When Your Dream Boat Goes Bad
March 11th, 2021 by team
by B.J. Porter (Contributing Editor)
If you haven’t read our series on “Things to Look for When Buying a Boat” you might want to give it a look.
A survey and sea trial is a crucial part of the boat buying process, and you shouldn’t skip it without a good reason. But what do you do when your survey comes back with problems?
I’ve rejected a boat after an unsatisfactory survey, and I’ve also had a boat sale fall apart. There are lessons there, and a “bad” survey doesn’t mean a deal is dead, or a boat is a problem.
What’s a “failed” or “bad” survey?
A survey isn’t like a grade in school. Though some surveyors may give you an in-private letter-style grade on the boat to convey their general impressions, you won’t see anything as concrete as a pass, fail, or grade in a survey. You should see a market valuation, though not every surveyor provides this. Your insurance company and bank will want it if you’re financing.
Nor should you see a recommendation in the report about whether you should reject a boat. A professional survey contains an objective report on the condition of the boat, and should avoid speculation, conjecture, or personal opinions outside accepted professional standards.
Your surveyor will have opinions, so discuss the report. Reasonable questions are part of the service you paid for. If you’ve been on board for the survey, you’ll have these discussions as the surveyor works and finds flaws.
At its core, a “failed” survey is one where the boat’s condition doesn’t match the expectation for what you’re paying for the boat. And yes, that is subjective.
On the boat I rejected, the surveyor found many, many problems with the boat, and his estimated value was about 60% of what I had agreed to pay for the boat. This wasn’t a gap the seller and I could bridge. Here, I had an objective criteria – no bank would touch a mortgage on a valuation like that. But sometimes it’s not so clear.
What it comes down to is – does the amount of work the boat needs beyond normal wear and tear for its age make the boat too expensive?
When you’re buying a used boat, it will not be flawless. You must discriminate between reasonable wear for the age of the boat versus deep flaws which affect the safety or usability of the boat. And while systems on the boat should work, a dead radar or frozen deck fitting isn’t a deal breaking problem – but it might be something to adjust the price for.
What do you do next?
A lot depends on you. Read the report again, because you’re going to ask yourself hard questions and prioritize the problems. Steel yourself to evaluate the problems dispassionately, because you can’t let emotion cloud your decisions.
And don’t panic. You’ve got a purchase and sale contract on the boat, and you will have a deadline to accept or reject the boat. There are contract outs of a reason, and you have some flexibility.
Most sellers don’t want to kill a deal, so they may be flexible about adding a few days if you come back with a request for time to get quotes and negotiate. With our broken deal, the buyer canceled the deal before I’d seen the survey findings or we’d discussed how to fix it. That made negotiations awkward and pointless when we no longer had a contract in effect and disagreed over the content of the survey.
So first, after you’ve understood the results and discussed them with your surveyor, ask yourself:
- Do you still want the boat?
- How much do you want this boat? Are you willing to pay more to fix the problems?
- What can the seller do to satisfy you? Can the seller fix the problems or adjust the price?
Some problems are going to be too expensive to justify going forward, but many are fixable. If the answer the first question is “yes, I still want the boat” then you’ll need to negotiate. A good broker will handle the back and forth of the negotiations for you, and help you evaluate the counter offers. If it’s a private sale, do this yourself.
Otherwise, you will need to reject the boat and vacate the deal.
This is the sticky part that breaks or makes the deal. It takes some care. You don’t want to insult a seller, you want to persuade him. Using phrases like “project boat” or denigrating the vessel or the owner’s maintenance habits are not good gambits at any stage of the negotiations.
A seller may prefer to pay for the repairs, or may want to discount the price. An alternative is to escrow funds for the repairs so the closing can proceed with the new owner taking the repairs in hand.
Negotiating the amount and scope of any repairs or adjustments can be tricky. For example, with a delaminated cored deck, a seller might suggest injecting epoxy into the core to fix it. But your experts want the deck skin removed, the core replaced, and the deck re-skinned. The latter is a much more extensive and expensive project. But resin injection may be an appropriate solution that solves the problem for small areas of delamination, and the seller may hold that is all he’s willing to pay for.
Getting quick and accurate quotes on major projects is problematic, many professionals don’t want to give fixed quotes on repairs without examining the boat. But if you can get a ballpark on the price, it gives you something to start with.
Identify the key problems which break the deal for you, get some sort of estimates on what those problems are worth.
Ideally, you can give the list of flaws to the seller and let him come back to you with a proposal for what they will fix, what they will discount, and what they might escrow. That gives you a starting point to compare with your estimates. The seller may ask you to make a proposal too, so be prepared and remember you will get no more than what you ask for first, and you may not get all you ask for.
The seller may offer to repair things, which is usually sufficient. This is the cheapest option for most sellers with a repair that’s likely a simple fix. But if the repairs are done poorly, it will cost you down the road when you re-do them.
A simple discount can solve quantifiable problems. This works for broken items without complicated installation or repair needs.
Expect discounts to be like-for-like, not an upgrade. When my out-of-production radar failed before a survey, I found a replacement dome on eBay for a quarter of the cost of a latest unit from Furuno, and that next generation radar would have required replacing my chart plotters to work. The reasonable discount is the cost of the replacement radome and a few hours of labor for professional installation, not an entire suite of navigation gear!
Note if you’re planning upgrades to the boat, it’s better to take a smaller discount than have the seller spend time and money fixing something you’re going to rip out and throw away.
Escrowing for Repairs
For more complicated repairs or those the buyer can defer and do, you can escrow from the sale proceeds. The closing brokers (or attorneys) withhold an agreed-upon amount of money at the closing. You have a deadline to do the repairs and submit the receipts, which you are reimbursed for up to the escrowed amount. Then the seller gets the balance back.
In the above broken radar example, escrow might be $2,500 from the seller’s proceeds. You order the replacement from eBay for $900 and pay a guy $200 to install it. You submit your $1,100 in invoices before the deadline and get reimbursed, then the balance of the escrow is released to the seller. If you delay getting the repairs done too long, you’ll lose the chance to get reimbursed.
It’s best to address multiple problems with a breakdown of dollar amounts for each fix out of each total rather than one lump some escrow without details for the conditions for release.
The key to making an escrow work is to have a reasonable amount set aside for the repair, a workable deadline for you to do the repairs, and a way for the seller to get the balance of the money. It works out well for everyone, because you get the repairs the way you want them, and the seller doesn’t deal with it and it caps his risks. Your risk is if the repairs exceed the escrow amount.
Learning to Walk Away
By the time you’ve gotten to a survey, you’ve got a lot invested in a boat financially and emotionally. For the boat we rejected, my wife and I flew to St. Thomas to see it, then I flew back with a surveyor for a week. We were making plans on how to come down and use the boat before we brought it back to the U.S., and we were excited.
Deciding to walk away was a BIG DEAL that left us pretty miserable.
A good (and standard) contract will get your deposit back if you reject the boat on the survey, so there’s little risk beyond what you’ve already spent. You won’t get your travel or survey expenses back, but what you save passing on a poor deal is worth it.
It’s never easy, but the ability to walk from a deal is the most powerful negotiating tool you have.
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