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Understanding the difference between different types of yacht surveys can help avoid a variety of headaches

by Phil Friedman, Marine Industry Consultant

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 generally good advice.

The problem is there are different types of surveys and distinct variations in qualifications from surveyor to surveyor. So “getting a survey” is somewhat more complicated than ordering a pizza.

The first thing to understand is the 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 for an underwriter and/or 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.

An Average Risk

Notwithstanding a common misconception, the focus of a c/v is on determining whether or not the subject vessel represents an average underwriting risk. The underwriter is not looking for only perfect yachts but rather, he or she wants to know primarily that the subject vessel is no worse than the average specimen upon which their projected loss rates are based. Such c/v surveys are, therefore, 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.

A pre-purchase survey seeks to find 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 easily-discernible condition of the yacht you’re thinking of buying, 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.

In the absence of a transferable extended warranty and verifiable maintenance records pertaining to the main propulsion engines — and perhaps the generating plant(s) —  a separate engine inspection might be included in or as an adjunct to a pre-purchase survey.  It all depends on how much is potentially at stake dollarwise.

In other words, a pre-purchase survey aims at delineating in detail commensurate with the level of the purchase price being considered any potential additional monetary exposure the buyer might face in terms of refit, repair, or maintenance costs in the short- to medium-term future and help 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, however, that what even the most rigorous pre-purchase survey will not tell you — and, by the way, shouldn’t tell you — is whether or not to buy the yacht in question. The best surveys and the best surveyors function to present the facts, what’s wrong now, what’s potential going to go bad soon, and what it will cost in time and money to make the indicated corrections. Ultimately, it’s up to the buyer to judge whether the expenditure in time and money required to bring a given used yacht up to the buyer’s expectations are worth it, given the bottom-line purchase price.

It’s worth reiterating that a c/v survey is not the same as a pre-purchase survey, as the latter will inevitably (or should) include attention to a number of items that are not of major concern to an insurance underwriter or to a lender. So it makes sense not to settle for a c/v when you’re spending some serious money on purchasing a “new” used 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 is asked for a survey by an insurance company or your lender. Why not?

Providing More Information Is Not Always Better

As I mentioned previously, 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 actually want can be counterproductive and confusing.

For example, a pre-purchase survey might mention that the surveyor has some concern over a slight engine noise or vibration that remains undiagnosed and may be nothing serious at all but should be checked at the next regular service interval. The concern might not rise to the level that it would affect the purchase of the yacht, yet the surveyor (rightly) feels required to report it to the (potential) buyer — even though it might be a noise or vibration that’s present in any number of engines that ran perfectly without problems for decades.

Now, that sort of item might not dissuade you as a buyer from completing the purchase. And you might, at most, have it checked out further at some later date. Moreover, it’s likely not an item of specific concern for an insurance underwriter. But if it crosses the underwriter’s desk in the survey report, he or she might not understand it or be in a position to evaluate the information correctly. And the result could be a request for a supplementary engine survey or simply a rejection of the application for insurance, whereas if it hadn’t come up in the first place, nobody would ever have thought to be concerned.

Understand that we’re not talking here about hiding or intentionally withholding relevant information. What we’re talking about is not providing a surfeit of information that is actually extraneous to an application for insurance or a loan. Which is why, when a c/v survey is called for, a yacht buyer should think carefully before sending a copy of the pre-purchase survey.

Best practice is to always commission and use the proper survey for the situation at hand. Applying for insurance or a loan?  Commission a condition/valuation survey. Looking to make an informed decision about finalizing the purchase of a “new” used yacht? Don’t settle for less than a full pre-purchase survey.   — Phil Friedman

Text Copyright © 2018 by Phil Friedman — All Rights Reserved

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