Money held after the sale

[eherlihy]

The No survey - No deal vessel sale may be on again...

Two and a half weeks after I offered to meet the seller 1/2 way between my initial offer, and the owner's counter, the broker contacted me to indicate that they would now accept my offer. However, because the boat is on the hard, and decommissioned, the seller did not want to allow for a sea-trial. Also, because the boat has a new engine (installed in 2005, but has 0 hours on it?) I was informed by the broker that;

the seller is not offerring any warranty. It is up to the buyer or his agents to determine condition.

Below is a pic of the new engine. Note the staining around the heat exchanger cap.



Below is a pic of the V-drive to which the engine is attached.



I would like for the seller to warrant the engine, transmission and V-drive by setting aside $4K to be held by the broker until 30 days AFTER the sale. Unless I notify the seller and the broker in writing within 30 days that a >$1K failure has occurred, they may collect the additional $4K. I understood this to be called escrow. The broker has told me;

Escrow accounts are normally resolved at the launch, not after a month. What is done is a half hour test on the engine by either a surveyor or a yard mechanic. If it does not overheat or spew oil all over and operates as you would expect, then the seller would get his money right away.

So the questions are;

1. What is this set-aside fund called?
2. Do brokers do this?
3. In YOUR opinion, is this a reasonable request?

Thanks in advance!

BTW - The broker was aware of the No Survey - No Deal thread, and for all I know may have participated in it. I was careful not to disparaging him, or reveal his identity, or that of the vessel that he had represented. I will do the same here. If anyone here is somehow able to figure out any of the specifics, please do not share them here.

I encourage the broker, or even the seller, to participate in this thread too.

[sailingfool]

Its called an escrow.

You should have an engineer survey the engine on the hard, especially a compression test and an oil test. I beleive he should/would run the engine.

If the results are good, then proceed with the sale with an excrow, I'd make it $8K, to be released after a satisfactory sea-trial. The purpose of the sea-tial is to verify the proper operation of equipment that cannot be verified otherwise, such as transmission operation, engine under load, instruments, etc.

A young engine is a nice plus...but you can't assume anything.

[eherlihy]

Thank you SF..

I thought it was called escrow, but that is not what the broker is telling me.

Reading through older threads, there seems to be some confusion between "Deposit" and "Escrow." Again, note that I do not want the escrow released until 30 days AFTER I agree to take possession of the vessel. I will have a sea trial as part of the survey, and if successful, I will pay the seller the majority of the agreed upon purchase price. Is escrow ever held for a substantial period after a sale?

Here are a couple of details that I should have probably included in my earlier post;

1 - I currently have NO deposit on this boat. They refused my original offer which had a expiration date which lapsed almost a month ago.

2 - The seller has expressed an interest, in principle, to sell me the boat at my counteroffer price. The broker is going to check with them to see if my conditions above are agreeable.

3 - This has not been an easy transaction for any of the parties involved. If you're interested you can read the previous thread here.

[svHyLyte]

That may be a new engine to that boat but that doesn't look like a new engine and after 5+years of idleness, I wouldn't be surprised if there weren't some problems with it. I would make the deal subject to a mechanical survey as well as a general condition survey and start by sending a sample of the oil to a lab for testing.

Frankly, there is no shortage of yachts avaiable for sale these daze and you may be setting yourself up for problems. You may be more risk prone than I but, for my part, I would advise against the purchase unless the price was extraordinarily favorable.

It is not uncommon for a buyer and seller to agree to a "hold-back" to cover the possibility that repairs are necessary. Normally the funds are retained in the escrow holder's reserve account and disposed of in conformance with irrvocable escrow instructions executed by buyer and seller and acknowledged by the broker(s). The escrow insstructions must be perfectly explicit, leaving nothing to intrepretation by the escrow agent. Thirty days is not an unreasonable time period but may not be sufficient to effect repairs if they are discovered to be necessary, for which possibility the escrow instructions must include provisions.

These are matters your broker should be capable of handling for you. IF you are not represented by a broker; or, if the only broker involed is one that was employed by the Seller, that broker is obligated only to the Seller and will put his/her, and the Broker's own, interest ahead of yours.

If you don't know what you're doing, get knowledgable representation.

FWIW...

[sailingdog]

If the engine has ZERO hours on it, where did the staining around the heat exchanger cap come from??? I'm guessing that there is a major problem with the engine and that is the reason for the seller's adamant requirement for no escrowed money or warranty on the engine—he knows it is bad or about to fail. If he had faith in the engine, then it wouldn't be a problem for him.

I would add that most engines that sit idle for five years will often also have their maintenance badly neglected...since many will run their maintenance schedule based on engine hours, rather than months or years passing. If the engine hasn't been properly prepped for long-term storage, which is what has been the case—the engine could have internal corrosion issues among other things. The zincs probably haven't been replaced; the oil may not have been changed; etc..

I'd also agree that $4000 is too low a figure... if the engine is complete junk, you can't buy a replacement, much less install it, for that amount.

[BarryL]

Hello,

Here is my understanding of the boat buying process:

Once you find a boat you would like to purchase, you make an offer. If the offer is accepted you schedule the survey and sea trial. What happens next depends on if the boat is in or out of the water.

If the boat is in the water, the in water part of the survey is done and then the sea trial part is done. During the sea trial the engine, transmission, alternator, motor mounts, water heaters, electronics, (basically everything possible) is tested. If you happy so far, the boat gets hauled and the hull, rudder, prop shaft, strut, etc. gets examined.

If the boat is out of the water, then the hull, etc. is surveyed first. If you decide to go further and do the sea trial, the boat gets launched and the sea trial done. The important distinction here is that if you decide to pass on the boat for whatever reason, YOU are responsible to paying to have the boat hauled and stored again.

Buying a boat that is out of the water can be cheaper because you don't have to pay for the haul out. But, if you decide to pass on the boat, you are responsible for the haul and block, etc. fees.

If I were selling a boat (and I have sold 2) I would not offer any warranty. You get to test everything as much as you like, but once you buy the boat and pay for it, it's your boat. If the prop falls off 5 minutes later, or the engine dies as you pull away from the dock, it's too bad but it's your boat now. I also would not allow any money to be held in escrow. You see the boat, you like the boat, you buy the boat, you pay for the boat, that's it. Then again, I never try to hide anything, and price things reasonably. You don't buy it, fine, someone else will. You become a Pain In The Ass to deal with, forget it, I'll find someone else.

The point of the survey is to learn as much as possible about the systems. And, in all likelyhood, if the engine performs fine during the sea trial, it should perform fine for a long time.

If I were you, I would insist on a sea trial where the engine was run for a significant amount of time, like an hour. I would want to run it hard, like full throttle, for at least 5 minutes, to really stress the cooling system, transmission, motor mounts, etc. I would not accept starting the engine on the hard and letting it idle for 5 minutes as an acceptable test.

Good luck,
Barry

[kd3pc]

E

2nd vote for - that engine may be NEW to that boat, but is not a NEW engine...too much red paint on things that should not be red...and not enough red on some things.. like injector tops..

$4k escrow is not enough for the apparent risk one sees from just three pictures...

[eherlihy]

Originally Posted by kd3pc

E

2nd vote for - that engine may be NEW to that boat, but is not a NEW engine...too much red paint on things that should not be red...and not enough red on some things.. like injector tops..

$4k escrow is not enough for the apparent risk one sees from just three pictures...

Yes, the wire loom, the hose clamps, the oil filler cap, and the solenoid all tell me that this is a rebuild, NOT a new engine as the ad in Yachtworld states.

[sailingdog]

I'd point out if the broker and seller are going to lie about the engine being new rather than tell the truth that it is a re-built engine.... what else are they lying about???

[sailingfool]

Lets not panic...

I am not too sure most listings would be specific about a rebuilt and a brand new engine...

No private seller will ever offer a warrantee.

All sellers want their money once the common time for testing is over and the boat is delivered, not 30 days later.

In this case, hull, engine and rig survey..commit to purchase or walk...broker holds escrow...sea-trial...escrow immediately released except for funds needed to correct defects found in sea-trial.

Again, a young engine is a nice thing. As a great President once said "trust but verify."

PS - the broker is always a seller's agent, at least in the USA.