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Things to Consider While Buying a Yacht

Things to Consider While Buying a Yacht

Lifestyle magazines and movies have romanticized the idea of yachts so much that anyone who can afford it wants one. But before you can head off over the horizon, there’s a hurdle to get over – buying it. Considering the high stakes and technical know-how required, buying a yacht is no easy task. It is easy to get scammed or charged absurdly high rates for a sub-standard yacht. Luckily, we’ve got your back. Keep these tips in mind while shopping for a yacht to make sure you get the best deal.

1. Get Help from the Experts

A yacht has many elements to it. If you want to purchase the yacht that’s right for you, it’s important to familiarize yourself with these items. Ask for help from people who already own some kind of passenger boat. Get them to show you how to operate it, and understand the terminology involved. If you are not aware of any such person, go for online videos, tutorials, and reading the material. Remember, an ignorant buyer is a lot more susceptible to being scammed. If you know the basics of a yacht, you’re more likely to spot a good deal and avoid the fraudsters.

2. Know Your Requirements

How big do you want your yacht to be? Will you use it for traveling, or are you going to charter it out? How many passengers do you expect to have? Do you prefer speed or a luxury cruise? How much are you willing to spend? These are some of the questions you need to ask yourself before you start hunting for a yacht. Once you know what you want, it becomes a lot easier to find something that matches those goals. Another important thing you need to ask is whether you’re happy with a production yacht, or do you want to go for a custom yacht. The prices of both differ significantly, and so does their suitability for you. IMPORTANT NOTE: When counting the number of travelers, do not forget to take crew members into account.

3. Familiarize Yourself with the Prices of Yachts

Yachts are a significant investment, and you should expect to spend a considerable part of your savings on one. Production yachts, i.e., yachts that are mass produced and assembled by factories, using general specifications and requirements, generally start around Euro 100,000 and can go beyond Euro 5 million. Semi-custom or fully custom yachts are considerably more expensive. A semi-custom yacht averages about Euro 25 million, while a fully custom yacht can reach Euro 100 million. Another option to consider is buying a previously owned yacht. This brings the initial cost down, but there is always a risk of it being worn or faulty, so the cost of upkeep and maintenance will go up. Buying second-hand is a good option if you have experience in buying yachts, or know someone who does. This way you can keep an eye out for any mechanical or other faults in the boat. Second-hand is also good if you want a customized boat or a yacht with some character and history attached to it. You can use the money you save on the initial cost to refit and customize it to your taste. Being aware of the many elements involved in a yacht is helpful when you negotiate a price with the dealer. Knowing the value of everything involved can help you assess whether the seller is offering you a fair price or not. When it comes to budgeting, it is important to take into consideration the upkeep and maintenance costs. A yacht requires a proper support crew, fuel, and general maintenance. All this can cost you a lot of money every year. Add to this the insurance costs, and you have a hefty bill.

4. Enlist the Help of a Yacht Broker

Just like a real estate agent, getting help from a yacht broker makes the process faster and less stressful. Brokers can help you find the perfect yacht, but you will need to know your requirements and be able to make them clear. Yacht brokers have plenty of experience in buying yachts for customers, thus enabling them to detect a good buy when they see one. Find a good broker either through referrals or by checking their advertisements – but do make sure you run a background check on them too. You can do this by talking to some of their previous customers, asking about their experience.

5. Avoid Private Sellers or Dealers without a Credible Reputation

It might be tempting to get a cheaper yacht from a less reputable dealer or even an individual private seller, but this will significantly improve the risk of scams and frauds. Always go for reputable dealers, who have a reputation to protect and uphold. The private sellers have far less to lose, as they will usually have only one or two boats to sell, so a bad reputation won’t affect them much. When it comes to reputable dealers, one unsatisfied customer can ruin the image they took years to nurture and build. They will go the extra mile to make sure the customer is happy and satisfied because a satisfied customer significantly improves the dealer’s image.

6. Take Your Yacht for a Test Ride

Once you have decided on a boat, it is important to take it out for a test ride. A yacht will cost you a lot of money, so it’s best to be vigilant. Make sure you’re entirely satisfied with the yacht you are about to buy, because once the contract is signed there won’t be much you can do. Save yourself the regret and test your yacht! If you can take an expert on board with you, so much the better – they can point out any flaws, or tell you if the yacht is not as the seller advertised. Sellers may often charge you for the test ride, but if you’re lucky or have good negotiation skills, you can convince the dealer to waive this. Even if you do have to pay, it is still important to check the yacht – they cost a lot, and if you cut corners now, you might be faced with additional maintenance costs later.

7. Payment

A third party escrow service are designed to provide complete safety to buyers when paying for high value transactions such as when purchasing a yacht. No money changes hands between the two parties until all terms and conditions of the sale have been met meaning that there is no risk to the buyer of not receiving their boat. If you are looking to buy a yacht, contact us today to ensure that your transaction is secured. We look forward to serving all your yacht needs
Once you’re satisfied, you can finally sign that contract. At this point, make sure you have complete documentation and proof of ownership. Only then can you enjoy your boat. If you have no prior experience in sailing, hire a crew and maintenance staff, or get some training.

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New construction vessel contracts – the pros and cons

Competing in an increasingly crowded marketplace, prospective purchasers will find it more cost-effective to purchase new construction with warranties, as opposed to a comparably priced brokerage boat. As such, purchasing a newly constructed vessel has become an attractive option for both experienced boaters and first-timers. When constructing a new vessel, the shipyard will inevitably ask you to sign a purchase agreement detailing the build. Regardless of the nature of complexity or type of contract, purchasers should keep in mind three important factors prior to signing an agreement. First, where is the boat being delivered upon completion? Secondly, how will changes be handled and the progress of payments? And thirdly, how will  a default by the shipyard be handled?

In today’s global marketplace, boats may be purchased from all over the world. Oftentimes the shipyard is in a different location where the vessel is built, than where it will be delivered. In certain circumstances, the yard will ask the purchaser to take delivery at the yard and then would be the owner’s responsibility to move the boat to its ultimate destination. Whereas in other cases, the yard will agree to deliver the vessel to a point chosen by the purchaser. This can have major implications with regards to warranties and sales or value added tax.

The delivery point can have major influence on a purchaser’s decision making because, depending on the jurisdiction, it can add a significant amount to the cost of the vessel. It is best to consider the tax ramifications of delivery prior to signing the purchase agreement in order to provide the most favorable terms to the purchaser. If you have not had a chance to speak with a maritime lawyer or tax professional prior to signing the contract, you might consider leaving the delivery location as “to be determined” until you have had a chance to speak with a qualified professional.

The second point to consider with regards to delivery is when the warranties will begin to run. Typically, warranties on the vessel do not begin to run until the owner takes delivery of the vessel. It becomes important to know when and where that delivery will take place in order to know when the warranty period begins. As issues come up in your first year of ownership, as oftentimes happens, this date may become important in the future.

The second major issue we see in new construction is how to handle change orders and progress payments. Change orders are common in new construction agreements as owners continue to see the progress of their vessel and decide that they want to add or change features that they did not originally contemplate on. Shipyards would be happy to accommodate the purchaser but  at an added cost. It is important for the contract to specify which changes will be considered to be significant and which changes can be accomplished at no further charges. Depending on how change orders are handled, it can have substantial implication on the overall cost of the vessel.

Additionally any increases in the cost of the vessel, changes in orders can affect the amount of time it takes to complete the vessel. Prior to making a change order, the purchaser should request that the shipyard provide a clear estimate of the amount of time that will be assigned to each change. While it is expected and understandable that changes can add to the time it takes to complete a vessel, change orders should not give the shipyard a blank slate to complete the vessel whenever it wants to or drag out the construction. The contract should contemplate changes and assign reasonable amounts of time and cost for the changes to be completed.

The contract also needs to contemplate at what point progress payments will be due. This can sometimes be a set of defined milestones the shipyard must meet prior to the next or final payment being made. While in other contracts, it calls for every single milestone to be met in each stage of the construction prior to payment. There are benefits and drawbacks to each type of agreement. When it is necessary that 100 percent of milestones be reached prior to payment, the purchaser is guaranteed to have the entire stage completed before he makes a payment. The drawback is that if there is a delay or backorder on parts, a stage may be nearly completed but construction will have to stop until the part is received and installed and the next payment is tendered. On the other hand, if the purchaser can be satisfied that a predetermined certain percentage of a progress stage is complete in order to make the next payment, progress can continue on schedule without being delayed by back ordered materials or similar issues. The drawback of this type of agreement is that the purchaser may have made a progress payment while a significant part of the vessel remains unfinished while the shipyard waits for materials to arrive. A prospective purchaser should weigh the pros and cons of each option prior to purchase.

The final issue we see involving new construction contracts is how to deal with default by the shipyard. Default typically happens in two ways; either the shipyard goes bankrupt or the shipyard fails to complete the vessel in a timely manner in compliance with the agreement. Each purchaser should ensure that there are provisions in their purchase agreement that protect them in the event of default. The easiest way to accomplish this is to include a penalty clause for each day the completion date is pushed back because of a default by the yard. The total delay cost can then be subtracted from the final payment made by the purchaser. It is important to carefully define scenarios in which the shipyard will be penalized for their delay.

Another consideration to include in the contract is which party will retain possession of the vessel under construction and any materials purchased for the vessel in the event of a default or bankruptcy by the builder. Many purchasers may have an interest in retaining both the hull under construction and already purchased materials to take to another shipyard for completion. Oftentimes, if a shipyard reaches the point of bankruptcy, it will not have any other assets available for the purchaser to recover the purchaser’s costs already incurred. This means the vessel, as is, and any materials are the only way to recover for the purchaser.

The purchase and construction of a brand new vessel can be a very exciting time and one that the purchaser can easily get caught up in the excitement. New vessel construction contracts can be very complex agreements with a number of provisions that have serious monetary ramifications for the prospective purchaser. In spite of the excitement, purchasers would be well advised to enter the agreement with caution and to seek professional counsel before signing any shipyard agreement.

Contact our ASSET- V Team Today for more information.