General Information for the buyer’s protocol of buying a yacht.
(For Information ONLY - Not intended to be used as Legal Advice)
It is advisable, and we strongly recommend, that the Buyer should have a minimum of 10% of the purchase price in advance of making any ‘OFFER’ in the Broker’s Escrow Account prior to beginning any price negotiation. In our experience a Broker is best able to negotiate from strength, if he is able to tell the Seller and his Broker, “I have deposit funds in my Escrow A/c”. This is not compulsory, but it is a very effective negotiating tool.
After a suitable vessel is located, and with the Buyers agreement, his Broker will present the ‘Buyers Best Offer’, in writing to the Seller’s Broker as a Purchase Agreement.
At that time, the Buyer should have an amount equivalent to 10% of the Purchase Price ‘in his Bank’ available to be wired to the Buying Broker’s Escrow A/c, within 3 business days of the date on the Purchase Offer. This is based on the assumption that his offer will be accepted by the Seller. Failure of funds being in the Brokers Trust Account on time can invalidate the Agreement. If NOTE 1: was effected at 10%, then the Deposit is in place.
Without that assurance of cleared funds being readily available, the Buyer’s offer cannot be presented by his broker unless all parties have previously agreed to special terms, as stated in the P.A.
Upon price agreement and within 3 business days the Buyer shall wire transfer funds to his brokers Escrow Account to bring any amount ‘on deposit’ to the equivalent of 10% of the Purchase Price.
At the same time, funds should also be sent to the Broker to cover the Surveyor and Haul-out costs etc. and possible Insurance Costs. A budget of 1-1½% of the purchase price of the vessel would be sufficient.
Once funds are received, the Buyer may go ahead and conduct his survey and sea-trials. This typically can be achieved within 5 days for smaller boats. In practical terms expect to do this within 7-10 days, depending on the size of the vessel. Vessels over 100’ might require a special booking dates due to limitations on a Travel-lift and/or Surveyor availability. A date to complete the Survey and Sea-trial will be included in the P.A. and allowed for.
The Buyer is responsible for all costs associated with the Survey such as Surveyor costs; haul-out; wash- down; blocking; etc, and any reasonable associated yard bills. His Broker will advise on what is to be expected.
The Buyer must ACCEPT or REJECT the vessel by the Accept/Reject date and if Buyer fails to respond by the deadline it will be construed as “rejection of vessel”.
Under our Contract, the Buyer may REJECT the vessel for any reason. If the vessel is REJECTED, the deposit shall be returned to the Buyer, less any costs associated with Item.
Once the vessel is ACCEPTED, the deposit is non-refundable to the Buyer. The deposit is said to be ‘hard’.
Generally, Settlement (the ‘Closing’) will take place 7-10 business days after ‘Acceptance of Vessel’ is signed by the Buyer or his Representative. The balance of the funds, (around 90% of the Purchase Price) should be in the Selling Brokers Trust Account no later than 2 business days prior to The Closing. Typically, Closings take place on a Thursday, so funds should arrive on the Tuesday. If the Buyer does not have funds available for the Closing, he may be in Breach of his Contract and the deposit may be forfeited.
Once the vessel is ACCEPTED, both Buyers and Sellers will need to address and complete the various documentation and administrative issues re: the Sale and Purchase of the vessel per the statutory conditions applicable etc. This might include P.O.A’s; title searches; company closure and formation; re-flagging etc. Insurance issues must be addressed in a timely manner for Closing. Your Broker will inform you of these matters in advance.
Typically this can be achieved in 6 to 8 days, but time is of the essence in this regard. Usually both Buyers and Sellers will engage professional assistance for this process, which will require a local Documentation Agency at least, and/or possibly a Maritime Attorney’s guidance for a vessel whose value exceeds $1,000,000.
Your Broker can advise further on these matters, with guidance and recommendations. In essence, a typical purchase of a vessel requires less documentation and paperwork than a typical real estate transaction, and your Broker will be very familiar with the process, and be of great assistance. Experience suggests that this process can be completed in 4 to 5 weeks from Offer to Closing but allow a week or two extra if making sailing plans.
For the Buyer, the typical stage where delays are encountered is in the paperwork relative to Item 5, but much of that process can begin early on, once the boat begins the Survey process.
This information is meant solely as a guide to the process, and must be read with that in mind, but, it does describe a typical scenario of the procedures encountered in most transactions.