FAQs About Buying a Boat
And even after you find that perfect boat, you're still not out of the woods: there's still negotiating the selling price, financing, surveying, sea trial, insuring, documentation, finding a slip and myriad other details. We'll cover these below, but first would like to make a couple of general recommendations:
Buy the book "How to Buy, Own & Sell a Boat Without Going Broke", by Schneider and Woodwell, 1990, published by ProStar Publications, Los Angeles, CA 90034. ISBN 0-930030-55-9. This well-written comprehensive guide works through the entire buying process clearly and in detail; it's available online at Amazon. Speaking of which, Amazon is a fun place to play; search under BOOKS for "buying a boat", or "buying a sail boat" or "buying a power boat" and see what you find.
Another useful (and free!) source is the Reading Room section on the YachtWorld web site (www.yachtworld.com).
Note that the YachtWorld web site is the most comprehensive on-line compilation of listings available; we estimate over 95% of all the brokerage-listed boats in the country are available for viewing on this site. It is simple to use and offers photos, as well as full specs, of most of the boats listed. Use this site in conjunction with print publications such as California Yachts, Yachts for Sale and Latitude 38 (available at most brokerages and West Marine stores) to identify boats you might be interested in, then work with your broker to evaluate and arrange to see the appropriate vessels.
Most buyers elect to keep the search local, but numerous others opt to include the Southern California and/or Seattle markets. There are many more boats in Southern California than Northern California--So Cal includes all the marinas from San Diego up to roughly Ventura whereas No Cal is limited to the Bay area. And certain types of boats (pilothouse sailboats and trawlers in particular) are more popular in Seattle than San Francisco.
The down side of a statewide or regional search is that it's of course more expensive and more hassle. For example, it will probably cost you about $5,000 to transport a 38-ish foot sailboat from Seattle or San Diego to San Francisco, and over $10,000 to ship the same boat here from the east coast. However, many clients believe this a worthwhile investment to get the best boat available.
What's the boat market like these days?
We're hearing this question quite frequently in the wake of the stock market and real estate busts. However, our local market remains surprisingly healthy and sales strong; Marin County seems to be weathering the downturn reasonably well, but this might not be the case elsewhere.
Boat prices have fallen, with particular weakness in $200-300k motoryachts that in the past would have quickly sold as liveaboards. Boats older than 1980 (which are very difficult to finance) and "project boats" of all types (especially those constucted of wood) remain a very difficult sale.
Weakness in the above-noted market segments has been offset by improvement in the sub-$150k market; clean power and especially sail boats in this category are selling quickly and with a minimal decline in selling price. The fact that prices are relatively stable shouldn't surprise, as boats as a class didn't see the huge price appreciation that occurred in stocks, the local housing market, etc.
Most folks that wanted a boat before the economy tanked still want one and are shopping, though perhaps for a bit smaller vessel or perhaps a used boat instead of new. However, buyers aren't finding a glut of inventory at bargain bin prices and sellers aren't having to fire sale out their pride and joy.
Again, note we are specifically referring to our brokerage. Based on what we've heard "through the grapevine", the above observations seem to apply to many West Coast brokerages, but we don't claim to know this for sure, nor, of course, do we know what developments we'll see in the months to come.
What are the benefits of working with a broker?
The right broker helps by (a) listening to your needs and recommending types and manufacturers of boats that potentially meet them and (b) then finding the actual boats for sale.
There are literally thousands of models by hundreds of different manufacturers, and most people are aware of only a small percentage of them. A broker will have seen and been on more boats than all but the most dedicated buyer. This experience enables the broker to suggest options of which you might have otherwise been unaware.
Determining the most suitable boat in theory is only half the battle--you still need to find a clean example of your dreamboat to buy. Brokers have knowledge that you probably don't regarding what's on the market or what's coming onto the market. Also, remember we're looking for a CLEAN example of your chosen yacht. A broker can eliminate much frustration by screening out those boats that are poorly maintained or that look good on paper but upon closer inspection reveal hidden problems.
Yacht brokers are like real estate agents in that they don't own the boats they're selling. They are facilitators, bringing buyers and sellers together and representing both parties throughout the transaction.
Also like real estate agents, brokers have access to multiple listing services; YachtWorld has become the internet-based service of choice for most brokers. Other brokers subscribe to BUCNet, a proprietary system similar to the YachtWorld site discussed above, but doesn't seem to have as many boats listed and in our opinion not as user-friendly.
Not all brokers know their way around other markets such as San Diego, Newport Beach, Long Beach and Seattle; if you plan to conduct a statewide or West Coast search, make sure your broker will be able to add value outside of the Bay Area.
Regardless of how or where you find your dreamboat, your broker can make an offer on your behalf. As you're not limited to the listings any one broker personally has, find a broker you're comfortable with and work with him or her.
How do you choose the right broker?
Most people solicit references from fellow boaters, and this is a good place to start. If you're new to the area, you can call one of the many sailing schools here for references, or even begin with the Yellow Pages.
Once you've identified several prospective candidates, go to their office and chat with them. Do they seem professional? Willing to spend time with you? Familiar with the markets you plan to cover? In California, all brokers are required to be licensed by the Department of Boating and Waterways: you can call (916-263-8197) and make sure no complaints have been made against a particular broker.
The best advice is to find a broker who listens to you and with whom you work well, then stick with him or her. Assuming he or she is actively working on your behalf and can work with other brokers to find the right boat for you, there's little advantage in working with multiple brokers.
One final (admittedly self-serving!) point: brokers are independent agents working on a straight commission. They are paid by the seller once the deal is closed. So assuming you're satisfied with the service your broker is providing, PLEASE make your offer through him or her. Off soapbox!
How does boat financing work?
This section comes before the sections on actually finding a boat for a reason: it's best to have financing lined up before you begin looking for a boat. It generally takes a couple of weeks to pull required material together and for the loan company to process. This delay could cost you the boat if you're in a competitive situation with someone who is pre-approved. Also, a pre-approved buyer is in a stronger negotiating position with the seller than a non-pre-approved buyer. And finally, there's no point in looking at $250k boats if the maximum you'll be able to afford is $100k!
There are many ways to pay for a boat: cash, a home equity loan, margin loan against stock, etc. However, the majority of buyers seek a loan from a marine financing company, using the boat itself as collateral. This allows you to keep cash productively invested elsewhere; in addition, it's often possible to deduct interest expense on the boat loan. Note that the same tax advantages may not be applicable to a home equity loan. For instance, when borrowing against a home owned free and clear, the mortgage interest deduction is limited to interest paid on mortgage debt used to improve the residence-if the money isn't used for the home, the interest expense isn't deductible.
In addition, the home mortgage interest deduction is limited to interest paid on home equity loans up to $100,000, a major disadvantage if you're seeking a boat loan in excess of $100k.
It's important to note that prior approval for a home loan does not automatically translate into approval for a boat loan. If you own or have substantial equity in your home it's generally pretty easy to qualify for the boat loan, but if you've never had a loan comparable to the boat loan you're seeking it can be difficult. This can be a Catch-22 for young professionals who have high incomes but don't want to pay a half-million-dollars-plus for a crackerbox or throw money away on rent: they see a boat as an affordable, desirable housing alternative but can't qualify for a loan because they don't own a home!
Marine financing companies will usually finance for 15 years with 20% down at annual percentage rates in the 7.5% range. These figures will vary depending on the age and hull material of the vessel (older boats and wood hulls often require 30% down) and amount of loan (smaller loans carry higher interest rates). Another general rule of thumb is the note on the boat will be about $900/month for every $100,000 borrowed.
Assuming you qualify for the loan, most lenders will allow sales tax and marine accessories to be included in the loan amount. This is helpful, as the interest rate on the boat loan will be less than the credit card debt often taken on to refit the boat to the new owner's liking.
There are a number of services specializing in boat loans, and it's always a good idea to shop around. Your broker can recommend finance companies, or look for their ads in Yachts for Sale, Latitude 38, etc.
Finding the right boat: new or used?
The major problem with buying a new boat, aside from the obvious premium paid when buying anything new, is depreciation. Much like a new car, a new boat depreciates most during the first year. A rule of thumb is to expect 10% depreciation in Year One and 6-8% for the following four or five years. The depreciation curve on new boats resembles a hockey stick: steep for the first 10 years or so years then leveling off. Eventually, you might expect to actually see slight appreciation in value, especially on a well-maintained, pedigreed boat. By buying used, you minimize the depreciation hit.
For these reasons, made especially salient by the current economic downturn, most people opt to purchase a previously owned yacht. The goal is to find a vessel that has been consistently maintained and, ideally, extensively upgraded. We look for maintenance logs, a well-kept engine room, new running rigging, clean bilge, recent bottom paint, no peeling varnish, perhaps some new electronics or sails, etc. It costs much less to keep a boat bristol than to get a boat that's been let go back bristol, so, with very few exceptions, we advise against buying a "fixer-upper". A well-maintained boat will last almost forever, and, with due diligence, you can buy a used boat with as much confidence as buying an existing home.
Finding the right boat:
sloop, ketch, yawl, trawler, motoryacht, express cruiser or something else?
Many books have been written on the subject of various sailing and power boat types, and we'd like to recommend a few that we like:
"Stapleton's Powerboat Bible". Stapleton, 1989, published by Hearst Marine Books, New York, NY. ISBN 0-688-08448-6.
"Desirable and Undesirable Characteristics of Offshore Sailing Yachts".
"How to Buy the Best Sailboat". Gustafson, 1991, published by Hearst Marine Books, New York, NY. ISBN 0-688-10987-X.
"How to Buy, Own & Sell a Boat Without Going Broke". Schneider and Woodwell, 1990, published by ProStar Publications, Los Angeles, CA 90034. ISBN 0-930030-55-9.
Once you have a general sense of what you might be interested in, it's time to start looking at boats (concurrent with lining up financing, as previously noted). People often spend a year or more in this phase, calling individuals, walking broker show docks, attending boat shows and meeting brokers.
Finding the right boat: gas or diesel power?
Most sail and power boats built after the late 1970s have diesel engines. Diesels have a number of advantages over gas: diesel is not explosive at atmospheric pressure, they are more reliable (no points, plugs, condensers, fewer moving parts), diesel fuel is less expensive and diesel engines burn less per hour than do gasoline engines. The disadvantages of diesels are that they are heavier and initially more expensive than gasoline engines.
While we wouldn't automatically disqualify an otherwise-ideal boat that's gasoline powered (and some boats, such as classic motoryacht or high-performance cruisers will often be gas), all things being equal, we'd opt for diesel.
Finding the right boat: fiberglass, wood or metal?
Let's start with the caveat that there is no perfect material from which to build a boat: fiberglass blisters, wood rots and metals corrode. All things considered, fiberglass is probably the best all-around hull material for most pleasure boats: it's strong, economical, and doesn't react with water.
Fiberglass boats can suffer from osmotic blistering, but it's extremely rare for blisters to affect the structural integrity of the vessel, whereas extensive rot or corrosion materially affects the seaworthiness of the wood or metal vessel, potentially rendering it unsafe. However, wood and aluminum have their advantages as well, and a well-found boat made of almost any material should represent a sound investment. It's just very important to have a knowledgeable surveyor carefully check out the boat prior to accepting.
How does the actual process of making the offer work?
OK, so now we have financing set up, have looked at a number of boats and find one that is head and shoulders above the rest. It's time to make an offer.
An offer to purchase is accompanied by a 10% deposit, which is held in escrow. The offer is almost always subject to two conditions--sea trial and survey--and often a third--ability to obtain financing. As in buying a house, an offer is stronger if the buyer is pre-approved for financing; you'll be in a stronger bargaining position.
There are a number of factors involved in determining what an offer should be, and your broker should be in a position to advise you:
*Is the asking price high or low?* Asking prices on boats are just that; the price actually paid is open to negotiation. The question is "how negotiable?", and this of course depends on many factors. The broker should provide insight on what comparable boats have actually sold for recently. And a boat that has been on the market for more than about nine months is almost certainly over priced--competitively priced vessels sell quite quickly, even in a relatively down economy. As a general rule of thumb (though there are plenty of exceptions!), there is usually about 5% difference between the ask price and what the boat ultimately sells for.
*How much in demand is this type boat?* Generally speaking, clean, late model fiberglass production boats in the 32-45 foot range command top dollar. Older boats, wood boats, custom boats, larger yachts, non-traditional layouts and "project boats" are generally more negotiable.
*What's the condition of the boat?* Not surprising, boats in bristol condition command a premium. What's surprising is how few boats there are that are truly bristol. And how many boats that are advertised as bristol but aren't even close! For the most part, people to seem to have more money than time these days, so it's more difficult to sell "fixer uppers" than in the past; if you're willing and capable of taking on a project, good deals can be found.
*How motivated is the seller?* Some boats are priced high by owners who really don't want to sell, but will, at a premium. In other cases, the seller has another boat on the way, is relocating or what have you and needs to sell his current boat as soon as possible. Also, sellers are sometimes more motivated during the winter months. However, the business remains fairly robust throughout the year in California, so seasonality is usually not much of a factor. As noted above, you can usually get a 5%-ish discount off the asking price.
Once you decide what to offer, it's presented by your broker in writing to the seller or his agent, who in turn either accepts it or makes a counteroffer. If a counter is made (and it usually is), this will be negotiated until a mutually agreeable position is reached and the final agreement signed by the seller.
The seller is now legally obligated to sell the boat to the buyer at the agreed-upon price (even if, for example, the seller gets a better offer before the deal closes). The ball is in the buyer's court; pending satisfactory results of sea trial and survey, the boat is his. Additionally, the buyer can renegotiate the selling price based on survey findings or bail on the deal without penalty UNTIL HE REMOVES CONTINGENCIES AND ACCEPTS THE BOAT.
The point is this: when you find the boat that's right for you, put an offer in sooner rather than later. It really hurts to look for a boat for months, finally find "The Perfect One" and then have someone else make an offer first! Making an offer first does not mean you HAVE to buy the boat, there are plenty of "escape hatches"; what it does is put you in control--the boat is yours to buy or not buy as you see fit.
Once an offer to purchase is signed by both buyer and seller, it is a legal document. As noted previously, offers are made with contingencies (usually sea trial, survey and financing). They're also made with a certain time line to remove said contingencies and accept the boat.
The entire process usually takes two to four weeks; the shorter the lag between making the offer and accepting the boat, the stronger the offer will be in the seller's eyes.
The marine survey:
Having an accepted offer, you now need to line up a marine surveyor. The surveyor works for the buyer to assess the condition of the boat's hull, machinery, electronics, etc. as well as to assign a dollar value to the boat. While surveys are not foolproof, a competent marine surveyor is the best insurance that you're buying the boat you think you are. In addition, you won't be able to obtain financing or insurance without providing the written report from an accredited surveyor.
There are two main accreditation bodies, NAMS (National Association of Accredited Marine Surveyors) and SAMS (Society of Accredited Marine Surveyors). We recommend you use a NAMS or SAMS surveyor, as lenders or insurers generally won't accept reports from non-accredited surveyors.
Your broker, the marine finance company and insurer all know the local surveyors by reputation and can recommend several. Or, you can look under "Marine Surveyors" in the yellow pages. The surveyor will charge $11-13 per foot, with the boat yard charging an additional $8-9 per foot to haul the boat. The buyer is responsible for these fees, which are due upon completion of the work (meaning have your checkbook or credit card handy on the day of the sea trial and survey; this is good practice for a soon-to-be-boat owner!).
Note that the surveyor does not specifically focus on the engine(s) or rigging; separate specialists are available should you wish to do so.
If at all possible, you should be present at the survey--you'll learn a lot about your prospective boat, have any questions you might have answered and will get an immediate assessment of the vessel. Being present at the survey will provide nuance not necessarily seen in a written report.
Upon completion of the out-of-water survey and discussing the results with the surveyor, you can (a) determine that the accepted offer price is fair, (b) renegotiate the price or (c) elect to cancel the offer. Unless your offer was specifically made "as is, where is", the boat should be in sound running condition and everything listed on the broker's spec sheet should be operable unless specifically noted otherwise. If this is not the case, the buyer will often ask for a survey allowance--which of course the seller can respond to as he or she sees fit.
For example, "Raytheon 24 mile radar" is listed on the spec sheet, but the survey determines it to be inoperable. If a new radar is $3,000, a fair request might be for a $1,500 survey allowance. You wouldn't normally expect the seller to outright replace an old unit with a new, unless it was listed as new on the spec sheet.
Common sense usually prevails, and deals are not usually lost over minor survey issues. Even major unexpected problems are generally worked through--the seller is going to have to address major issues before the boat can be sold regardless, so there's no sense in alienating the current buyer.
Note that the marine surveyor is not omniscient. He or she has a few hours to inspect a boat to determine condition and identify problems; once you buy the boat, you'll have years! Rest assured, if you spend enough time, you'll find items (hopefully minor) that the surveyor didn't. Also, boats are in a constant state of deterioration and what works fine today might break down tomorrow (and probably will!).
The sea trial: The sea trial or "test sail" allows you to see that all of the boat's equipment is operable and that she handles as you expected and is appropriate for your needs. The sea trial takes place after your purchase offer has been accepted. It generally lasts an hour and a half or so and is usually attended by the buyer, seller and yacht broker. In addition, some surveyors attend sea trials as well.
The sea trial is normally completed before hauling out for survey; figure sea trial and survey together will last most of the day. Be sure to check every thing on sea trial: all electronics, refrigeration, generator, running lights, winches, roller furler, bilge pumps, marine sanitation devices, etc.
How do I register my boat?
Boats are either state-registered through the DMV or federally registered ("documented") through the US Coast Guard. We generally recommend documenting boats, especially if you're planning on cruising out of the country.
Before you can close, the lender or broker will run a title search on the boat to make sure there are no liens against it. The broker will also handle the paperwork involved in changing the registration to the new owners name and changing the vessel name if so desired. Documentation fees generally run about $300.
What about insurance?
If you're buying a boat larger than about 26 feet, you'll want a true Yacht Policy (it is always referred to as such). Yacht Policies differ from other types of insurance and it's generally not a good idea to insure your boat through the same company that insures your home or car.
Yacht Policies are underwritten by six or eight carriers, and placed through independent licensed agent. These agents are very knowledgeable about the different policies available, and can recommend the one that best suits your needs. Get competitive quotes from several different agents as rates vary significantly. Your broker and fellow boaters are good source of recommendations.
Competitive rates generally run about 1-3% of the value of the boat per year. The value of the boat is determined by what you paid for her, and verified by the marine survey report in conjunction with the BUC Guide whenever possible.
The normal deductible on a Yacht Policy is 1-2% of the stipulated valuation of the vessel.
You can insure almost any boat, including classic, multi hull, ultra-lights and racers, but rates will vary widely based on age and loss history. For example, sailboat base rates will be 15-20% less than powerboats, and expect to pay a slight premium paid for powerboats over 10 years old and sailboats over 15 years old. Make sure your policy provides coverage if your boat is damaged by an uninsured boater-Yacht Policies don't always provide this coverage.
Policies generally establish what waters the vessel will be covered in ("San Francisco Bay and Delta, for example). These are based on the boat's home port and are fairly standard across underwriters. If you want to cruise outside of the specified waters, you'll need an endorsement to do so. These vary in price depending on the distance and nature of the trip, and cost can range from nominal to prohibitive.
Who's responsible for taxes?
The buyer is responsible for paying sales tax. This generally runs 7-8% of the selling price, is based on the rate prevailing in the county where she's going to be home ported by the new owner, and is assessed by the State Board of Equalization.
Sales tax is unfortunately NOT deductible from Federal income tax returns at present.
Buyers often inquire about the possibility of avoiding sales tax by taking offshore delivery; this is usually not practical for San Francisco Bay-based boats costing less than about $200k. The details of the law change, but the gist is that you take delivery of the boat at least three miles offshore, then have 30 days to get the boat out of the US for a minimum of 91 days.
For boats lying in the Bay area and costing less than $200,000, the costs (both actual and in terms of hassle involved) usually negate the savings; it makes more sense to pursue this strategy on more expensive boats and those lying in Southern California (because of proximity to Mexico). If you do elect to go this route, consult your accountant/tax lawyer to make sure you understand the required procedures, then follow them to the letter. You should carefully document every step of the process, video taping the offshore delivery and taking care to record the offshore lat/lon display from your GPS, for example.
Buyer and seller split property tax on a prorated basis. Tax rates vary from county to county, but average about 1% of the selling price of the boat; the tax basis declines about 8% per year every year thereafter until the boat is sold again.
How much should I budget annually for maintenance?
Most expert's recommend budgeting 5-10% of the vessel's value annually for maintenance, insurance, dockage and insurance. Naturally this will vary considerably depending on the vessel, her usage and owner's standards, but it's a good rule of thumb.
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