There is a story told by yacht brokers to prospective clients when asked why a yacht broker is particular crucial to the purchase of a used megayacht and, while the names are usually omitted, it combines the elements of many other similar anecdotes.
It seems that a very successful businessman decided to buy a yacht. After touring a number of yachts with several different brokers, he saw one in Europe that he particularly liked, but he thought he could save some money on what seemed a simple purchase. After all, how difficult could such a transaction be for someone used to boardroom infighting.
Without too much trouble, the man was able to locate the owner for the yacht and, not mentioning that he'd already seen it with a broker, arranged to visit the yacht again. After the tour, he made the owner an offer that was sizably below the asking price. The owner agreed to the price immediately, which should have been the first clue.
Bank transfers were arranged, the ownership papers were passed over, and the man arrived at the dock ready to set sail on his new yacht. It wasn't there. After an hour of searching, he found the yacht in a nearby shipyard, where the captain had taken it when it started to sink. It seems that the yacht had a serious case of corrosion in the hull, which was paper-thin in spots. The repairs were, shall we say, astronomical.
That isn't the end of the story, however. During the following year, the new owner was slapped with an immense tax bill from the country where the yacht had been moored, another tax bill from the country where it was registered, and it also seemed that several suppliers had taken liens on the yacht for unpaid services. It was a horror story.
It's one thing to buy a 15-foot runabout from a private party. It's another thing to buy a 150-foot megayacht, and that is where the professional megayacht broker is needed.
As the unwary buyer above discovered, there are enough intricacies in even the simple sale of a large yacht to bring a skilled corporate raider to a standstill. "I couldn't count the number of times when a good yacht broker has saved his client far more than amount of the commission," says David Fraser of Fraser Yachts. "And we're often called upon to help attorneys sort out a transaction, because Admiralty law is such a specialized field."
The Brokerage Process
A yacht broker works in much the same way that a real estate broker sells homes. From offices in major boating areas, a brokerage builds up a number of listings of megayachts that are on the market. When a potential client arrives in search of a yacht, the broker goes over the available listings with the buyer to zero in on the type of yacht desired.
From that point, the broker begins showing yachts to the client, usually starting with nearby listings and progressing to yachts that may be scattered around the world.
Listings, by the way, fall in two categories: Open Listings or Central Agency. The Open Listing is a sort of Multiple Listing service for boats, where all brokers are able to show and sell a yacht. A Central Agency, on the other hand, is an exclusive arrangement between an owner and one brokerage firm, which is the only one allowed to list, show and sell the yacht.
Once the client decides on a yacht, there is the usual offer/counteroffer process with the broker negotiating for the client until a deal is reached. But, before the deal is completed, there are several more important steps. Without exception, every megayacht contract has clauses requiring that the yacht must pass a satisfactory marine survey as well as a sea trial.
A marine survey is a little like having a termite inspection on your home before a sale, but much more thorough. The surveyor examines the boat from stem to stern (usually when hauled out), and provides a comprehensive written opinion of the condition. With a megayacht, that survey can run to hundreds of pages and would cover everything from the serious (the paper-thin hull of that one unhappy yacht) to the minor (notations about out-of-date fire extinguishers). Since surveyors are not licensed, your broker can recommend a reliable one. The survey also allows a buyer to negotiate further to either have the owner correct any problems, or to reduce the price accordingly.
The sea trial is a similar test that not only reassures the buyer of a satisfactory yacht, but provides a chance to experience the yacht underway. If, for example, a yacht is claimed to have a top speed of 20 knots, then it should reach that speed on its sea trial. Less easily quantified but just as important is the "feel" of the yacht. One buyer of a 115-footer is reported to have backed out of a deal after a sea trial showed him that the boat would have rolled more than his sensitive stomach would allow.
Assuming a satisfactory survey and trial, the broker then handles the paperwork and financial transactions to pass the yacht to its new owner.
But if that sounds simple, consider this case. A megayacht was sold that had been registered, for tax savings, in the Cayman Islands, but it was in the United States when it was sold. The broker not only had to arrange for the transfer of registration to the Channel Islands, the new owner's tax haven, but he had to handle the importation/exportation documents for the U.S. as well. Lastly, he arranged for the actual transfer of title to take place in international waters, so that the new owner wouldn't have to pay personal property taxes on the yacht.
The financial arrangements can be just as difficult, although there are more than a few megayachts sold by someone simply writing a check for several million dollars. The financing for a megayacht can be convolute, ranging from a complex business guarantee to something such as setting up a blind corporation in a tax-haven country and then buying the yacht in the corporate name.
Choosing A Broker
"Start with an international brokerage firm with a number of offices worldwide," says Fraser. "You'll get a better selection of listings than a brokerage with just one office."
"A broker has to have a thorough knowledge of megayachts," says broker Sam Israeloff of Rex Yachts in Florida. "He has to be able to advise his clients on everything from the choices of construction materials to the crew management and operation of the yacht."
Since the megayacht industry is literally worldwide, a broker should have a thorough understanding of contract law using the American, English and European forms. Even more important, the broker must have a clear understand of the tax liabilities for each purchase. These include the usual sales and property taxes in various countries, but also such things as luxury taxes and import or export duties.
While an encyclopedic knowledge of the megayacht world is crucial, a broker should have two other attributes as well. He must be a skilled negotiator to get the best deal possible, and he has to have a solid business background to deal with the intricacies of international transactions.
"Another elusive but very important benefit of the broker is to act as an intermediary between buyers and sellers," says Florida broker Bob Offer. "This neutralizes any negative effects personalities may have on the transaction. Because of the strong personalities involved, it is critically important for the broker to act as a filter in these transactions and keep them on a business level. The less personalities are involved, the better it is for all parties concerned."
After the sale, the yacht broker can also provide valuable services to the new owner. "We can advise a client on everything from staffing the yacht with a crew to maintenance to setting the yacht up in charter operations to defray some of the costs," says Mike Joyce, whose Hargrave Yacht Design in Florida handles all aspects of megayachts from design and construction to insurance and management.
Uniformly, yacht brokers suggested that buyers "interview" a number of brokers to find one that suited them both personally and professionally. How many boats have they sold recently? What is their experience in megayachts? And, of course, does he know the megayacht market intimately?
"I was hot for one particular boat about a year ago," says an owner who asked that his name not be used. "It was a 125-footer from a top builder and I thought it was in great condition. But my broker took me aside and said there was something I should know: he'd heard through the grapevine that the boat had sunk the year before. I walked away from the deal and heard later that someone bought the boat not knowing that particular detail, and had nothing but headaches. That's why I don't have a problem using a yacht broker!"
In the final analysis, buying a yacht should be an enjoyable purchase. For many owners, there is the joy of the hunt, followed by the challenge of negotiations to make the deal, with dessert being the ownership of a luxury yacht that can bring years of pleasure.
Using a professional yacht broker is the best way to assure that enjoyment.