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Blog | The FAQs of Yacht Buying with Mike Carlson

September 8, 2022

The FAQs of Yacht Buying with Mike Carlson

The FAQs of Yacht Buying with Mike Carlson

What are the pros and cons of buying a pre-owned yacht?

The biggest advantage to buying a pre-owned yacht or an existing spec yacht is that it’s ready to enjoy. The only thing between you and that first voyage is the closing process. The obvious downside is that it was shaped by someone else’s vision – either its previous owner or the shipyard if the yacht was built on spec. You can always remodel it, but that’s an additional investment of both time and money.

What about buying new ones?

The top advantage of buying new is personalization. For production-level yachts in the 70-foot range, you’re looking at a fiberglass hull with a pretty fixed layout, but all fixtures and finishes are tailored to your liking. For ground-up builds over 120 feet, you have many more options. Yachts of this size use aluminum and steel hulls that allow for extensive customizations, starting with the layout. The main downside to buying new is time. Depending on size, design, and other factors, it can take anywhere from 1.5 to 2.5 years to build a custom yacht. Depreciation is another issue. You’ll see a 13% drop in year one that softens by year four or five, but today’s market is unique, so a lot of the rules have changed.

How has the market for used vessels changed?

The old rule of thumb was that if you planned to keep a yacht for three years or less, it’s better to buy pre-owned. However, today is one of the best seller markets we’ve ever seen. Between sky-high demand, the current economy, and supply chain issues, owners are reselling their late model yachts for the same price they paid one to three years ago, and sometimes even more if it’s well-maintained.

Are spec yachts a good option right now?

Yes. The last recession of 2008/9 didn’t end for the marine industry until around 2013. That experience killed the spec yacht market, but today it’s back. Shipyards that were building spec yachts for the last few years now have a huge pool of potential buyers – especially first-time yacht owners. Ground-up builds are typically for experienced boaters with precise needs and lots of time, but many new owners are scooping up spec yachts. And if a build started in the last 6 to 12 months, a buyer can still add personalizations and get a semi-custom yacht in a relatively short amount of time.

What does the buying and financing process look like?

It’s not unlike buying real estate. You should first go to a lender and get pre-approved so we know your budget. More people are financing now because of inflation, even if they have the cash. Most banks require 20% down to finance a yacht for a standard term of 20 years. Once you have your financing in place and find a yacht you like, we’ll make a formal written offer. Once that’s accepted, you put a 10% deposit into escrow.

How does a buyer verify the quality of the yacht?

Once we have a purchase and sale agreement in place, we’ll do a full inspection, hull survey, and sea trials. The hull surveyor analyzes the electronics, navigation, hydraulics, and more, while the engine surveyor focuses on engines, generators, and running gear. He or she also takes oil samples that are lab-checked for contamination, which would indicate excessive wear or an intrusion. Then, the entire vessel undergoes a haul-out survey to check for delamination, blistering, structural damage, and other issues. Once inspections are complete, the yacht goes out for a few hours of sea trials where surveyors verify performance through data such as fuel burn and RPMs. 

What happens after surveys have been completed?

We’ll get inspection and sea trial reports back within a few days. A typical survey for a large yacht takes 2 to 3 days and the buyer is responsible for costs, while the seller is responsible for the captain, fuel, and operational needs during testing. Any survey of a pre-owned yacht will produce a list of issues, but we’re really focused on large, expensive items. Then it’s up to the buyer and seller to negotiate either pre-sale repairs or a price adjustment. We usually recommend a price adjustment so the new owner can perform the work with their own trusted technicians. When we represent a seller, we give them a pre-survey checklist of fairly inexpensive items that tend to get flagged. That way, the owner can fix them ahead of time, if they want.

What happens after all surveys and repairs are complete?

We prepare an Acceptance of Vessel document outlining all sale terms. When this is signed, the deal goes hard and the 10% deposit becomes nonrefundable. Both parties then have about two weeks to get their paperwork in order. The buyer will need things like insurance, dock space, a crew, and a flagging/registration plan, while the seller will use this time to de-register the vessel, delete flags and cancel the insurance. Many factors impact where the actual closing takes place. Sometimes we literally go offshore and close to international waters. Most yachts are also registered to a corporate entity, like an LLC, and we have trusted contacts to assist with that process.

How does the buyer decide where to flag their yacht?

This could be a whole interview in itself because so many factors influence where a vessel is flagged. It’s not just tax considerations. For example, U.S. flagged vessels must have an American crew. If your yacht spends most of its time in Europe, it doesn’t make sense to carry an expensive American crew all over the world. And if you’re going to charter the yacht commercially, that brings up liability issues that will impact flagging decisions. We always advise clients to follow the guidance of our expert partners, from document companies to maritime attorneys. Most importantly, our relationship with the buyer doesn’t end at the closing table. We’re available to support owners with whatever they need long after the completion of their purchase.

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