Understanding the difference between various kinds of yacht surveys will help you avoid a variety of headaches...
When you decide to buy a pre-owned yacht, the first bit of advice you’ll receive from your local dockside expert is “Better get a survey.” Which is good advice… for as far as it goes.
The problem is there are several different types of surveys, not to mention distinct variations in qualifications from surveyor to surveyor. So, “getting a survey” is a little more complicated than ordering a pizza.
For example, there is a significant difference between a condition/valuation (c/v) survey and a pre-purchase survey.
A c/v survey is performed primarily to assess the insurability of a given yacht —usually for an insurance underwriter. A c/v may also estimate the yacht’s market value for an institutional lender.
In contrast, a pre-purchase survey is conducted with the buyer’s interests first and foremost in mind, and it is aimed at identifying, to as great a degree as possible, all defects and potential (latent) defects that are likely to cause the buyer or new owner of the yacht expense in the foreseeable future.
Looking for an Average Risk
It’s a common misconception that the focus of a survey performed for insurance purposes — generally a c/v — is to find everything that’s wrong with the subject yacht. But in fact, the objective of a survey performed for an insurance underwriter is to determine whether the subject vessel constitutes an average underwriting risk.
Look, if insurance underwriters agreed to cover only perfect yachts, not much insurance would be sold. And selling insurance is how insurance companies make money. (Well… by that and by investing monies received from premiums being held in excess of required loss reserves.) So, what an underwriter wants to know primarily is whether the subject vessel is no worse than the average specimen upon which their projected loss rates are based.
Therefore, c/v surveys are of limited value — and may indeed be misleading — if used as the sole basis for a purchase decision. Because even if a given actual or latent defect is not of a kind to be of concern to an insurance underwriter, that doesn’t mean it will have no effect on you as a buyer and future owner of the yacht in question.
Stepping Up the Standards
A pre-purchase survey seeks to identify and enumerate all actual or potential problems — structural, mechanical, electrical, operational, or cosmetic — that might impact the buyer financially and otherwise, however picayune they might seem in another context. Pre-purchase surveys are, therefore, significantly more detailed, time-consuming — and costly — than c/v surveys.
Depending on the age and how easily-discernible the condition of the yacht you’re thinking of buying is, a pre-purchase survey may also involve non-destructive testing of structure, electrical, plumbing, machinery, and electronics. It may also employ advanced techniques such as thermal imaging, resistance-based moisture sensing, or sonic testing of the hull, decks, and superstructure for water intrusion and/or leaks.
In the absence of a transferable extended warranty and verified maintenance records pertaining to the main propulsion engines — and perhaps the generating plant(s) as well — a separate engine inspection might be included in or ordered up as an adjunct to a pre-purchase survey. It all depends on how much is potentially at stake dollarwise.
A good pre-purchase survey delineates, at a level of detail commensurate with the contemplated purchase price, any potential additional monetary exposure faced by the buyer, in terms of refit, repair, or maintenance costs in the short- to medium-term future.
A good pre-purchase survey also helps the buyer evaluate any indicated corrections in a reasonable and accurate cost-to-benefit framework.
What a Survey Won’t Tell You
Keep in mind that even the most rigorous pre-purchase survey will not — and shouldn’t — tell you is whether to buy the yacht in question.
The best pre-purchase surveys function to present the facts, what’s wrong now, what’s potentially going to go bad soon, and what it will cost in time and money to make the necessary corrections. Ultimately, it’s up to you, the buyer, to judge whether any projected expenditures are worth it, in the light of the negotiated purchase price.
Just about any problem can be fixed at some cost in time and money. And the question becomes, at what point does that cost become too expensive to make sense.
More Information Is Not Always Better
It’s worth reiterating that a c/v is not the same as a pre-purchase survey, that the latter is much more detailed and informative, and consequently, you should not try to make do with a c/v when you’re buying a yacht.
What you might not think of is that it also makes sense not to use your pre-purchase survey in place of a c/v when asked for a survey by an insurance company or a lender. Why not?
As previously mentioned, an insurance underwriter is generally looking to establish only that the subject yacht is an average risk, no more, no less. And lenders usually want simply to know what the yacht is worth on the market. Providing them with three or four or ten times the information they need or even want can be counterproductive and confusing.
For example, a pre-purchase report might mention the surveyor has some minor concern over a slight engine noise or vibration that remains undiagnosed and may be nothing serious at all but which should be checked at the next regular service interval. The concern involved might not rise to the level that it would affect the purchase of the yacht, yet the surveyor (rightly) feels it incumbent upon him or her to report the concern to the (potential) buyer.
That sort of item might not dissuade you as a buyer from completing the purchase. After all, it might be a noise or vibration that’s present in any number of engines that continued to run otherwise for decades. And you might, and you as the buyer might, at most, decide to have it checked out further at some later date.
However, if such an item shows up in a pre-purchase report that crosses the desk of an insurance underwriter who might not understand or be in a position to evaluate the information correctly, the result could be a request for a supplementary engine-survey or, worse, a straight rejection of the application for insurance. When in the appropriate context, nobody would have been in the least concerned.
Please understand we’re not here talking about hiding or intentionally withholding relevant information. We’re talking about not providing an excess of information that is extraneous to the application for insurance or a loan. The best course of action is that, when a c/v survey is called for, a yacht buyer should think carefully before simply sending the underwriter or lender a copy of the pre-purchase report.
Best practice is to always commission and use the proper survey for the situation. If you’re applying for insurance or a loan, commission a condition/valuation survey. And if you’re looking to make an informed decision about finalizing the purchase of a pre-owned yacht, don’t settle for anything less than a full pre-purchase survey performed by a reputable and experienced yacht surveyor.
— Phil Friedman, www.YachtbuildAdvisor.com
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