What A Yacht Broker Can Do For YouBy Charles Fort
Published: October/November 2013
Especially when buying or selling a large boat, the right broker can reduce stress and make the transaction go smoothly and painlessly.
When BoatUS member David Issacson bought his first boat 26 years ago, he searched the newspaper classifieds in the morning (remember those?), located a couple of candidates before noon, and by 3 p.m. wrote the seller a check for $1,000 for a 17-foot boat he took fishing that day. "It was so simple then," he says. "Pretty much like buying a cheap used car. I don't even think I got a bill of sale. It was all done with a handshake." Now that he's retiring, he's looking for his fourth boat, which he says will be much bigger, probably in the 42- to 45-foot range. "I have no idea what it's going to take now. I've never had a boat that was documented or had a loan on it. I don't even think they have classifieds in the paper anymore, and I'm not sure what the process is these days."
Issacson is exactly the type of person who could benefit from using a boat broker. Boat brokers are similar to real-estate agents, but with important differences: They're far less regulated, and their commission is 10 percent rather than six percent. Unlike realtors who must take classes, sit for an exam, and be licensed in every state, only boat brokers in Florida and California have to be licensed and only California requires an exam. In most other states, anyone can call themselves a boat broker. And while all brokers have certain legal responsibilities to their clients, selecting one should be done carefully. Ask around at your marina or boatyard and get referrals from others who have used a broker before. Talk to two or three and get a feel for them, just as you would with a real estate agent. One way to increase your chances of finding the right broker is to look for a Certified Professional Yacht Broker (CPYB). These brokers are members of the Yacht Brokers Association of America (YBAA), have taken a comprehensive exam, have pledged to abide by a code of ethics, and will work with the BoatUS Dispute Mediation Program (see links in sidebar).
If You're Selling
There are several advantages to using a broker, the biggest of which is exposure. Plastering "For Sale" signs in yacht clubs and marinas can't equal the power of a broker's listing, especially with larger boats that have a smaller pool of buyers who may not even be in the same state. Brokers typically list boats through websites such as Yachtworld, which is easily searchable by anyone, anywhere in the world. Only brokers can list boats on the site, which functions much like the Multiple Listing Service for real estate agents.
Selling It Yourself
For Sale By Ow ner (FSBO) certainly sounds attractive. Not only do you pocket 10 percent more than if you used a broker, but you're in charge of the whole process. Selling it yourself has drawbacks, however. You won't be able to get the same kind of national exposure a broker can, and you'll be responsible for keeping the boat in top condition and available for showing. And, because most boat shopping occurs on weekends, expect to be tied down during your time off. Finally, like many others, you may simply dislike negotiating. But if you want to save some serious money, BoatUS can help. Our thousands of online classified listings are viewable by anyone, anywhere in the world, and we offer an escrow service that takes the anxiety out of the financial part of the transaction. We also offer members full documentation service, boat financing, comprehensive insurance, and on-water and roadside towing coverage. Check out our website to see sample sales contracts and lists of things both buyers and sellers will need to do to buy and sell boats www.BoatUS.com
Correctly pricing a boat is critical to getting it sold, and an experienced broker has a very good idea of what a boat will sell for and can price it accordingly. Brokers typically have access to what similar boats have sold for in the local area and they'll prepare a listing based on the kind of boat and type of buyers expected. They'll take photos, write an enticing description, and recommend things to improve the look and marketability of your boat. Brokers can also help you navigate some of the more confusing aspects of selling such as corporate ownership, loan payoffs, bills of sale, and other documents needed for transferring ownership. Aside from listing and advertising the boat, their most important job is helping move the process along once a buyer is found. Brokers can also help a buyer obtain financing and assist with changing the USCG documentation. While the 10-percent commission is usually not negotiable, brokers will sometimes discount it for a sale that might be falling apart because of a survey report or other defects found on a boat. The different listing contracts used by brokers can be confusing, but they're not complicated once you understand the two main types, a central agency agreement and an open listing agreement.
A central agency agreement (sometimes called an exclusive listing) means you've hired a specific broker to sell your boat. With this type of agreement, the broker typically lists your boat on Yachtworld and — this is important — is obligated to sell it through a co-brokerage arrangement. Co-brokerage means that if another broker finds a buyer for your boat, your broker agrees to split the commission with him. This incentive to help each other is why about 70 percent of all brokerage sales are co-brokered. Keep in mind, though, with this type of agreement, even if you bring in the seller or end up donating your boat, you'll still be liable for the broker's commission. The majority of brokerage sales are central agency agreements.
An open listing agreement means you've given more than one broker the right to sell your boat and you also retain the right to sell it on your own. The disadvantage is that because no broker is guaranteed at least a part of the commission, it's not very likely any of them will spend the money to list your boat on Yachtworld or pay for other advertising. There can also be confused communications between multiple brokers and potential buyers. On the other hand, a hungry broker may be more motivated to bring you a buyer because he would get the entire commission. With this type of agreement, if you find your own buyer, you don't owe anyone a commission. For either type, don't be pressured into signing for a longer term than you're comfortable with. Six months is typical, but don't be afraid to ask for less, though a broker typically needs at least a couple of months to generate interest. Usually, you can walk away from any contract after giving 30 days notice. Most agreements automatically renew, so give notice before that if you want to cancel. No matter what kind of listing, ask for biweekly progress reports.
If You're Buying
While owners may find the process of selling to be an anxious one, buyers are looking for their next dream boat and are likely to be enjoying looking around, trying to find the perfect fit. But buyers tend to get apprehensive once it comes to plunking down hard cash. This is where a broker can make the process less stressful. Brokers should have a separate bank account for holding deposits and there should be wording in the contract specifying what the sale is contingent upon as well as how and when the money will be returned if the sale falls through.
It's important to remember that the broker in a typical sale is getting paid by and working only for the seller, not the buyer. A broker will try to get the highest possible price (that's what his commission is paid from) and will try to sell his client's boat even if it's not necessarily the best deal for you. You're on your own with negotiations and paperwork advice. You can, however, enter into an agreement with a broker through a buyer's broker arrangement. A buyer's broker will represent you, not the seller. Once they know what you're looking for, they can scour their sources and suggest likely boats for you to view, assist in negotiating a price, and help with the paperwork. Typically, a buyer's broker gets a commission split from the seller's broker so there's no cost to you, but read the agreement before signing.
When it's time to seriously consider a boat, it will need to be hauled out and surveyed — something that's usually paid for by the buyer, though as with anything in a sale, that's negotiable. Never use a surveyor recommended by the broker or seller; it's critical to hire an independent, qualified surveyor (see links, below) who has no stake in the outcome. Not only will the survey uncover needed repairs and deficiencies, it will also establish a fair market value, all of which can be used for negotiations. It will almost certainly be needed for financing and insurance as well.
BoatUS Consumer Protection may be able to help you find a workable solution. If you need help, email us at consumerprotection@BoatUS.com or call (703) 461-2856.
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Here's How A Broker Can Help
If You're The Seller, A Broker Will:
- Advertise your boat. Brokers should list your boat on Yachtworld and advertise in other places where appropriate. Find out what their marketing plan is and get it in writing.
- Price your boat realistically. Brokers have access to recent sale prices and know a good starting point.
- Prescreen responses to advertising. This will avoid most tire kickers.
- Show your boat to prospective buyers. This will save you from wasting time with buyers who don't show up.
- Communicate all offers from potential buyers to you.
- Negotiate the selling price. This is where brokers can really earn their money.
- Draw up sales agreements and accept deposits. Many brokers can do this electronically over computers, tablets, and even smartphones.
- Arrange for sea trials and schedule surveys.
- Coordinate closing.
- Transfer funds to you. Now you can start shopping for your next boat.
If You're The Buyer, A Broker Will:
- Accurately represent a listed boat. It's also the broker's job to determine whether the boat is free of liens.
- Arrange for you to look at boats.
- Disclose any serious known issues. There's a fine line between passive failure to disclose information and active concealment. Brokers should disclose anything they know that might affect a buyer's decision to purchase a vessel, such as a previous sinking or major repair. Keep in mind that even though a seller is obligated to mention serious issues, brokers only know what a seller discloses.
- Accurately transmit offers to the owner in a timely way.
- Place deposits in a separate escrow account. Be sure to ask where and how deposits are held and have them clearly state why, how, and when any deposits will be returned should the sale fall through.
- Assist in scheduling haulouts, surveys, and sea trials. As a potential buyer, you're probably paying for the haulout and survey, so you should choose the boatyard and surveyor. Brokers can help with the scheduling, but never hire a surveyor recommended by anyone with a stake in the sale, including the broker and boatyard (see links).
- Collect funds for the seller and make sure that any loans are paid off. In the past, BoatUS Consumer Protection has received complaints about brokers not paying off the seller's loan, which can be a nightmare for a new owner. With wire transfer of funds, which is more typical now, there is much less concern. If you hire a buyer's broker, they'll work on your behalf with the selling broker to make sure all of this happens accurately and efficiently.
- For a seller, whether or not you choose to hire a broker depends on the value of the boat, how complex the sales transfer may be, and how much of your own time you're willing to invest in the process. The decision is easier for a buyer since a large percentage of bigger boats are broker-listed. Hire a buyer's broker if you want someone who will work for you, instead of the seller. If you want to try to go it alone, see the sidebar on selling it yourself.