by B.J. Porter (Contributing Editor)

Buying a Boat? It’s time to follow up our articles on buying a boat, dealing with a bad survey, and why you should almost always get a survey when buying a boat. This article applies to buyers and sellers, because there isn’t always a great understanding about what a survey should contain and how to use that information in the purchasing/selling process.

Right now we’re in a seller’s market – used boats are in short supply and boats are selling quickly for close to asking price. This makes proper survey negotiation that much more crucial, since buyers may be afraid to ask for price adjustments if they think sellers will reject them because there’s another buyer in the wings. With careful and honest negotiations, you can satisfy both parties and the deal can go through.

What a Survey Is

A good survey should be a neutral, factual description of the present condition of the boat. This should include information about the equipment on the boat and its condition, and the reports on the hull, rig, engine, and other key systems. But most general surveys are just that – general. Your surveyor isn’t an engine specialist, a rigger or a sailmaker, but will know enough about these topics to report on general notes, but not always in full detail.

What you should expect in your survey includes:

• A listing of all major equipment and systems on the boat, like engines, electronics, and safety gear. It should list model names and numbers, and, where possible, serial numbers.
• Indications of any systems on the boat which do not function or are in obvious disrepair.
• Notes on the condition of the hull and decking, specifically if any voids in construction, blisters, or visible damage.
• Visible signs of wear and tear, scratches, dings, chips, delamination, water damage, rust or other indicators of potential problems.

In addition, you may see:

• Suggestions for improvements or repairs to meet certain standards, like American Boat and Yacht Council (ABYC) standards or U.S. Coast Guard regulations.
• Suggestions for further exploration by a qualified expert. For example, most surveyors won’t climb a rig in a standard survey. They will note what they can from the deck and recommend you send a rigger up the mast to look at it. This does not mean the rig is a problem, it’s a standard approach to specialized subsystems.
• A market valuation of the boat. Some surveyors will only do this if a bank demands it.

Because surveys are lists of factual conditions and flaws, they often sound scarier than they are because they understate good things. “Working” is the expected condition. There are no “attaboys” in a survey for a well found boat, just a lack of major problems.

The pre-purchase survey for my boat had 110 recommended action items. The trick is understanding which of those are a big items – deal breakers even, and which are routine and normal for the age of the vessel.

While things like electronics should work, if you’re buying a fifteen-year-old boat, your survey will note wear and tear appropriate for the age of the boat. This is normal – there’s a reason used boats are cheaper than new ones and a used boat will never be perfect.

Overall, our pre-purchase survey with 110 recommendations only had a couple of serious flaws – things that didn’t work that were supposed to. We were happy with it and bought the boat after a minor price adjustment and escrowing some funds to fix those items.

The Survey and the Contract

You need to understand the language surrounding the survey and sea trial in your purchase and sales contract. I’ve had contracts which said “subject to satisfactory survey and sea trial” as well as contracts which spell out the survey must find the vessel “to be seriously defective or unsound” in order to reject it.

But the reality is a survey and sea trial can get a buyer out of contract, no matter the language. Because the language can’t be precise enough to cover every finding and a buyer’s reaction to a finding is subjective, it’s tough to make someone buy a boat they’ve decided doesn’t suit them. For whatever reason.

On the other hand, a survey is not an automatic discount on a boat, either. Every survey will find “things,” but every item found is not up for debate or price reduction because it just may be routine wear and tear. Hopefully, the contract language makes the process clear, but even if it does, many people don’t study the contract.

Negotiating with the Survey

With your survey in hand, decide which items concern you most. You’re looking for conditions which make the boat unsafe or unusable, or specific major pieces of inventory that do not work. Our boat had a vice grip on a through hull to replace a broken valve handle. This was manifestly unsafe, and the valve needed replacement. But a chip in the gel coat on the transom on a nine-year-old boat? That’s wear and tear.

The general process for negotiations follows a basic flow. There should be set time windows in the contract for these steps, with deadlines.

1. The surveyor gives the survey to the buyer, and the buyer reviews it for problems.
2. Items the buyer wants addressed are presented in writing to the seller with a copy of the survey for documentation.
3. The seller may reject any line item, choose to repair it, or offer a cash adjustment which may or may not be subject to escrow.
4. If any items are rejected or cash is offered, it’s back to the buyer to accept it or counter back and repeat the process.

In almost all contracts, the seller may choose to repair flaws. A buyer can’t demand cash instead of repairs and refuse repairs. But for a flaw more complex than a broken belt or blown bulb, the seller may offer a cash discount, or suggest escrowing cash for repairs. Otherwise, it would slow down the sale while the work is done.

As a Buyer

Research the costs to fix requested flaws and even get estimates if you can. You may use this information to ask for a cash adjustment, but the buyer isn’t obligated to accept your demand. It is best to respond in writing, and state your preferences.

If you plan to ask for a price change, prepare to justify it. List specific items found in the survey, along with the rationale for why they need to be fixed, and an approximate cost of the repair. Be reasonable, a seller will not pay to replace an entire suite of obsolete but working electronics because one key component isn’t working and can’t be replaced.

And if you like the boat and do want to buy it, pick the battles to negotiate. Malfunctioning running lights is a safety issue which makes the boat unusable at night and in low visibility. A blown spreader light bulb is a nuisance, but doesn’t affect the safety or utility of the boat. One needs to be fixed, and one is trivial and asking for it may just annoy the seller enough to distract from big items.

As a Seller

You’re going to feel attacked when someone comes after you to fix things. It’s a natural reaction, because you thought your boat was ready to go and just fine, and now it’s going to cost you money. So do your best not to take it personally.

There is a window to respond to requests for repairs or financial adjustments, so be ready to do some research because you will need to answer. If you’re handy, you can tackle small repairs yourself, but you may need to resign yourself to getting the repairs done or taking the financial hit. A contract may even specify that “qualified professionals” must do any repairs.

There is always room for negotiation on the specifics of costs, and good estimates to fix things are hard to get quickly. If you’re working with a broker, they can help you plan a response.

Don’t forget that your aim is to sell your boat. If the survey findings are accurate and you blow up this deal by refusing to address them, you’re going to need those repairs before the next buyer comes along, anyway.

Escrow as a Tool

Dealing with big ticket survey findings can break a deal, but escrowing funds is a way to get past them. When you think a repair will cost $10,000 and the seller thinks it will cost $2,000, you’ve got an impasse. So how do you get around it?

One tool is to leave the $10,000 in the hands of the broker at the closing in escrow. So you close on the boat, but keep $10,000 in reserve from the seller for a set period – 30 to 90 days is typical. It should be enough time to hire a contractor and get the repairs done, but not open ended.

During that window, get that repair done and pay for it. Then you submit all the bills to the broker. The broker reimburses you for the actual cost of the repair, up to the $10,000, then releases the balance of the funds to the seller. If the repair ends up costing $6,000 instead of $10,000, you get the most fair outcome for all parties. You only lose out if it costs more than $10K, or if you don’t get the repairs done on time.

You can escrow multiple items this way, and it’s better practice to designate them as line items with dollar amounts. Though you can do one lump sum escrow for a list of valid repairs if that suits all parties better and you have several hard-to-estimate repairs.

Good Faith Negotiations

In the end, the buyer and the seller have the same objective – to transfer the ownership of the boat from one party to the other. Of course, each wants to come out on the better financial end of the deal, but both parties need to remember they negotiated a purchase price on an assumed condition of the boat where it is sound and everything in the inventory works.

The survey is the check on that assumption – that everything works and there are no hidden flaws. It’s not a bludgeon to beat down the price, nor is it an indictment on a boat’s condition. It’s a tool to make sure the boat is as expected and in reasonable condition for its age, or that you can adjust the deal to bring it to terms if it is not.

And it can also end the deal if the boat is far from the expected condition, and that’s acceptable. For a seller, it can be a tool to get the boat in better shape for market, even if a deal falls apart.