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  • 1 Post By svHyLyte
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  #1  
Old 11-09-2013
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Sunk costs and boat purchasing

This is an interesting concept of the sunk-cost fallacy.

Contemporary Cognitive Therapy: Theory, Research, and Practice - Google Books


Applying this concept to boat buying may lead one to follow a purchasing process that is a little different from normal.

For example. Lets say you just had your potential boat surveyed and it was noted that the keel boats for a flanged iron keel had not been checked in 25 years.

If you were to buy the boat one of the first things you might do it to extract a couple bolts to check or replace them.

So typically someone would buy the boat do the work and have to just suck it up if the bolts had to be replaced.

What if you were to pay to have a couple bolts inspected before purchase.

The survey is already a sunk cost. If pay maybe $500 extra to check the bolts and they are bad then you still don't have a boat but maybe you can get some money from the PO or if you can't make a deal you are at least not committed to an expensive repair.

So my question is has anyone as part of the purchasing process gone beyond the standard survey and with the owners permission had other work done on the boat before purchase or talked the owner into doing exploratory work.
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  #2  
Old 11-10-2013
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Re: Sunk costs and boat purchasing

Quote:
Originally Posted by davidpm View Post
This is an interesting concept of the sunk-cost fallacy.

Contemporary Cognitive Therapy: Theory, Research, and Practice - Google Books

Sunk costs - Wikipedia, the free encyclopedia

Applying this concept to boat buying may lead one to follow a purchasing process that is a little different from normal.

For example. Lets say you just had your potential boat surveyed and it was noted that the keel boats for a flanged iron keel had not been checked in 25 years.

If you were to buy the boat one of the first things you might do it to extract a couple bolts to check or replace them.

So typically someone would buy the boat do the work and have to just suck it up if the bolts had to be replaced.

What if you were to pay to have a couple bolts inspected before purchase.

The survey is already a sunk cost. If pay maybe $500 extra to check the bolts and they are bad then you still don't have a boat but maybe you can get some money from the PO or if you can't make a deal you are at least not committed to an expensive repair.

So my question is has anyone as part of the purchasing process gone beyond the standard survey and with the owners permission had other work done on the boat before purchase or talked the owner into doing exploratory work.
Yep. Rudder looked quite questionable so, absent an exploratory laparotomy, which we agreed to pay for, the deal was off. The procedure revealed damage that eventually cost several thousand dollars to correct, the majority of such cost being with-held from the purchase money in escrow and disbursed to the ship-yard that made the necessary repairs. Having discovered the rudder issue, it was a matter the Seller would have had to disclose to another prospective buyer unless he handled the matter himself so he would have been in the same situation with a subsequent buyer as he was in with us. Wiser to simply handle the matter and complete the sale.

FWIW...
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Old 11-10-2013
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Re: Sunk costs and boat purchasing

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Originally Posted by svHyLyte View Post
Yep. Rudder looked quite questionable so, absent an exploratory laparotomy, which we agreed to pay for, the deal was off. The procedure revealed damage that eventually cost several thousand dollars to correct, the majority of such cost being with-held from the purchase money in escrow and disbursed to the ship-yard that made the necessary repairs. Having discovered the rudder issue, it was a matter the Seller would have had to disclose to another prospective buyer unless he handled the matter himself so he would have been in the same situation with a subsequent buyer as he was in with us. Wiser to simply handle the matter and complete the sale.

FWIW...
Seems like a smart move and it certainly worked out for you.
But it sounds like you went ahead with the sale and put the questionable money is escrow.

What exactly did the survey find on the rudder and what ended up being wrong.
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Re: Sunk costs and boat purchasing

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Originally Posted by davidpm View Post
Seems like a smart move and it certainly worked out for you.
But it sounds like you went ahead with the sale and put the questionable money is escrow.

What exactly did the survey find on the rudder and what ended up being wrong.
David,

Cracking and separation of the skin of the rudder in the vicinity of the rudder post coupled with a rather bad sounding impact test (according to the surveyor) led us to drilling a small (1/4" hole) in the bottom of the rudder from which roughly a quart of water drained. I indicated to the Seller that he could either agree to us doing an exploratory surgery, for which I would pay, or the deal was off and we'd simply fill and seal the test hole (but of course, knowing about the issue he and the brokers would be obligated to disclose the matter to any prospective buyers.) He agreed to that and we used a small hole saw to cut into the skin of the rudder and through the underlying foam to the armature which revealed rust and corrosion. The foregoing was done at Jabin's Boatyard on Back Creek in Annapolis. Annapolis Yacht Sales was the broker of record. The guy's at A&B Marine, also at Jabin's, did an estimate of the cost of repairs. We agreed to go ahead with the purchase so long as the Seller was willing to set aside the amount of the estimate to cover the repairs in an Escrow Account to be disbursed by the Broker when the repairs were done. With that we closed on the purchase, loaded the yacht on a low-boy and shipped her to our own yard, Snead Island Boat Works in Palmetto, Florida. They did the repair work although the cost came out somewhat more than the reserve (neither A&B Marine nor the Seller's nor SIBW's fault). Annapolis Yacht Sales promptly dispatched payment to SIBW out of escrow when the work was completed and accepted by us and I paid the overage (a risk of the game). Everyone was satisfied with the outcome and we have remained on good terms with the Seller in the years since. (He inadvertantly left a good deal of equipment on the boat that he could not possibly have intended to include in the sale--a Standard Horizon Hand Held Radio, a lovely costly Hocky-Puck hand bearing compass and a bunch of other gear that I would love to have had but would have had too guilty a conscience about that we packed up and shipped back to him in Virginia.) He and his wife subsequently purchased a new Beneteau 473, also through Annapolis Yacht Sales, but he later confided that had he the chance to do it over, he would have kept our/his former boat (me too!).

A good boat is like a good wife. Very hard to find and a little costly to maintain once she gets a bit older but infinitely reliable and worth more than Rubies in the long run.

FWIW...
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Old 11-10-2013
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Re: Sunk costs and boat purchasing

I thought this thread would be about my Lewmar winch handle, currently sitting on the bottom.
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Re: Sunk costs and boat purchasing

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Originally Posted by davidpm View Post
The survey is already a sunk cost. If pay maybe $500 extra to check the bolts and they are bad then you still don't have a boat but maybe you can get some money from the PO or if you can't make a deal you are at least not committed to an expensive repair.
It's not really a sunk cost. A sunk cost is money which is unrecoverable regardless of which course of action you choose to take.

In this case, you lose the survey cost whether or not you choose to buy this boat. But if you should choose to pass on this boat, you'll have to pay for another survey on a different boat. So if the survey cost $500, the choice is between losing $500 on this boat, vs. losing the $1000 ($500 on this boat plus an extra $500 on another boat).

In other words, buying this boat is $500 cheaper than buying another boat. So it's not really a sunk cost - you are still recovering value from the money you invested in the original survey if you should choose to buy this boat.
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Old 11-11-2013
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Re: Sunk costs and boat purchasing

No. But the survey did ID several areas of concern. The owner and i decided on a course of action. we both worked together to rectify the problems. Sale went through contingent on US fixing the problems. I learned a lot about the boat in the process, made a new friend in the next month or so and am still a happy owner some 18 years later. A win win for both.
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