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Buyer Beware

5K views 23 replies 17 participants last post by  davidpm 
#1 ·
The current (March 2010) copy of Soundings has an article about an experienced cruiser, re-builder and his problems after buying a Whitby 42.

The boat was on land so they could not do a sea trial as the yard was overhauling it's launch area. They were able to run the engine and sent the transmission fluid in for analysis.
Everything checked out fine so they decided go ahead with the sale and just hold back 10% in escrow to cover anything found after the sea trial.

They shortly found out that the transmission was no good and it would cost 10,000 to fix. The escrow was only about 4,000.

The broker told the new owner he was not responsible for a dishonest PO and that the sale was final.

The new owner finally found out that the PO, living in Australia was not part of the scam and the broker did make good under threat of legal action.
 
#3 ·
Lets put it is perspective......

10% held back in escrow = $4K.

Therefore cost of boat = $40K.

New transmission for a Whitby = $2-3K (I happen to be pricing one).

Installation cost, which will also let you do work on engine room +/- $3K (just guessing, I expect to spend less by doing a lot of the grunt work).

Getting a great boat for $36K - Priceless.

Not exactly the story of despair that is suggested in the original post + the broker is chipping in. Then again I may be biased.:D
 
#4 ·
Just curious as to where the $10000 figure for the transmission repair came from. Last I checked, a new transmission would be less than that... and if the repairs needed are that extensive, replacing it would make far more sense.

I hope the broker was named in the article, as his actions were clearly unethical and dishonest at best.

I'd also point out that getting a 42' bluewater capable boat for only $40,000 is a really low price...and any intelligent buyer would suspect that there was something fishy about the boat. According to one website I looked at, the starting price for a Whitby 42 is about $140,000... and there is usually a good reason a boat is selling for less than 30% of the normal market value.
 
#5 · (Edited)
The current (March 2010) copy of Soundings has an article about an experienced cruiser, re-builder and his problems after buying a Whitby 42.

The boat was on land so they could not do a sea trial as the yard was overhauling it's launch area. They were able to run the engine and sent the transmission fluid in for analysis.
Everything checked out fine so they decided go ahead with the sale and just hold back 10% in escrow to cover anything found after the sea trial.

They shortly found out that the transmission was no good and it would cost 10,000 to fix. The escrow was only about 4,000.

The broker told the new owner he was not responsible for a dishonest PO and that the sale was final.

The new owner finally found out that the PO, living in Australia was not part of the scam and the broker did make good under threat of legal action.
That owner is a friend of mine and a forum member here.

I can only imagine that the story does not translate as well to print as it does in real life, but I have not yet seen it. Trust me, if you heard all the details in person you'd be more than horrified.

Andy knew all about the condition of the hull, rigging and what could be deciphered on land of the engine from the survey and his vast knowledge of all things boats. He is involved in a fairly complete re-fit, knowingly.

The problem is that he was flat out lied to about the gear box. The PO knew it was totally fried and told the broker as such. IIRC Andy was also told that he would need to do the repair work at that yard, hence the super high, held hostage, price quotes.

Perhaps Andy will chime in here and give the "rest of the story". Please don't portray him as a naive boater as he is anything but and is actually a very knowledgeable and savy boat owner/cruiser with many, many miles under the keel. He was scammed, lied to and bamboozled, flat out. They avoided in water sea trials for a reason, and it was a good thing he held money in escrow, as any knowledgeable boater should and any good brokerage should have right in the P&S.

Yes he got a decent deal BUT the broker knew damn well he needed to sail the boat back to Maine. The boat is far from a basket case, actually very nice for the price, but does need some work, mostly some known wet areas of the deck, which I have been very lightly helping with, mostly in the form of tool loans... The Fein strikes again..;)

The bottom line is he was flat out lied to and it was known that the boat did not have a working gear box. None of this knowledge was disclosed to Andy before he showed up for sea trials.

The broker also knew Andy was planning to sail the boat back to Maine for a winter of re-fitting. It is also very hard to believe that the broker did not know about this as the boat would have needed to have been towed or sailed into the slings for a haul out. The PO sent this information to the broker in the form of an email which he provided Andy as electronic proof that the brokerage knew about the non-working gear box.

After lengthy discussions with Andy I am of the belief that yacht brokers need to adopt some set of minimum standards for full disclosure, just as they do in real estate transactions, though in this case it was the brokerage hiding facts, not the owner. The fact that an owner can list a boat that has KNOWN major defects and willingly HIDE these items, hoping a survey will miss them, is unethical IMHO.

It was not until Andy provided time stamped electronic PROOF to the brokerage owner, that they KNEW about this defect, that the brokerage owner stepped up and finally took ownership of the lies and deceit. If Andy had not contacted the PO, and did not have this electronic PROOF that they were notified of the non-operational gear box, Andy likely never would have recouped a dime..

I will call Andy this a.m and let him know you guys are discussing his article..
 
#6 ·
I just wanted to point out that the 10% reserve for escrow is usual and customary. However, the actual amount placed in escrow is another point for negotiation, just like the sale price.

I had an accepted offer on a boat that had been decommissioned and stored in the owner's yard. That deal fell through because the owner would have agreed to a 10% escrow, but because I was not able to test anything, I insisted on 20%. The seller would have received the agreed to sale price IF the boat checked out. I walked away with no regrets.
 
#7 ·
Well it MUST be True - No Good Deed Goes Unpunished

For the record - My name is Andy Schoenberg and I wrote this article in Soundings (however since Soundings has renegged on the complimentary subscription - I have not seen what they printed). I wrote the article to warn my fellow boatsmen that no matter what you think you know - this is the Brokers Game and not ours, and you need to go above and beyond. For the record the asking price of this Whitby 42 in last years market was $75,000.00. The agreed upon price after the land survey and the transmission oil evaluation was $57,000.00. The boat had been sailed up until Sept. of 2008 (purchased in April 2009) and was on the hard in a boat yard that had a non-functional hoist and could not be sea trialed until after the closing. This is done routinely in northern climates (I live in Maine and this is status quo). The quote of $10,000.00 was for a new transmission plus the labor to remove the old one and replace it with a new one. Based on the configuration of the Whitby 42 and the size of the Ford Lehman 4D254 either the entire cockpit floor needs to be removed or the engine must be repositioned to allow for the removal of the transmission. The cost of the transmission is cheap compared to the cost of labor (2 men working at $75.00/hr - 2 days each way is approx. $5,000.00).
However the issue here is not an inflated cost of the transmission, but the fact that MONTHS BEFORE closing on this vessel the broker and the prior owner had several e-mails back and forth discussing the fact that the transmission was BROKEN and that the broker SPECIFICALLY TOLD the owner that since the travel lift was down I could not do a sea trial and therefore all the owner would be out would be the $5000 escrow - and that in the marine market in early 2009 no one would buy this boat with a broken transmission. Additionally the broker knew I was coming down with my three children (ages 7-14) to sail the boat back and that he was more than willing to allow me to leave the dock (at a very difficult waterway) with my family and a broken transmission. You make the call regarding his honor and honesty. The final icing on the cake was the response of the Brokerage owner when he finally agreed to pay for the transmission repair - He said that he learned not to sell boats for owners out of the country. What I took this to mean was that had it been for a domestic seller, all conversations would have been over the phone and therefore there would not have been a paper (electronic or otherwise) trail to get caught with. PS.... the broker is still selling boats in Maryland for the same Brokerage.
Hope this clarifies the message
Andy Schoenberg
 
#10 ·
For the record - My name is Andy Schoenberg and I wrote this article in Soundings (however since Soundings has renegged on the complimentary subscription - I have not seen what they printed). I wrote the article to warn my fellow boatsmen that no matter what you think you know - this is the Brokers Game and not ours, and you need to go above and beyond. For the record the asking price of this Whitby 42 in last years market was $75,000.00. The agreed upon price after the land survey and the transmission oil evaluation was $57,000.00. The boat had been sailed up until Sept. of 2008 (purchased in April 2009) and was on the hard in a boat yard that had a non-functional hoist and could not be sea trialed until after the closing. This is done routinely in northern climates (I live in Maine and this is status quo). The quote of $10,000.00 was for a new transmission plus the labor to remove the old one and replace it with a new one. Based on the configuration of the Whitby 42 and the size of the Ford Lehman 4D254 either the entire cockpit floor needs to be removed or the engine must be repositioned to allow for the removal of the transmission. The cost of the transmission is cheap compared to the cost of labor (2 men working at $75.00/hr - 2 days each way is approx. $5,000.00).
However the issue here is not an inflated cost of the transmission, but the fact that MONTHS BEFORE closing on this vessel the broker and the prior owner had several e-mails back and forth discussing the fact that the transmission was BROKEN and that the broker SPECIFICALLY TOLD the owner that since the travel lift was down I could not do a sea trial and therefore all the owner would be out would be the $5000 escrow - and that in the marine market in early 2009 no one would buy this boat with a broken transmission. Additionally the broker knew I was coming down with my three children (ages 7-14) to sail the boat back and that he was more than willing to allow me to leave the dock (at a very difficult waterway) with my family and a broken transmission. You make the call regarding his honor and honesty. The final icing on the cake was the response of the Brokerage owner when he finally agreed to pay for the transmission repair - He said that he learned not to sell boats for owners out of the country. What I took this to mean was that had it been for a domestic seller, all conversations would have been over the phone and therefore there would not have been a paper (electronic or otherwise) trail to get caught with. PS.... the broker is still selling boats in Maryland for the same Brokerage.
Hope this clarifies the message
Andy Schoenberg
Andy,

I'm sorry about the hassle you experienced, but grateful that you've shared the story with us (and to DavidPM for calling it to our attention, as well as MS for getting you over here to comment). There are some good lessons in there.

Setting aside what was clearly unethical (and truly despicable) behaviour by the broker, the primary lesson I take away from this is the importance of properly sizing the escrow when a sea trial of the engine/transmission cannot be completed prior to consummating the sale.

It does get a bit tricky, though, figuring out what that escrow should be. Using a straight percentage may or may not be the best approach. It might make more sense to price out (at least in ballpark figures) the cost of an engine and transmission, as well as installation. Of course, that gets complicated by the fact that the negotiated purchase price of the boat usually did not contemplate the value of a brand new engine.

In other words, when purchasing a used boat, we are buying a used engine/tranny with a certain amount of life remaining on it. We likely would have paid a much higher price for the boat with a brand new engine/tranny.

So where does that leave us on the escrow size for boats purchased without benefit of sea trial?

As an owner and potential seller, the other lesson is to make sure things are working as advertised so these kinds of issues don't crop up.
 
#11 ·
... not to mention engaging the services of a broker/brokerage with integrity (but how do you know before something like this occurs????)
 
#12 ·
I spent several months selling my old boat myself and buying a boat through a broker and learned lots about the business. We sold our boat for way less than wholesale and it was in advertised condition with a great hull.

The first thing I find shocking about the Whitby story is that the buyer got the problem solved.

From the ads, to the showing and the survey the buyer is at a disadvantage when it comes to information about any one boat.

The survey system is so full of loopholes that we for the most part ignored surveys and did not get one before our purchase. Many people count on surveys but what can they tell you that you cannot determine yourself with a little research and logic. If you need that survey to understand the boat you are at a significant disadvantage.

Many brokers only hunt for the weakened antelope separated from the herd. They gave me the creeps and I never called them back even though one of those boats made our short list and would have warranted a second viewing.

Almost all of them wanted offers to be made before we were really serious about the boat. To me that is less than ethical and is trying to make a sale happen regardless of the buyer’s intent.

The one thing that seemed clear to me was getting the deal corrected after money changed hands was going to be impossible or more expense than it was worth.

To that end we made offers bearing in mind that the items I could not measure or know the actual condition of may require R/R. We increased that offer based on emotion, in other words if I had missed something was I going to like the boat so much that I wouldn't mind fixing it.

It was that emotional part that got us over the few little rip offs we encountered with our purchase. A recent insurance survey suggests the deal was a good one from the money POV but if that was important I’d invest in something less risky.

In the end the system relies on emotion and the fact that the buyer has little recourse once the ball starts rolling. Which is why we did not pay anything until we were ready to buy the boat as is, where is.

Tough way to buy a boat but in this Whitiby case it almost came down to that. How many owners would have even talked to the buyer?
 
#14 ·
I would suspect (not an attorney in spite of having stayed at a reknowned holiday resort and inn) that naming the broker could result in legal action against SN, since unless actually prosecuted and convicted the individual could claim harm to reputation and business.
 
#15 ·
Tom—

I'd point out that if everything that is said about the broker by Andy is true and documented, it is very unlikely that the broker would have any leg to stand on, since truth is a qualified defense for any libel or defamation action. I understand libel/defamation law fairly well as I was trained as a journalist.
 
#16 ·
Tom-

I'd point out that if everything that is said about the broker by Andy is true and documented, it is very unlikely that the broker would have any leg to stand on, since truth is a qualified defense for any libel or defamation action. I understand libel/defamation law fairly well as I was trained as a journalist.
In my experience that is just not Andy's style, calling out the broker. He was paid in full for the issues but this was ONLY after they tried to avoid compensating him for the deceit.

Had he not received the electronic evidence from the PO perhaps they would not have stepped up? I believe his point was not to call out the broker or brokerage but to give everyone a heads up about what some folks will try to pull on you..

I suppose if you are one who is in the process of buying a boat in the MD area, and are concerned as to who the broker was, you could try and ask him nicely in a PM?
 
#17 ·
I had no qualms in trying to circumvent the broker when I bought my boat. The ones I dealt with were not helpful.

Some broker agreements allow the seller to sell directly without broker involvement unless the broker was contacted first.

I was happy to find a private sale
 
#18 ·
Author weighing in once again

Well this has generated some interesting discussion. Truth be told once I was able to pull the information from the previous owner (took 2 weeks of e-mails) that there was actually a paper trail, I realized I had a leg to stand on. Without the hard evidence of documented e-mails I would have had just hearsay and it would have been worth nothing to the brokerage. I had contacted the MD attorney generals office and they told me that even with documentation, the cost would have been significant to me. Boat US has a fraud division that was willing to pursue the issue and would have listed the brokerage as undesirable on their website (actual action pending) and would have been willing to contact the Brokerage on my behalf. I even contacted the president of the Yacht Brokers Assn of America and what I was told was that they had only in 2006 enacted a code of ethics for brokers. This was not a legally binding code but that after multiple infractions could possibly result in the broker loosing their accreditation. Therefore what I learned from this was that in MD at least and probably most places, the broker are held to NO LEGAL OBLIGATION and therefore act out of personal ethics. I was told by a marine industry lawyer that I should just take what was offered and run. That since there is no legal obligation for brokers to tell the truth, that I was lucky to get what I got (and only from dogged determination and persistence). Therefore, unless I have a personal relationship with a broker going forward - I WILL NEVER TRUST A MARINE BROKER !!!!!!! and you shouldn't either - not until they are held to some accountability of their actions.
Some might say I was lucky, but I am sure I lost 10 years of my life due to pressure and stress - I couldn't let the SOB get away with what he was willing to do to my family.
Hence the story
Andy
 
#20 ·
I've started to write a post and deleted it at least four times. After two years just THINKING about the broker who sold us our boat spikes my blood pressure.

There are ways to get the AG off his/her backside. Right now you're just some guy who lives very far away. You just have to decide if it's worth the additional aggravation.

Jim
 
#21 ·
This is really helpful. Sailingdog's comment brings me to wonder about a boat I'm thinking to buy. It seems really inexpensive (less than $6K), so I wonder if I should go to the effort of paying to pull it out of the water to inspect everything below the waterline. I assume that would typically be on the prospective purchaser, assuming it would be a costly method, such as using a crane. At the moment, the boat is in the water, so I hope a "sea trial" would at least be allowed. I didn't know about escrow, but would it be applicable to such a relatively small purchase? Any thoughts?
 
#22 ·
Also, I'm not available to inspect the boat myself, so I'm going to have to rely on others. I thought about a survey, but from this thread, I might not be buying much assurance of the condition.
 
#23 ·
Did you mention the location of the boat, I missed it. There is a thread where SailNet Members have volunteered to do drive by boat visits. If you are going to pursue this it would be better to start your own thread so you don't get accused of hijacking this thread.
 
#24 ·
Stay tuned, this event has raised a whole bunch of questions in my mind. I will kick off separate threads so we don't mess this one up.
 
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