Expectations For A Standard Yacht Acquisition
When buying a boat, especially if it’s your first time, you can be confident that a Yacht Zero team member will be there to guide you every step of the way, but we’ve put together a few resources that may make it a bit simpler on you.
A standard transaction takes 30 days from offer through closing. Depending on where the vessel is flagged, the structure of the ownership entity and how the buyer will acquire it can add some time.
(Be sure to scroll through the presentation below or check the 5 minute recap by watching this video.
Submit A Written Offer - Signed Purchase Sales Agreement (PSA) or Offer of Purchase Agreement (OPA).
The offer becomes legitimate in the eyes of the seller when written, as verbal offers are rarely followed up by action. This relatively standard contract outlines the terms of the agreement but be sure to not finance contingencies, if the buyer automatically accepts or rejects the vessel upon exceeding the vessel acceptance date, how the seller is allowed to use the vessel prior to closing, and what may be included or not in the deal. *Please keep in mind there are contracts designated for California, Florida (Entire USA) & International.
Offer Acceptance
Once the two parties have agreed to a deal, they will mutually execute the contract. The buyer can always back out of the deal until a certain point but the seller cannot, if all terms remained equivocal throughout.
At this time it is highly advisable to make a plan for the following:
1) Dockage - Ensure your home dock is available and what the rate will be at this point. Don’t sign on the dotted line until you get to acceptance.
2) Delivery and Shipment - Obtain quotes as to what it will cost to ship or transport the vessel, regardless of it it’s a trailer or an ocean cargo ship.
3) Insurance - If you have an underwriter who insures your other assets, go to them. If you don’t ask your broker to connect you with a marine insurance broker. This takes time so be sure to get started on this now.
4) Financing - We say there’s a US mentality to boat loans and a European philosophy. Europeans don’t want debt on pleasure purchases. US buyers tend to like not tying up funds in the boat that can otherwise have a higher return on investment than on the interest. Standard boat loans require a boat to be no older than 20 years old, 20% in down payment and a 20 year term. Rates tend to be between 5 - 7% based on certain factors and the interest is deductible. We do not do financing in house but highly encourage you to use Noelle Norvelle, who operates a marine loan portfolio to shop the rates. We do normally earn a half a point on the origination referral and encourage you to “beat her up on the rate” a bit more to put your interests first. We have seen that marine lenders are not equal and for a seamless transaction she is a consummate professional.
5) Corporate Structuring - If you’re planning on forming an entity to house the vessel like an LLC or corporation, talk to your CPA and attorney. Don’t form this until your’e accepting the boat but search to find your company name to make sure there’s no issue with that.
Deposit Submission
The contract will require a deposit of 10% of the purchase price to schedule a sea trial and survey typically within 3 banking days. This deposit will go into the buying brokers escrow account, which on the contract is described as the selling brokers account. This deposit outlined in most contracts is fully refundable until the offer acceptance is signed but ALWAYS double check your contract’s terms.
Schedule Your Sea Trial & Survey
The first time the boat will leave the dock isn’t until the sea trial/survey, as you wouldn’t believe how many people like a free ride on a yacht which requires time and resources. You will select your surveyor from a list or resource provided by your brokers to perform an inspection of your boat. Your surveyors, although quite helpful, are not an expert in all aspects of a boat but they will provide pass/fail ratings or issues that require further inspection. You must schedule 2 or more surveyors to attend on the same day where you will also arrange to haul the boat out of the water. Your broker can not select your surveyors and hire them as that can create a conflict of interest. Your hull survey will inspect all aboard functions and structural integrities while your mechanical surveyor will inspect engine/generator and transmission performance.
Renegotiation Based On Findings
Every survey will return findings (80+ is common even on the best boats) whether the boat is brand new or used, with the majority being small issues. Based on the findings a buyer will request the seller perform the remediations or extend a credit for them to do it themselves. For buyers that focus on small issues, the selling parties will usually tell them they will not acknowledge it and if they want no issues they should spend more money and buy a brand new boat. Our philosophy is that you should address anything pertaining to the safety of you, your passengers or other persons on the water and anything that can result in major financial risk to a buyer.
Vessel Acceptance
This is the point of a transaction in which there is no turning back; the buyer once signing the acceptance will forfeit their deposit if they do not close on the boat and if a seller doesn’t provide what’s necessary to close, they will have to pay the buyer and brokers 5% each. Once acceptance is signed, the brokers can move toward administrative actions and paperworks to close.
*Company Formation - This is the time to form a company to acquire the vessel.
**Secure Dockage - Make sure dockage is firmly lined up.
***Bind Insurance - See to it that vessel is insured immediately upon transfer of ownership.
****Select Management Program or Hire Crew - Familiarize the keeper with the vessel and survey at this point.
****Arrange Delivery & Transport - How will the vessel get to you? It is advisable to set a loose deadline for your vessel to arrive.
*****Arrange Financing If Necessary - We say there’s a US mentality to boat loans and a European philosophy. Europeans don’t want debt on pleasure purchases. US buyers tend to like not tying up funds in the boat that can otherwise have a higher return on investment than on the interest. Standard boat loans require a boat to be no older than 20 years old, 20% in down payment and a 20 year term. Rates tend to be between 5 - 7% based on certain factors and the interest is deductible. We do not do financing in house but highly encourage you to use Noelle Norvelle, who operates a marine loan portfolio to shop the rates. We do normally earn a half a point on the origination referral and encourage you to “beat her up on the rate” a bit more to put your interests first. We have seen that marine lenders are not equal and for a seamless transaction she is a consummate professional.
Closing
Upon closing (which isn’t done in person), you will now own a boat and be sure to have transaction documents including a running letter onboard so in the event marine patrol or the coast guard stops your boat, you can provide a record that you are the rightful owner and paperworks is pending. The more you continue to sail, it’s likely that you will notice some additional issues.