It really was better in the good old days…

Until then, there was consistent year on year increase in leisure boat construction throughout the world, commencing in the early 70s a when boat ownership was confined to the moneyed few, accelerating through the 80s and 90s and culminating with record numbers of new vessel sales in the late 90s. New boat prices rose year on year.

The ready availability of credit assisted the process, essentially taking boatbuilding and sales out of its craft roots and into mainstream consumer led manufacturing and marketing practices.

These changes also impacted on the traditional yacht brokerage industry. Like it or not, boatbuilding and yacht brokerage ceased to be a ‘lifestyle business’, and the ‘pile it high and sell it cheap model’ became established as the industry norm as large manufacturers, pushed out ever increasing volumes of new vessels of increasing size and complexity, using independent dealer networks, operating on reasonable margins, to attract and maintain sales.

Volume became King and the brokerage side became essentially a Cinderella subsidiary operation, dealing with inconvenient part exchanges.

The emergence of new manufacturers, based in low cost countries, led to a price war which eroded the profit margin for most production vessels to the point where most volume manufacturers, particularly those based in the US, were operating in the red or at break even.

But with ever increasing public expectations, many suppliers simply could not maintain the sales volumes, leading to most of the mid range traditional manufacturers going to the wall.

Motor boating, being more convenient, continued to grow, notwithstanding changing fuel prices, but with crumbling margins, ever increasing operating costs, and stock boat policies that obliged them to hold high cost products, leading to the early collapse of a number of significant British super broker chains.

The resultant flood of ex-stock vessels onto the market at discounted prices, and the very public adverse press reports about the industry, and its predilection for using/operating with other people’s money, further reduced public confidence and orders fell, so setting the scene for ‘the perfect storm’ that followed the banking crisis.

On the basis that America leads, and the rest of the world follows, we can reasonably anticipate there will be significant changes in the pattern of sales of new boats over the next few years. In particular, that those boats will be manufactured, priced and sold at a profit. There will be fewer builders, fewer brands and more baseline models. And there will be fewer dealers holding considerably lower volumes of stock (if indeed any). All of this will bring an inevitable return to the old practice of purchasing directly from the manufacturing yard. 

Hard bitten purchasers, aware of the true value of their custom, are going to be seeking increasing value for money, and quality of service.

However, the present situation creates unique windows of opportunity for brokers, provided those concerned are able to grasp the need for change, both in terms of procedures and, more importantly, in understanding the expectations of the average buyer and the seller. Such as how do they expect a brokerage service to be delivered and what will make them choose to place their business with one broker in the face of all of those adverts and alluring websites for virtual brokers, which are increasingly now commonplace.

By and large, the procedures commonly adopted for buying and selling yachts have been in use for the last 200 years. They are outdated, lengthy and unfit for purpose. And, sadly, the internet has dealt a death blow to all businesses which have chosen to stick with familiar and tested methods.

It is, therefore, not so much a question of whether a broker would wish to embrace change, as whether they intend to be the victim or the beneficiary of that change.

The Royal Yachting Association (RYA) and the British Marine Federation (BMF) have been engaged in a leisurely, gentlemanly dispute over brokerage practices for many years. Essentially, whilst the RYA  supports the existence of a qualified, appropriately experienced and overwhelmingly honest yacht brokerage industry, they’ve increasingly and stridently raised difficult questions regarding the training, competence and experience of brokers. They’ve questioned their financial security and the probity of their arrangements for the significant sums of money which have passed through their hands, and the increasingly illogical and outdated documentation and procedures involved in the process of buying and selling second hand vessels.

Whilst most of those criticisms have been specifically addressed to new yacht sales, there is a small but ever increasing voice raising equal concerns about the arrangements for secondhand sales.

Changes have been introduced and the training is now better than it ever was, but there’s no point ignoring the regrettable reality that there are villains in every industry, and difficult times bring them to the surface,

I have four files sitting on my desk as I dictate this, all of which are concerned with dishonest or incompetent brokers who have retained their clients’ money and even disposed of their vessels, leaving a trail of dissatisfied clients in their wake, all of which so far attracted little publicity.

But if I have four files, so will at least 20 other solicitors in England. And that’s just a start. The RYA advises me their telephone lines and websites are literally jammed with concerned purchasers, all anxious as to how they can limit their exposure and risk. This is not a situation which can remain unaddressed for long.

To give them credit, the BMF have looked into these matters and have come up with proposals, including the client account procedures, but, welcome as they are, they do not go far enough. There’s certainly no appetite in the industry or elsewhere for legislation, but such problems are now so prevalent that it’s difficult to see how it can be ignored.

Against that background, you will appreciate that the brokers who go the extra mile, and confront and take on these problems will find themselves reaping the benefits of change. So what changes are needed, and why?

Speed
The present procedure can be dramatically speeded up and simplified. For example most purchasers are internet based. Why not have the listing agreement executed online and consider getting the vendor to take the photographs of the interior and to certify them?

Get him to prepare his own inventory and, if necessary, show the purchaser round. If he’s not happy to do this, no problems, but the enthusiastic owner is sometimes the best marketing tool.

Title
Someone is going to ask for the VAT documents and the chain of title or the Part 1 Certificate. Everybody knows that VAT and title are a key issue, so look at the documents at the outset, and if there are problems, fix them or disclose them and advise the vendor that he has to be realistic with the sale price.

If not, consider whether you need the hassle and expense of being involved. Pass him on to the competition.

Surveys
In most instances, a good recent survey, from a competent reputable (insured) surveyor, does not cost the earth and can be readily assigned to a purchaser for a modest additional charge.

Accordingly, why not take a leaf out of Home Information Packs, and get the vendor to commission a survey, so he can either undertake any recommended works arising or discount the price at the outset with the full knowledge of what’s involved.

Relationships
By openly discussing the options, and giving the vendor the final say in arrangements, he will be more confident in your services, and more inclined to follow advice.

Paperwork
The present contracts essentially fall into the conditional and unconditional contract form. The conditional contract is a recipe for argument and delay.

No prudent purchaser would sensibly pay a 10% deposit and exchange contracts on a house without having had a structural survey or valuation. Why is it different for boats? Sensible buyers know this, and avoid them if they can.

If a purchaser is refused the opportunity of having a survey in advance of signing the contract and paying the deposit, they are now increasingly inclined to walk away from the deal.

Sometimes it’s better to have a swift survey (if necessary accompanied by a simple agreement/deposit as to damage/lift out charges) than a protracted argument which sours the relationship. Ultimately, this is the vendor’s call, but in a world where there are no longer queues of purchasers lining up, the dog in the manger approach assists nobody and will ultimately lose you the client.

Consider instead permitting the survey/sea trial to go ahead, then proceeding directly to a simple unconditional contract defining the price, the time, the place of completion, the vessel’s inventory, her freedom from encumbrances and mortgages and the arrangements as to the handover of the documents and the money.

If any deposit can be secured at that point, then all well and good. If not, that’s a judgment call on the part of the vendor.

Encourage discussion between the parties around these issues and don’t try to avoid them. Observe time limits meticulously and if a deal is time limited, and doesn’t go through, withdraw and advertise elsewhere.

The human touch
Selling boats is about selling dreams. It is a uniquely personal relationship. When it’s good it’s very good, and when it goes bad it’s a disaster. The internet can be an impersonal medium, and that leaves you vulnerable if you don’t take the time to regularly update and chat with your clients, even if it’s just to tell them that nothing has happened.

Money
1. The single greatest source of dispute in any transaction. Clearly identify and agree a commission rate, application of VAT and any other charges or extras at the outset, or as soon as they arise, so the vendor knows exactly where he stands. Don’t encourage him to think that you will drop your rates, but be sensitive to that potential outcome as the transaction proceeds. Remember, 5% of something is better than 7% of nothing in some instances.

2. Discuss the whole issue of the deposit and ascertain whether the vendor wants one, or whether he’s prepared to be flexible. Discuss the question of the conditional and unconditional contracts, bearing always in mind that, tempting as it may be to press for a deposit as security for your commission, erecting barriers to a sale can prove totally self defeating.

3. If the vendor wants a deposit, ascertain exactly what he’s expecting of you in respect of it, and that he understands what will happen to the money once paid, and how that money will be treated in the event of breach. If you are going to hold the deposit money, put it in your nominated client account, and leave it there and consider whether you wish to actually add a co-signatory to the account to provide further security and reassurance to the parties.

Wherever possible, openly encourage placement of the deposit with a third party (solicitor, accountant or other professional with appropriate insurance) subject only to clear understanding of the basis upon which it’s held and the consequences of forfeiture.

4. Consider carefully what is to happen in worse case scenarios. Does the contract provide for liquidated damages for breach of contract, total forfeiture, or (as at present) a simple refund of the vendor’s expenses. Always bear in mind that an argument about the refund of the deposit inevitably poisons the relationship with your client so it’s invariably better in the long run to take a pragmatic view and offer constructive advice, rather than stoke the flames.

Completion monies
1.Consider at the outset the benefit of directly remitting funds from the purchaser to the vendor, particularly in circumstances where the deposit is to be paid and is sufficient to meet the brokerage commission and other expenses.

If there is no deposit, or it’s not sufficient, consider a split arrangement where the purchaser remits you the sums to meet your commission and other expenses as agreed with the vendor, and the purchaser sends the balance directly to the vendor’s account. So long as you have the ship’s papers as security, your risks are minimal, and an open approach will reassure all concerned at what is clearly the most nerve racking stage of the transaction.

2. Encourage personal completion and the handover of documents. This is a goodwill opportunity all round. Offer to undertake Part 1 registration of the vessel for the new owner once the matter is concluded. It will give you a new relationship, and will hopefully greatly simplify the sale process next time around.

In conclusion,  the key to success is increasingly going to revolve around using technology to cut down the timescale and complexities of the transaction, yet retaining good old fashioned interpersonal skills to achieve sales in circumstances where the product may itself not even exist until the order is placed.

In that sense, that’s exactly how boats were built and sold in the early 70s. Welcome to the past…

Tim Reynolds is a director with Verisona Solicitors