Part 6 of 6: Young & Salty “How to Buy a Boat” series
Making an offer on a boat
The two happiest days of a sailor’s life are the day they buy a boat and the day they sell it. We’ve found buying to be more fun than selling. But before you buy a boat, you have to negotiate a price, and that is a process unto itself. Below are some things to consider when you’re planning on making an offer on a boat.
Setting the price
The first step in determining our offer price is to do a lot of research and examine the boat carefully (see How to Conduct a Marine Survey). Once we have assessed the value we consider the maximum wve would be willing to pay. The maximum we are willing to pay, in negotiation terms, is our maximum offer limit (MOL) and it is a number beyond which we will not go. It is very important to define this number and be confident with it. At the same time we figure out what we would ideally like to spend, the number we would feel good about paying.
The seller is going through a similar process; basically what the boat is worth to them, the minimum for which they would sell the boat and what they think they might be able to get for it. We have never heard of a boat selling for its list price. There seems to be a culture in boating, sailboats especially, of sellers asking more than they think they will get. Conversely, everybody offers less, often much less, than the asking price.
A professional survey usually assesses the value of a boat in the local market. Again, from our experience we have never seen a boat sell for the survey value. These values appear to be somewhat inflated, perhaps because they are aligned more to list prices than actually sale prices. If there is no recent survey, then the value listed in previous surveys is not applicable. If you have a professional survey done, don’t divulge the survey value to the owner, but rather say something like ‘based on the survey, we are prepared to offer…’
Anchor and adjustment
A term, especially useful to boaters, to describe how people react in negotiations is ‘anchor and adjustment.’ I used to teach a university course, designed by Harvard Business School, on negotiation tactics. In that course, we taught students that the initial offer price serves to anchor the negotiation and then the price is adjusted based on other information and the expectations of negotiation. The list price for boats is often quite a bit off what it will actually sell for.
Make an offer but resist the urge to justify your offer. A lot of research suggests that the more arguments you make in favour of your price, the worse off you’ll be. When somebody is presented with an argument they immediately come up with counter arguments. The counter arguments entrench them in their position and they are less likely to adjust, or will adjust to a lesser degree.
We aren’t in the business of taking advantage of people. Low-balling can be an effective way to set a low anchor point, but it can also offend the seller to the point where they no longer wish to entertain offers from you. Low balling is also a matter of perspective. A realistic purchase offer may appear as a low-ball offer to an unrealistic seller. Overall, I’d say don’t focus on worrying too much about how somebody will react to your offer but offer something that allows you to negotiate up to your ideal price.
We have made offers that were significantly less than the seller’s asking price (in the range of 50-60%). In one case the seller was offended and we received an abrupt message back. However, he was still willing to negotiate. We have also received messages saying ‘thanks for the offer but I am not willing to part with it for so little.’ This is a nice way of saying ‘you’re not worth my time.’ It might be hard to come back from this, but we have made subsequent offers to the same sellers and found them to be responsive. Most of the time we make an offer, the seller responds with a counteroffer.
The counter offer
We expect a counteroffer so our original offer is below our ideal price. We have found that adjusting the original offer is an important aspect of negotiating. There are many reasons why adjusting the price is a good thing. The first is that the seller feels like they have won something, their ego is satisfied and they are less likely to feel like they are being ripped-off. Second, many studies have shown that giving something up releases oxytocin, which helps build trust and also makes the recipient want to reciprocate. There is sometimes some back and forth, each party adjusting their price until a mutually acceptable price is reached.
We have found that we stress less and negotiate better when we aren’t too emotionally invested. One of the best ways to remain unemotional is to have other options. Keep looking around for other boats and if possible have at least one other boat that you are seriously considering. We have found we come from a less desperate position if we have something else we are interested in. Also, pay attention to the numbers. Numbers don’t lie and they are not swayed by emotion. Being able to walk away from a deal is an important aspect in negotiation and also in finding the right boat. After the dust has settled, feeling like you have paid too much will stick with you for the rest of the time you own the boat and can sour the enjoyment of it.
Sometimes a seller’s minimum sale price is higher than our maximum offer limit. We cannot come to a mutually acceptable price, but we both want to make a deal. This is an opportunity to be a little creative. Depending on what’s included with the boat, there may be items that can be taken off, like an older GPS or radar, or life preservers, an old outboard, expired liferaft, etc. There are many things that may have very little value to us, but we can use to bring down the price. Conversely, the seller may be willing to throw in some extra items to bring the offer price up. In one case, we couldn’t come to an agreement, but the seller threw in a rigid bottom dinghy, mooring ball and the cost of the first haul-out – all of which was worth well more than the difference between our offer and his minimum sell price. So we accepted.
Splitting up assets
Once a deal has been made there may be an opportunity to split up assets to avoid paying high taxes or import duties. If the boat comes with a lot of extras, these extras can be put on a separate bill of sale. For example, you and the seller agree on a sale price of $45 000. The boat comes with a liferaft, outboard, dinghy, extra life vests, a bbq, extra anchors, a large sail inventory, etc. Sellers will often be amenable to putting the extras on a separate bill of sale, so the sale price of the boat goes down to $35 000 and the rest of the gear is sold for $10 000. When it comes time to pay taxes, you will pay on the $35k, but not the other $10k.
Offering to buy a boat is an exhilarating and sometimes daunting experience. Having a good sense of what you want and what you are willing to pay are the first steps towards a successful transaction. Try to remain as unemotional as possible while keeping in mind that should it go through there will be two very happy sailors.