat!
Step 2: Contact
Several Brokers.
Now with a spending cap, I knew how much boat I could afford and began contacting various brokers in Florida. I sent them a letter explaining my situation and asking for assistance in finding a boat that would meet my needs. Some responded favorably; some didn't. I wanted to find a broker who would answer my questions and was willing to take time with me. I didn't want to be conceived as a "quick sale." If the broker didn't show some enthusiasm towards my endeavor, he was quickly crossed off my list. His loss...not mine!
My goal was to line up several brokers at once. Over a single four-day period, I would visit Florida (I lived in Texas at the time) and make a huge sweep from Jacksonville to Miami in search of the perfect sailboat. When it was all said and done, I visited with six brokers on the Florida Atlantic coast.
Step 3: Visit a
Lot of Boats.
The broker's job is to show you several boats and hopefully get you "hooked" on a particular vessel. The process is fairly simple. First, you'll meet with the broker in his office. You'll be offered coffee and exchange pleasantries. He'll ask questions about the type of sailboat you're interested in buying, how much you want to spend, etc.
Chances are he'll then load you into his car and drive you 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 hard as rocks, they'll need to be replaced soon. Flush the head (not yours-the marine toilet). 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 properly (nothing worse than living on a boat and having to drink warm beer). Open and close every hatch-make sure that the seals are tight and the hinges work properly. Turn on the shower. Ask the broker to run the engine for a few minutes. Turn on every faucet to make sure they're doing their job. Lay down in the berths to make sure they have enough room for you to get a good night's sleep. If you have a girlfriend / boyfriend, make sure there's enough room for him / her, too! Make sure there's enough room for both of you...together... without bumping your heads...if you know what I mean (nudge, nudge, wink, wink)! 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 over all (LOA), displacement (weight), draft (how deep the water must be in order to sail), 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. For example, some owners will remove electronics like 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 feel necessary aboard any boat you're visiting. You are NOT wasting the broker's time...this is part of his job! If you feel rushed by the broker, let this be a red flag!
You will find, by the way, that the boats you visit will start to blend together in your mind. The more boats you see, the harder it will be to remember the particulars of each. The solution to this problem is quite simple-bring a video camera with you to record your visits! My father and I did this as we visited each boat. It is important to record the broker's "sales pitch" while he is explaining the various features of the boat. The camera will help to keep him honest, and it will help you to remember all the various features that 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 is precisely 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, a 38' Hans Christian. What sexy lines she has! A hull so sleek and firm that she made my knees weak. When I saw her interior-and gazed into all that polished brass-I knew I was hopelessly lost. Trust me, you'll know when it happens to you. If it doesn't happen, my advice is to keep looking. DON'T JUST "SETTLE."
The next step is to make an offer on the boat. In my situation, the asking price was about 30% more than I had been approved in Step 1. So, I made a call to the finance company and asked for a larger loan. In a half hour (which seemed like three weeks), I was approved for the extra amount.
Now comes the bargaining stage. Fortunately, I work in sales for a living and understand how this game works. Call the broker and tell him that you've narrowed your decision down to three boats (so this is a white lie!-welcome to the bargaining table!!!). Give him some made-up details about the other two boats, and what a great deal the other brokers have already made. Explain that you really like the particular boat he's offering, but that you're concerned about her price. At this point, he'll most likely ask you 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% of the original asking price.
Interestingly enough, there will not be a reaction from the broker. It is not his place to accept or reject your offer. It is his job to tell the seller that an offer has been made and the amount of that offer. The broker will instruct you to send a check for 10% 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% 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 overnighted (or wired) to the broker's account. Don't worry...the money still belongs to YOU, and it is fairly easy to get it back.
The largest check I've ever penned was for the 10% cost of my Hans Christian. Just to be on the safe side, I hired a lawyer to review the document that I was asked to sign when I made the offer and submitted my check. The lawyer charged a total of $150 to review the document and make suggestions. The most important thing he did for me was to include a penalty clause in the offer contract. Basically, this clause stated that a penalty of $500 per day would be paid by the broker 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 contract (a Purchase and Sale Agreement), he will relay your offer to the owner who will have a heart attack and screaming fit. Fortunately, you won't have to listen to this. By this time, the broker will have figured out a few things for himself. He will tell the seller, "Gee, I think we can get 95% out of this guy." 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% of the original asking price. The broker will call the seller, and this process will ping-pong back and forth until a mutually-agreed upon price is reached.
How did I do? Well, I managed to work the seller to 93% 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 any financial institution will write a check to the seller, they will demand that a certified marine surveyor inspect the boat from bow to stern. Do NOT let the broker choose the surveyor-it is in your best interest to find one on your own!
Finding a surveyor should not be too difficult. Use local marine trade magazines to find brokers in your area who sell ridiculously expensive luxury yachts (the kind costing millions of dollars). 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.
Call the surveyors and explain your situation. Ask how much they charge (they'll charge by the length of the boat; I paid $11.00 per foot). Also ask if they'll climb the mast (an important part of the process that many surveyors won't do). Ask if they'll send you a sample survey report that they've prepared for another buyer-after all, it's this report that you're actually paying for. You probably shouldn't hire an illiterate surveyor-his report will be extremely important to your finance company and insurer.
Step 6: Take the Boat for a Sail
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. You'll meet early in the morning, and the boat will be hauled out of the water for inspection. This is a pretty neat process to witness. They use a special machine with huge straps that literally lift the boat clean out of the water!
The surveyor will use a rubber mallet to "tap" along the hull. He's checking for weak spots under the water line (as he taps with the mallet, any such spots will make a different type of sound). He'll hit the boat about a zillion times with the hammer. Eventually, the monotonous tapping will begin to annoy you...but it's an important part of the process. He'll also check for blistering (pockets of water under the paint) on the hull.
When the boat is hauled, the workers will pressure-wash the bottom to remove barnacles and other growths. They might also replace the sacrificial zinc anode around the propeller shaft. Through a process of pure magic, this zinc ring dissipates electricity into the water-and wears down over time (sacrifices itself, in fact!). You'll be expected to pay for hauling out the boat, spraying the bottom, and replacing the zinc anode if necessary. This money goes directly to the marina and has nothing to do with the broker or seller. I paid $3.50 per foot to have my boat hauled out, plus $13.50 for the sacrificial zinc anode. I must admit that I was a bit miffed to be paying for parts on a boat that wasn't even mine! Nonetheless, this is the way things work-and I soon learned that $13.50 is absolutely NOTHING to pay for boat parts! If you're going to gripe about a $13.50 boat part, then you really shouldn't waste your time with any of this process...
When the surveyor is finished banging on the hull, the boat will be lowered back into the water. Now the fun begins! The broker will sail the boat towards the ocean. YOU should be underneath with the surveyor, watching his every move and paying attention to every comment. The surveyor will typically start in the forward cabin. He'll remove every cushion, open every drawer and floor plate, examine every wire and hose, check every seam between the bulkheads and hull, etc. He'll 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
RPM's, checking the temperature of different engine components, examining the wires to make sure they're in good shape. He'll check the water systems, holding tanks, and fuel tanks. Basically, the surveyor will go over every square inch of the boat...and you should be right there with him as he works! Offer to take notes for him! Help him move those floor plates and hold the flashlight so he can see! It's in your best interest to make sure he does the most thorough job possible.
Eventually, you'll return to port. Walk the surveyor to his car...without the broker being around. Ask him for an honest opinion about the condition of the boat. Don't hesitate to tell him how much you've offered to pay for the vessel. He's on your side and will be honest in his appraisal.
Finally, be prepared to pay the surveyor for the work he's done...right there on the spot. This is the custom!
Step 7: Re-negotiate the price
Within a few days, the surveyor will return a type-written report to you that describes all the things that need to be fixed. In my case, there were two significant repairs that were required. The boat had significant blisters under the waterline and will have to have a new barrier coat applied, and the chainplates which attach the shrouds to the hull have been pulled slightly out of position. Of course, there were a multitude of relatively minor repairs that were also recommended (e.g., loose wiring that needs to be secured, old hoses that need to be replaced, etc.).
It is expected, after the survey, that the buyer will re-negotiate the price based on repairs that must be made. I chose to concentrate on the big-ticket items at the bargaining table. Some of my friends told me that I should have made sure that the boat was in perfect condition before I agreed to purchase it. This is bullshit. A second-hand boat will NEVER be in perfect condition...so my advice is to identify the things that will cost the most to repair, and make a counter-offer.
In my case, the boat had several thousand dollars' worth of significant repairs. I called the broker and gave him a heart-felt speech about how much I liked the boat, but that these repairs...gosh darn it...just weren't in my budget. Would the seller be willing to make the repairs himself, or reduce the sale price?
An hour later, the broker had contacted the seller who had agreed to meet me half-way. It was a done deal.
Step 8: Find insurance
Even though you don't own the boat, you will be required to purchase insurance for it immediately after final price negotiations. This is primarily for the benefit of your finance company. Most finance companies won't write a check until the buyer (you) can show proof of insurance.
My broker was helpful in suggesting possible insurance agencies, but none of them paid off. I was hindered by two facts. First, I am a first-time boat owner. Many insurance companies wouldn't even consider me because of this. The second thing that insurers don't like is
liveaboards-i.e., people who intend to live aboard their boats. They reason that it's a higher risk because a liveaboard is likely to use the gas oven more often than someone who simply sails the boat on the weekends. They also know that a liveaboard will have more guests on board, which increases the insurer's liability.
After MANY phone calls, I found a company that would take on the risk. Royal Insurance was willing to write a policy! Unlike automobile insurance, this money is all due "up front" for the entire year. Be prepared to write a huge check!
My policy, by the way, stipulates a 4% deductible. I have heard that this is pretty standard.
Step
9: Sign the Documents
Finally, the boat is nearly yours!!! All you have to do now is sign your life away...in blood. I was truly amazed at the contract I received from the finance company. In all, it contained about 40 pages that described my obligations (e.g., can't sail the boat out of the country with no intentions of returning, must pay for insurance up-front for the entire year, must not charter the boat, etc.). Each page had to be initialed by me, and there were about 10 places that had to be signed and notarized!
You may also be asked to have the vessel documented by the US Coast Guard (unless, of course, you're from Canada or some other third-world country). The finance company will arrange this, but be prepared to fork out about another $500 for the paperwork.
Lastly, be prepared to pay sales tax on your purchase. I tried EVERYTHING to avoid these taxes, but it simply can't be done (at least, not legally). You will pay taxes either in the state where the purchase was made, or you'll pay them in your home state. The good news is that most finance companies will allow you to borrow the taxes on top of the boat's price. This means you won't have to pay them out of your pocket!
When I returned the documents, the finance company wrote a check to the previous owner, and the boat was (at last!) mine.
Please
drop me a line at:
robert@sleepingwithoars.com
©
2007 by Robert Doty
