Two Common Sense Principles for Buyers
~ You wouldn’t hire your adversary’s Attorney ~
So, why hire the Seller’s Broker
To help you acquire the Seller’s yacht?
~ A Purchase of A Multi-Million Dollar Yacht
Is a Purchase of a Multi-Million Dollar Business ~
So, why would you not do the same level of thorough Due Diligence on a Yacht
That you would do in investigating purchase of a Multi-Million Dollar Business?
A Buyer’s Brief
- HOW THE YACHT BROKERAGE RELATIONSHIP WORKS
- WHAT ARE YOU LOOKING AT IN THE VARIOUS ADVERTISING MEDIA WHEN YOU SEE A YACHT FOR SALE?
- THE BUYER HAS ULTIMATE CONTROL OF THE BROKERAGE RELATIONSHIP
The luxury yacht represents man’s expression of the highest and most complicated blend of cold hard engineering and art, a blend that lends an almost animate nature to this objet d’Art. It is generally the most expensive widget that one ever buys personally during a lifetime. And, because of its almost animate nature and the fact that it is a complicated piece of machinery that floats about the world carrying human life, this toy represents both a source of great pleasure and, at the same time, a potential for some risk. The search for and purchase of this toy should be a most serious and conscientious endeavor that is guided at every step in the process by a knowledgeable and professional perspective.
The process is far more demanding with respect to paying attention to the details of protecting one’s own interest than is the purchase of one’s home. The process can be easy and professionally orchestrated, a great pleasure in and of itself. Or, it can be a frustrating and troublesome event. Key to which it becomes is (i) knowledge on the part of the Buyer of how the process should work and (ii) the decision on the part of the Buyer to bring into the process professional expertise to represent his specific interests, both with respect to knowledge of yachts and knowledge of the negotiating, contracting and closing process.
The following is a brief review of some of the key elements to the equation. This analysis is written neither as a thorough dissertation nor as a means of thoroughly educating a Buyer to all of the parameters of the process of protecting their interests. Rather, it endeavors to highlight for the Buyer key issues of which they often are unfamiliar. It is our hope that, once a Buyer is familiar with the following key elements, he will then be stimulated to associate himself with various types of professional disciplines, including experienced brokers who understand the complications and subtleties of the art of the negotiated deal and experienced maritime attorneys, all of whom would themselves be charged with knowing the parameters related to protecting the Buyer’s interests and act aggressively to apply these parameters.
II. HOW THE YACHT BROKERAGE RELATIONSHIP WORKS:
The yacht brokerage industry works in a somewhat similar fashion as the residential real estate brokerage industry, but there are critical distinctions. A Seller will list his yacht for sale with a brokerage house, giving them either a Central Listing Agreement or an Open Listing Agreement. A Central Listing simply means that the Seller agrees to negotiate the sale of his yacht only through this particular Central Brokerage House and that any other brokers who wish to present an offer must present it to the Seller through the Central Brokerage House. An Open Listing simply means that the Seller authorizes the particular brokerage house to sell his yacht and agrees to pay a certain commission if that brokerage house brings a Buyer, but it also means that the Seller is not limited to any one broker and can deal directly with any other broker.
With respect to the commission structure, the system is simple. Under a Central Listing arrangement, the Seller agrees to pay the Central Listing Brokerage House a certain commission percentage based on the gross sales price of the yacht. This commission is then split between what is called the Listing Broker and the Selling Broker. The Listing Broker is the brokerage house that has the Central Listing Agreement with the Seller. The Selling Broker is the brokerage house that has actually found and is bringing the Buyer to the deal. Most Central Agents hope that they are both the Listing Broker and the Selling Broker so they do not have to split their commission. Under an Open Listng arrangement, the Seller agrees to pay a certain commission to that particular brokerage house that brings the Seller a Buyer. But, once again, the Seller may deal with any broker he wishes and may grant any number of brokerage houses the authority to offer his yacht for sale under an Open Listing Agreement.
The paramount issue related to the Buyer’s perspective is that under either arrangement Agency Law dictates that all of the above referenced brokers represent the interests of the Seller, not the interests of the Buyer. And, it is key to understand that the Selling Broker, or the broker that is actually the one who has found the Buyer and is dealing directly with the Buyer, still owes his allegiance to the Seller, not the Buyer. This general law of agency can be easily changed with respect to the Selling Broker, but it must be done by formal agreement that all parties are a part of. It is very problematical to endeavor to change the law of agency with respect to a Central Broker since his Central Agency Agreement defines him as the agent of the Seller.
All of this issue is characterized as being representative of a Conflict of Interests between the Seller, the Buyer and the yacht broker. Most brokers simply ignore this issue.
A Buyer who is dealing directly with a brokerage house that has a Central Listing Agreement with the Seller or has an Open Listing Agreement with the Seller is dealing with a broker who represents the interests of the Seller, not his interests, unless there has been some formal arrangement to the contrary.
Thus, it is important for the Buyer to initially make a decision about how he wishes to proceed with the process of searching for a yacht and what type of broker he wishes to work through in dealing with a potential yacht of interest and its Owner- Seller. Generally stated, the brokerage industry is broken down into three types of brokers for the Buyer to choose from: (i) the Listing Broker (the Central Listing Broker), who represents the interests of the Seller directly under the terms of the Central Listing Agreement, (ii) the Selling Broker who is bringing the Buyer to the deal and might at first blush appear to be representing the Buyer but who, by Agency Law, represents the interests of the Seller based on being a sub-agent under the terms of the Central Listing Agreement and (iii) a Buyer’s Broker of the Buyer’s own choosing who by formal arrangement with the Buyer publicly represents the interests of their Buyer singularly. When dealing with a broker, it is important that the Buyer know under which type of arrangement he is operating and specifically who is going to represent the Buyer’s interests. Under an often-occurring circumstance in this industry, no broker actually represents the interest of the Buyer. But, such can be easily controlled by the Buyer simply based on his own knowledge and choice.
III. WHAT ARE YOU LOOKING AT IN THE VARIOUS ADVERTISING MEDIA WHEN YOU SEE A YACHT FOR SALE?
Generally speaking, brokers advertise yachts for sale through (i) yachting magazines in the back sections dedicated to the brokerage industry, (ii) a multi-listing online platform called Yatco.com and (iii) another multi-listing system called YachtWorld.com.
When one sees an advertisement for a particular yacht in one of the magazines under the name of a particular brokerage house, it can mean one of three things with respect to the agency issues discussed above. The yacht could be advertised under a Central Listing Agreement between the Seller and that particular brokerage house, in which case that brokerage house would be formally representing the interests of the Seller. Or, the yacht could be advertised under an Open Listing Agreement between the Seller and that particular brokerage house, in which case that brokerage house would be formally representing the interests of the Seller. Or, it could be advertised by a brokerage house that has no relationship with the Seller, in which case that brokerage house could represent the interests of either the Seller or the Buyer, depending on agreements of the parties. This third alternative often represents merely a yacht broker endeavoring to get his phone to ring when a Buyer sees his ad. This broker may not even know who the Seller-Owner is or whether the yacht is actually on the market for sale.
When one sees a yacht listed on Yatco.com, that particular yacht is listed with Yatco.com only by a brokerage house that has a Central Listing Agreement with the Seller. Therefore, the brokerage house is in a formal agreement to represent only the interests of the Seller.
When one sees a yacht listed on YachtWorld.com, it is a different matter. YachtWorld is an open listing system wherein any brokerage can list any yacht. Therefore, the brokerage house that is advertising a particular yacht could be doing so under a Central Listing Agreement, an Open Listing Agreement or no agreement with the Seller, at all.
IV. THE BUYER HAS ULTIMATE CONTROL OF THE BROKERAGE RELATIONSHIP:
Bringing the substance of Section II and III together, there are two key elements. First, it is important for the Buyer to understand and formally control the nature of his relationship with any broker in terms of whose interests the broker is going to represent. And second, the industry is orchestrated based on a very open system for marketing of yachts. Any competent broker can, on behalf of his client, gain access to any yacht advertised in any of the three above mentioned primary mediums of yacht advertising and can conduct the process of negotiating and purchasing any yacht seen by his client in one of these mediums. Therefore, when a Buyer sees a yacht that he is interested in, he can decide whether he wishes to execute the effort to consider a particular yacht for purchase through (i) a Central Listing Agent who represents the Seller, (ii) through a Selling Agent operating as sub-agent under the Central Listing Agreement who represents the Seller, unless he has contractually and publicly agreed otherwise or (iii) through a Buyer’s Agent who has no direct relationship with the Seller and specifically is charged with representing solely the Buyer’s interests.
The bottom line is that the Buyer can by his own volition control his own destiny with respect to whether he has a broker who is specifically representing solely his interests. And, no matter how the Buyer might have been introduced to a particular yacht and no matter who might be advertising a particular yacht, the Buyer can elect whom he wishes to deal with and whom he wishes to represent his interests. In essence, the Buyer chooses what broker he wishes to present his formal contract offer through and the formal purchase contract should specifically reference the agency responsibilities of all brokers who are participating in the deal, with respect to who represents the Seller and who represents the Buyer. The broker that brings the formal purchase contract offer controls the deal and the Buyer controls which broker brings that contract.
Therefore, the Buyer can specifically elect what type of brokerage environment in which he wishes to operate. Some measure of common sense says that the Buyer should consider specifically selecting a broker that he has confidence in with respect to (i) the broker’s overall professional abilities, (ii) his knowledge of complicated luxury yachts, (iii) his knowledge of the market in detail, (iv) his expertise in the art of the negotiated deal, (v) his knowledge of the intricate parameters of structuring contracts and the closing process, and (vi) his dedication to aggressively represent solely the interests of the Buyer.
This Brief is not meant to sound like preaching. It is meant to communicate thoughts that are key to an informed Buyer’s perspective, thoughts that are often not known by Buyers and rarely communicated by the brokerage community. Therefore ~
- Be proactive!
- Don’t simply fall into a relationship with a broker because he happens to be advertising a particular yacht that caught your eye.
- Any competent broker can provide a Buyer with access to almost any yacht in the world. Exercise an inquiring mind and engage any potential broker in a discussion of issues that indicate to you whether he is of the character and experience level that will support protection of your individual interests as a Buyer.
- Determine specifically who the broker thinks he represents.
- If a broker says he will represent both the Seller and the Buyer, go somewhere else.
- Control of whether the search for the proper yacht will be a pleasurable and protected event starts with your choice of broker.
- The Buyer can control who represents his interests if he understands how the brokerage system works.