Buying through broker, why 'offer before survey'?

[Concerto]

Sometimes events can be very fast. I was looking for a Fulmar, and having missed out on several, I knew I would have to act fast.

I saw one offered as a private sale that was slightly tatty, but looked structually sound. It had also been out of the water for 18 months and the owner already had another boat. He had owned the boat for 14 years and down sized due to his age.

A new engine had been fitted 5 years earlier, and after a mast loss 17 years ago it had a new mast, sails and intruments - all top quality items like B&G and Hood. The rigging had recently been replaced. There was also a solar panel and holding tank fitted.

On the downside it needed new cushions, the forward cabin headlining had not been replaced (the rest had), there was original cooker, no hot water and no heating. The interior woodwork needed some refinishing. The sprayhood and Pack-a-Main were very tired and needed replacement.

I negotiated a very keen price due to its tatty condition. No deposit was paid as I needed a surveyor to inspect a potential osmosis problem (it was not). I told the vendor the survey was to discover if there were any major faults, not to renegociated the price on minor items - I had already driven a hard bargain. That afternoon I spoke to my surveyor and he had a free day the following day, so the survey was immediately arranged.

The vendor was shocked at the speed of survey, and we were all there at the end of the survey. The surveyor pointed out a few small bits I had missed and I then agree to continue with the purchase at the agreed price. The vendor was appreciative at my fast and straight dealing and went home with my deposit cheque. The sale was completed 7 days later.

The boat remained at the yacht club and I became a member. I still see the previous owner and am on very good terms with him. He has commented favourably on the work I have done so far and knows what else I am planning. I know if I have any problem I can phone him and he is always pleased to answer any question to the best of his knowledge.

So I agreed verbally to buy without a deposit, only paying the deposit after the survey and completing quickly.

 

[Tranona]

You just have to be a lawyer Tranona to split such a fine hair. Since " the boat still has to pass the survey to the satisfaction of the buyer to meet the condition" it can hardly be legally binding as agreed prior to survey. As with a house where you offer subject to contract.

As for the OP I suggest he makes an offer subject to contract and makes the deposit returnable in full if for any reason he decides not to go ahead after survey

No, it is not a "fine hair" - it is fundamental to the contract that it is legally binding. The only condition under which the buyer can withdraw is if the boat does not pass the survey. That is what both parties have agreed to. Neither party can withdraw for any other reason without the other suing for breach of contract and recovering any losses incurred. If the seller wants to withdraw the buyer can force him to sell, or compensate him for any losses.

If the buyer wants to able to withdraw for any reason other than it does not pass the survey, the reasons that are acceptable must be written into the contract as a condition and agreed by the seller. Suggest it is unlikely that a seller would agree to this.

Don't get hung up about the deposit being returnable. Of course if the boat fails to meet the condition of the contract and the two parties are unable to agree new terms the deposit is returnable, less any expenses outstanding.

Your suggestion of an offer "subject to contract" is not an offer at all, but an expression of interest, and nobody is going to accept a deposit and withdraw the boat from the market on that basis. Can't see a buyer doing it either as not only is he paying a deposit without gaining anything, but he is relying on the seller's goodwill to return it if the sale does not proceed. What he needs is a legally binding contract!

Perhaps you have been watching too many programmes on TV about buying where the intrepid reporter persuades the seller to accept an offer and "take the house off the market". All good TV material but legally meaningless. It is estimated that at least 30% of such "offers" never follow through to a sale as there is no commitment on either side until contracts are exchanged - so gazumping and withdrawal are all considered part of the game. Thankfully that is avoided in boat transactions. Of course it is a lot easier to do the checks on boats and few buyers depend on getting a mortgage so it is a lot easier to move from agreeing a price to signing and exchanging contracts.

 

[Tranona]

So I agreed verbally to buy without a deposit, only paying the deposit after the survey and completing quickly.

However, you DID have a contract, and both parties agreed the conditions. It does not have to be in writing to be binding, although for obvious reasons it is normal for it to be in writing. A deposit is not a pre-requisite for a contract to be binding, nor is it necessary for it to be a particular amount if is required. The purpose of the deposit is two fold, first a sign of good faith and the second security against any cost that accrue against the boat which are the buyer's responsibility. For example if the buyer fails to pay the yard for the lift for survey, that debt can be attached to the boat.

No doubt many transactions take place, particularly on lower value boats without a formal written contract or between people who know eachother, but when you have two strangers and the possible involvement of an intermediary conducting a complex transaction involving high value assets, it makes sense to use a formal process.

 

[Sybarite]

When I am seriously interested in a yacht, buying through a broker, WHY am I supposed to look it over myself, then make a binding offer subject to survey, then put down a deposit, and only then, get the boat professionally surveyed?
It's in the wrong order for the buyer. Why can't I get the boat surveyed, and THEN make my offer?
I, as the buyer (just a knowledgable amateur) can't possibly work out a fair offer after being shown around the boat by the owner or a broker's rep. Why should I be expected to make an offer (which is legallly binding remember) based on a quick tour?
Have others met this problem?
One possibility might be to bring a surveyor to advise me, with a long unhurried viewing, without actually calling it a survey?

As a buyer, buying a newer, larger and more complicated yacht type than I am familiar with, it all seems rigged with traps and pitfalls, if I an not allowed to get her surveyed first, and only then make an offer, my offer might be way too high...but binding!
Anyone care to offer expert advice, mucho appreciado Jerry

Edited to add, I could make a drastically low 'offer subject to survey' to try and cover myself, but I don't want to annoy the seller and be told to feck off, nor do I want a good helpful broker to mark me down as a p!sstaker/timewaster..

I would say that it is very much a buyer's market at present and therefore it's rather you who would be setting the conditions of the transaction.

My thought is - and I have not thoroughly researched the subject yet to see if it is feasible - given the fact that I might want more than one boat surveyed (in the event of problems with the first boat) - would be to try to negotiate with the surveyor that if he finds a problem that is likely to have a cost effect on more than say 10% (?) of the asking price, then he stops right there and does not spend the time and hence cost of preparing a written report.

To the vendor I might offer a value subject to survey and if the survey does not point to any problems with an effect of say 5% (?) of the value then my offer stands. If the estimate is between 5 - 10% (?) then the value is adjusted accordingly.

As I say it's a negotiating stance but the buyer is in a strong position today.

 

[sailorman]

I would say that it is very much a buyer's market at present and therefore it's rather you who would be setting the conditions of the transaction.

My thought is - and I have not thoroughly researched the subject yet to see if it is feasible - given the fact that I might want more than one boat surveyed (in the event of problems with the first boat) - would be to try to negotiate with the surveyor that if he finds a problem that is likely to have a cost effect on more than say 10% (?) of the asking price, then he stops right there and does not spend the time and hence cost of preparing a written report.

To the vendor I might offer a value subject to survey and if the survey does not point to any problems with an effect of say 5% (?) of the value then my offer stands. If the estimate is between 5 - 10% (?) then the value is adjusted accordingly.

As I say it's a negotiating stance but the buyer is in a strong position today.

So what does he do for the other 1/2 day when many miles from another job & no arrangements made. Get real

 

[Sybarite]

Absolutely right , and a deposit shows not only serious intent ,but good faith too.

I think that the fact that you are willing to engage and pay for a survey is a gage of serious intent.

 

[Sybarite]

So what does he do for the other 1/2 day when many miles from another job & no arrangements made. Get real

He has the possibility of acting for me again as long as he does not spend extra time (cost) surveying and preparing something that I don't want or need. It's a question, as I said, of negotiation.

I would especially like comfort that I would not have to expect large unforeseen costs and so I would hope that he would concentrate first on the high value items: eg engine, osmosis, sails, rigging, inboard systems such as pilot, capstan, fridge, heating etc. to see if anything was an immediate deal breaker.

 

[sailorman]

He has the possibility of acting for me again as long as he does not spend extra time (cost) surveying and preparing something that I don't want or need. It's a question, as I said, of negotiation.

One would agree a survey price beforehand, can you really expect him to loose 1/2 a days pay

 

[Sybarite]

One would agree a survey price beforehand, can you really expect him to loose 1/2 a days pay

He could use the half day to write up the survey/surveys he did for others the previous day.

With me, he might have the possibility of doing multiple surveys and, given the moribund state of the market, he might be very happy with this.

However, as I said it's a question of prior agreement. I would certainly try to negotiate along those lines; some might accept, others, not.

 

[johnlilley]

As a surveyor I can answer the question of curtailing a survey at an early stage if there is something major found that would prevent the particular buyer proceeding. In this event it would be important for the buyer to be present and totally aware of what is found and certain that no matter what the remainder of the survey reported, they would not purchase.
From my point of view there is no point in continuing to spend someone's money when the outcome is obvious.
When I am in that situation I give the buyer the option of continuing at full cost or making a reduction and producing a shorter report up to the point of cancellation. The report still needs compiling as most brokers require to see the reasons for withdrawing from the sale, but obviously it is a shortened report. There are no rules for this just treating people the way you would like others to treat you. Of course there is a loss, but goodwill is always repaid eventually.
John Lilley

 

[JumbleDuck]

No, it is not a "fine hair" - it is fundamental to the contract that it is legally binding. The only condition under which the buyer can withdraw is if the boat does not pass the survey.

But how is "passing the survey" defined? The survey on my current boat didn't say "pass" (or "fail") anywhere on it. It would be perfectly possible, too, to get a survey done on a boat with a glaring defect - like, say, a missing keel - to confirm that everything else is OK. The boat in that case couldn't be expected to "pass" a survey. Of course one might argue that it passes if it reveals no defects not previously know to the buyer. But who established what the buyer knew, and on what basis s/he knew it?

While fully accepting the points made, by you, jwilson and others, about the potential benefits of a contract and deposit before survey, it's this vagueness about what findings would justify pulling out which surprises me. It's easy to define when you're buying a house in Scotland: the houses passes if the surveyor says it's worth enough to cover any mortgage you need.

 

[dom]

...the houses passes if the surveyor says it's worth enough to cover any mortgage you need.

Wouldn't want to be a cash (mtge free) buyer in Scotland then!

 

[JumbleDuck]

Wouldn't want to be a cash (mtge free) buyer in Scotland then!

Why not? It's just that in that case you have to decide what "passes the survey" means. Or don't bother getting one.

 

[Tranona]

But how is "passing the survey" defined? The survey on my current boat didn't say "pass" (or "fail") anywhere on it. It would be perfectly possible, too, to get a survey done on a boat with a glaring defect - like, say, a missing keel - to confirm that everything else is OK. The boat in that case couldn't be expected to "pass" a survey. Of course one might argue that it passes if it reveals no defects not previously know to the buyer. But who established what the buyer knew, and on what basis s/he knew it?

While fully accepting the points made, by you, jwilson and others, about the potential benefits of a contract and deposit before survey, it's this vagueness about what findings would justify pulling out which surprises me. It's easy to define when you're buying a house in Scotland: the houses passes if the surveyor says it's worth enough to cover any mortgage you need.

See John's explanation above. There is obviously no pass/fail. The purpose of the survey is to satisfy the buyer that the boat he agreed the price on is as described. Unlikely you will ever get a perfect survey on a used boat. You have to look at the results and determine if there is anything new discovered that significantly affects your decision to purchase or materially affects the value you have placed on it. You then re-negotiate on the basis of what the survey has found. It could well be that a finance company will set conditions related to the survey before advancing the money, but the vast majority of boats are financed by the buyer so it is he that needs to be satisfied.

As you can't predict what the unknown defects are in advance - if you could you would already have factored them into your agreed offer - it is difficult to frame a condition that gives you an absolute right to withdraw. It may be possible with some types of boat, for example a power boat where a particular speed is claimed, and is key of purchase that the contract includes a condition that it must be met on trials. Another alternative is to adopt the Dutch practice of setting a 10% of offer price on undeclared defects before you can withdraw or re negotiate. This has the benefit of limiting your exposure, but still does not remove the potential for disputes - just moves it to a different point.

In practice, as brokers will tell this is rarely a sticking point, and one of the benefits of using a broker is that they can mediate in the negotiations to achieve a satisfactory outcome for both parties. Remember by the time it gets to this point all parties have invested a great deal of time and money so it is in all their interests to resolve issues. At the end of the day, though if the buyer really digs his heels in, the sensible thing is to agree to withdraw rather than force the buyer to complete, and return the deposit. In these situations the biggest financial loser is the buyer as he cannot recover his costs.

BTW the OP's original concern was that he seemed unable to commit to an offer price without having a survey. This may be because he is looking at unusual boats where it may be very difficult to establish a value or decide whether the boat will "pass" a survey, or as in one of his potential purchases even decide if the boat will perform to his expectations. In this case he has to either take the risk himself, walk away not being prepared to take the risk, or as jwilson suggested pay a surveyor to cast an eye over the boat and give an informed opinion short of committing himself to a full survey with all that entails. Don't think any serious seller would object to that as it involves no commitment on his part other than arranging another viewing.

 

[paulferris1964]

This is a fascinating thread!

I've only bought three boats, but I can't see why I would ever want to make a 'firm' offer subject to survey, unless I was worried that the boat would be 'snapped up'. In the current market, how likely is that? I would always want to have a survey done first if I could. Of course, brokers would want me to make an offer first!

There's been lots of discussion around 'you should be knowledgable enough to know what offer to make, based on your own view of the boat's condition', but I'm sorry - I'm no expert!

I fully accept that I leave myself open to wasted surveyors' fees if I make no legally binding offer prior to survey, but the fact that I'm willing to spend £400+ for a survey in these circumstances should comfort sellers that I'm not a time waster. Frankly, in the current market, there's alot of sellers who need to wise up to the fact that this is a buyer's market - and I speak both as a seller and a prospective buyer!

 

[usernamenotvalid]

As a potential soon to be buyer, I'm liking this thread. I would never agree to anything until I had reason to believe that I was getting value for money. Now that might well mean that I will miss out on some perfect, for me, boats. I suppose it rather depends on how committed the vendor is to actually selling his/her boat. That there are always seemingly more boats to sell than serious purchasers means that we seem to have a "Buyers market". I have the advantage of not being committed to a particular area, as the local one -Australia- is so far overpriced it's hardly worth considering. I also have the option of a UK or Australian passport, which makes Europe an attractive option, and even the USA do-able. This will be MY purchase and dictated by MY needs. I'm not trying to offload anything other than cash.

 

[jwilson]

So what does he do for the other 1/2 day when many miles from another job & no arrangements made. Get real

Many surveyors WILL phone a buyer and offer to stop the survey (and reduce the charge) if they quickly find a "show-stopper" problem, such as a major structural fault, the sort of thing that makes a buyer think "I don't want this at any price". It's good business, they will probably be asked to do the next survey for that buyer. They also don't have to spend considerable time compiling a full report.

 

[KINGFISHER 9]

The problem comes when there is "no major fault" but a large number of minor issues are identified by the survey. I wanted to pull out of a boat purchase in that situation but the seller hung onto my deposit saying that there "were no major faults identified". My view was that there was quite a lot of work and some money to rectify the long list of small things and I wished to call off the purchase. We had a stalemate and eventually in order to avoid legal costs and uncertainties and to go go sailing I gave in and proceeded with the sale, having a little money deducted from the price.
I was very niggled about this and resolved never to give a "returnable deposit" to anyone!

This one sounds as though it 's verging on the illegal.

 

[jerrytug]

This thread has swollen out of all proportion to the couple of answers I expected, and it's all highly informative not just to me but others as well, as posted previously.

I'm going to break my promise to answer each post individually because there are just too many.

Thanks for all the answers, I am clear now about the process, and possible options.

I went to view a yacht this morning and sadly rejected it, even though it was top of my list, for a major problem which I worked out for myself..
A million thanks to all contributors Jerry

 

[Birdseye]

No, it is not a "fine hair" - it is fundamental to the contract that it is legally binding. The only condition under which the buyer can withdraw is if the boat does not pass the survey. That is what both parties have agreed to. Neither party can withdraw for any other reason without the other suing for breach of contract and recovering any losses incurred. If the seller wants to withdraw the buyer can force him to sell, or compensate him for any losses.

If the buyer wants to able to withdraw for any reason other than it does not pass the survey, the reasons that are acceptable must be written into the contract as a condition and agreed by the seller. Suggest it is unlikely that a seller would agree to this.

Don't get hung up about the deposit being returnable. Of course if the boat fails to meet the condition of the contract and the two parties are unable to agree new terms the deposit is returnable, less any expenses outstanding.

Your suggestion of an offer "subject to contract" is not an offer at all, but an expression of interest, and nobody is going to accept a deposit and withdraw the boat from the market on that basis. Can't see a buyer doing it either as not only is he paying a deposit without gaining anything, but he is relying on the seller's goodwill to return it if the sale does not proceed. What he needs is a legally binding contract!

Perhaps you have been watching too many programmes on TV about buying where the intrepid reporter persuades the seller to accept an offer and "take the house off the market". All good TV material but legally meaningless. It is estimated that at least 30% of such "offers" never follow through to a sale as there is no commitment on either side until contracts are exchanged - so gazumping and withdrawal are all considered part of the game. Thankfully that is avoided in boat transactions. Of course it is a lot easier to do the checks on boats and few buyers depend on getting a mortgage so it is a lot easier to move from agreeing a price to signing and exchanging contracts.

Leaving aside your patronising start to the last paragraph ( you really must be a lawyer!) there is a lot of agreement between us. An offer subject to contract is just what it says it is - an offer. But it is not what you would like it to be - a contract. And that is just the point. Nobody but a fool would make a legally binding offer / verbal contract to buy subject to survey when the buyer, the broker, the seller and the surveyor are higly unlikely ever to agree what "failing survey" means. Which is of course why many surveyors will , at the time of arranging the survey, make the point that they will find sufficient "defect" to allow you to negotiate a sufficiently reduced price to coiver their costs.

I have bought 4 boats so far and in every case I have agreed a deal " subject to contract" and in every case the boat has temporarily been taken off the market. In 3 cases there was no deposit either. I have sold 3 of those boats on exactly the same basis albeit in no case via a broker.

I cannot advise the OP too strongly not to commit to a contract until he is totally happy about all aspects of the deal from price to survey and documentation. If thats not acceptable to the seller, walk.