Tips for closing the purchase of a sailboat

Captn TJ · Jan 13, 2013

A sea trial is critical and will show up things that don't appear on a survey done on the hard i.e. stuffing box leaks. A reasonable owner selling the boat would understand that.

I would have the sale contingent on that vs having a set amount in escrow - since you may want to walk away after the sea trial.

Don S/V ILLusion · Jan 13, 2013

I seriously doubt any seller would agree to a closing 3 months away (after sea trial) and would be nuts to take the boat off the market during that interim. Similarly, most sellers won't wait for months on selling just to allow you a sea trial which is usually a waste of time anyway.

What you are planning is typical of all purchases during winter up north. Buy the boat pending an acceptable survey. As part of the purchase, include a stipulation the broker hold a reasonable amount in escrow to be released to the seller pending successful engine test and sea trial.

Proceeding as such will allow you ownership immediately so you can work on it during the layup period while also protecting you from unanticipated repairs.

Nom De Guerre · Jan 13, 2013

What Don wrote. This gives the seller assurance of a closing along with most of the funds right away, while protecting the buyer from unexpected repairs found during the sea-trial.

Your survey, gut feeling, and guaranteed deduction from the purchase price for sea-trial deficiencies, are all you have in hand before the walk-away decision point.

In my case I held back 10% until after the sea-trial confirmed no issues with the hull, drivetrain, and flying of sails.

KD3PC · Jan 13, 2013

And,

Unless you are paying cash for the new boat, I would add some verbiage that "acceptable to the buyer financing" and "placing of insurance/binder" or some such be included, especially if you have not bought, insured or mortgaged something $$$ very recently. You may find that pre-approved and approved are all but meaningless, until you actually close on the purchase. The underwriters have the power, and you have none to ask for common sense or explanation. If they even let you speak with the underwriter, in my case not a chance.

Approved used to mean just that, now it means that IF you make this list of conditions go away, you can move forward....else the money will not be released.

ie. I was "approved" awaiting "written approval" for closing....only to find out later that some paperwork, approved by the system long ago, was misplaced and since showing a payment....had to be satisfied, in order to proceed. Approval was granted, only to be revoked upon "final" approval the week before settlement. Seller was miffed, I am scurrying around trying to discover "what" can be done, Bank/Loan office is trying, but the underwriter is non responsive to him.

SO now we have:
qualified
pre-qualified
pre-approved
approved
final approval
written approval to close
and finally when the underwriter is convinced, closing/settlement date and paper work prepared

best of luck, and to be honest this process will likely get much muddier as the new loan laws take affect this year.

Nodak7 · Jan 13, 2013

PDReynolds said:
Hi Everyone,

I am ready to submit an offer on a boat and think that I need some assistance in crafting the offer to help eliminate most risk.

I have a buyers broker and also am using the standard purchase and sale agreement from the AYBA. My broker is very helpful and has recommended to add the appropriate wording to the offer that makes sense to me. The boat we have found is on the hard with the mast in storage. The boat is in New England and we are still 3 months away from a launch in these waters. My broker has always suggested that I offer with a 30 day close that is dependant on the survey and acceptance of the yacht. (My acceptance would be based on the dry land survey only). The survey will be a dry land survey and $10K held in escrow until the boat is launched.

Should I construct this offer differently, perhaps with acceptance of the yacht occurring with the sea trial in 3 months, or are there any issues about this that I should know about.
Thanks in advance,

PD you don't mention what year the boat is or what condition and both of those would make a difference on the "acceptance" time period. We also purchased ours during the winter months and had to have it shipped a 1000 miles. It was four months before we saw it, after purchase, and that long before its sea trails. It was new enough and in such good condition that I was not terribly concerned but if there had been any issues with the survey it could have been a real problem and probably a failed sale. We were fortunate there were no issues with the boat and all systems were as expected. It could have gotten ugly if something major had come up. The one big suggestion I do have is make sure you are there when they do the survey.

Captn TJ · Jan 13, 2013

I would agree with Nodak7 on being there for the survey. You get a great sense for the boat and systems. A

FYI when we purchased a boat two years ago in January here in northern Ohio the dealer actually recommended we wait until a sea trial to close. Which we did in March (pretty cold) but felt good enough to go through with the purchase. Being its a buyers market - lots you can do to ensure you don't get 'stuck'

Nodak7 · Jan 13, 2013

Captn TJ said:
I would agree with Nodak7 on being there for the survey. You get a great sense for the boat and systems. A

FYI when we purchased a boat two years ago in January here in northern Ohio the dealer actually recommended we wait until a sea trial to close. Which we did in March (pretty cold) but felt good enough to go through with the purchase. Being its a buyers market - lots you can do to ensure you don't get 'stuck'

Captn, your suggestion is good but there are a couple of issues here. First few owners will let you take possession of the boat, ship it out of state, rig it for a sea trial and then close on it. If there is a "supposed" problem you as the owner have no recourse and the boat is well out of sight. I know I would not. Additionally I don't believe an underwriter would go for that either. One other item is that the underwriter will not "finalize" your loan or set the interest rate until you, as the buyer, have accepted the boat. So you have a catch 22 here. You cannot take possession until you close and you will not close until you take possession. The escrow route, if you can talk the seller into it, is probably the best route to go. IMHO

Captn TJ · Jan 13, 2013

Nodad7

We were fortunate that the dealer was 5 miles from our house and the lake only a couple of miles away - so it was best case.

CHM · Jan 13, 2013

I puchased my boat without a sea trial and regretted it. It cost me about a thousand bucks to repair issues not uncovered by this decision. I purchased the boat at a low enough price to compensate, but do have a sea trial as part of the survey and the correct legal framework to get your money back if it doesnt work out.

CarlN · Jan 13, 2013

Ten years is when lots of things start to need replacing on a boat. I'd hold off on making your offer until March when you can have a prompt sea trial after offer acceptance. Escrow is fine when there's one piece of equipment in question but I wouldn't do it for a whole boat of systems. Brokers like the escrow idea because they normally get paid their commission on close.

Does your Buyers broker get a commission from the seller? if so, he"ll make sure no one else buys the boat between now and March. In the likely case that you are still the only buyer with a pulse in March, the seller will be all the more eager to please.

The first rule of boat buying is to never think "this is THE boat"

shemandr · Jan 13, 2013

I wouldn't agree sale contingent on a sea trial. I would never take the boat off the market during the best selling months. If the sale is contingent on some future event there really is no sale. It's buyer's market but it still takes a buyer and a seller to make a deal.

Nodak7 · Jan 13, 2013

shemandr said:
I wouldn't agree sale contingent on a sea trial. I would never take the boat off the market during the best selling months. If the sale is contingent on some future event there really is no sale. It's buyer's market but it still takes a buyer and a seller to make a deal.

Shemandr, I agree. Any seller that agrees to this is shooting himself in the foot! If I were selling my boat why would I take it off the market with no guaranteed sale. Makes no sense. There has to be some trust here. I was fortunate that the boat met all my expectations. However, having said that I was very nervous about what I may have found.

Fortunately this transaction is much closer than the one I had which makes it much simpler. However, and I am not a lawyer but is there not an "implied" warranty that all the major systems are working. Example: If I purchased my new boat in the winter with a complete survey and it turned out the motor was totaled I would think that I might have some legal recourse against the PO. Your thoughts....

onecoolair · Jan 13, 2013

PDReynolds said:
The boat is a 2003 model with lots of complicated electronics and systems that are of course typical for the age. Some of these would include Panda Generator, heat and AC units and a furling mainsail. These are all decommissioned for the winter and cannot be started effectively.

When I talked to my surveyor he indicated the sea trial was a must to determine proper fully loaded operation of the engine and any issues with the mast furling .

Interesting comments about the underwriting, I did get "pre-approved" by a finance company, and I had not thought about the "insurance / binder" what does this mean?

So my guess is you won't know till sea trials if the generator is a 20 MINUTE PANDA like mine! Well correction that's 20 in winter and 10 in the middle of summer.

Don S/V ILLusion · Jan 13, 2013

PDReynolds said:
Shemandr, Not agreeing on a sale being contingent on a sea trial might mean that the seller may be hiding something. As for the idea that a sale is contingent on a future event and there really is no sale..... this is why there is a multi-page purchase and sale agreement that outlines the conditions I am looking for. Just like buying real-estate it is complex and takes time to sort out the issues. Maybe 3 months!

Also it is a buyers market and many times boats sit for years before they sell.

On the contrary, the sale is not contingent on an escrow. Rather, it is part of the deal. I think many folks don't understand the process thoroughly.
Upon executing the contract and exchange of funds, the ownership transfers. The sale is thenn complete. The new owner conducts his sea trial within a specified time and the result determines who receives the escrow. This is the commonly accepted process in such circumstances.
Escrow conditions can contain anything both parties stipulate including generator, air conditioner, engine, curlers, etc... Operation.

shemandr · Jan 13, 2013

Nodak: No one really wants to resort to a lawsuit. On either side. But I think a sale is about finding a serious buyer - From the seller's point of view. You don't want to be jerked around. It could go on forever.
OneCoolAir: Yes the seller could be hiding something. There is the survey - which is usually pretty complete because the surveyor has some liability for unfound problems - except they often exclude the engine. You can have a mechanic look at the engine. You can start it - even on the hard. You can buy from a brokerage which will normally have a warrantee period. Or you can wait until spring - risk losing the boat - and have your sea trial. But so far as I'm concerned you can't tie up the sale for 3 months and then nix it on some BS stuffing box leak. Each side has to have some trust. So I guess the first rule is back to finding a serious buyer.

Ray Bowles · Jan 13, 2013

When we purchased our boat we had everything set up ahead of time. The financial portion, the insurance, the survey and then the sea trial. After the boat succesfully passed all the hurdles we then ran into the portion of the sale I didn't understand. That was the "Coast Guard documentation" process. This is where the CG holds the title and the previous owner had to pay off all morgages to clear the title. The CG then gives us the title which we chose to continue in the documentation program.
The result is that it delayed our being given possession by the previous owner as the insurance company could not issue a policy until all the paperwork had been compleated and he wouldn't take the risk that we might do something to the boat before the sale was final.
Ray

petersea · Jan 14, 2013

I agree with the other post about escrow and sea trial etc BUT here are two other thoughts.. One is the boat market is still very very seller soft so not a real big chance of losing this deal by asking the seller to wait to spring. If need be hold the offer to spring.
The other thought is do the sea trail/survey now. Boats can be launched and hauled all year long even up here in New England unless you are on a lake that has frozen over. I got to think there is some marina in Boston vicinity that does wet winter storage so you could even leave the boat in the rest of the year (depending on bottom paint etc etc ) Negotiate the additional cost with the seller maybe 50 /50 for the launch/ haul and re winterizing. I'm a little surprised your broker could not get this deal worked out as it is common practice here in New England to either do winter sea trials or escrow a portion of the funds. Actually you missed a great weather window as just yesterday it was "balmy" (40 to 50 degrees) Just another option......