Purchase contract?

[lipets]

My broker just sent a contract, there's just one clause that I want feedback on if after survey etc I can't close for some reason by 30 days the seller & broker share the 10% deposit as liquidated damages.


While I intend to close but what if some unforeseen ever happens a hurricane forms or I get sick who know knows......


Is that a standard in the industry?

 

[Larry M]

How much is the 10%?

 

[lipets]

$20,000

 

[Comodave]

Do you have an out for sea trial, survey, etc?

 

[lipets]

Yes

 

[Sidclark]

Here's where a buyers broker would come in handy. There should be at least three continencies on that Purchase Agreement. 1. Personal inspection acceptable to buyer 2. Survey acceptable to buyer 3. Sea trial acceptable to buyer.

These are your "outs". You can reject the vessel at any time for any reason until the you sign the Acceptance of Vessel. Once that is signed you're obligated to follow through on the closing. And yes, they can keep your deposit. However, if your set back amounts to say a couple or three weeks, the smart broker(s) will put forth an extension of closing. The stupid or greedy broker is going to hold you liable.

I know that there are guys on here that say you don't need a buyers broker, but a good buyers broker is a valuable asset when it comes to protecting your side of the deal.

If you have any questions please feel free to PM me or just ask here....

 

[DavidM]

Every yacht sales contract including the national YBAA one as well as every real estate contract I have seen has that provision. If after survey and seatrial and buyer's acceptance of the boat, you do not close, then you are in default and lose your deposit.

Acceptance is the key. That is where you indicate with your signature on the contract that there is nothing remaining in the way of your closing the purchase of the boat. If you don't close afterwards, then you lose your deposit. It is fair and reasonable.


You can always reject the boat, then the deposit is returned. Some contracts make that automatic, ie if you do nothing after x days then the boat is rejected. Others are the opposite and I would endeavor to change them back to the former before signing.



Now any decent seller's broker as well as the seller will give you an extension if something comes up that requires more time, perhaps financing. But if you screw around and don't finalize the financing or maybe misrepresent your financial condition and it is found out which inhibits closing then you lose.

David

 

[Comodave]

I also like to see an out for insurability. If you can’t get insurance then I would want out of the contract.

 

[SoWhat]

I also like to see an out for insurability. If you can’t get insurance then I would want out of the contract.

and if you are financing I would add an out for financing X amount at Y percent.

 

[lipets]

No finance


As to insurance it's not a wood or old boat, not an issue


I asked him to add in "acceptable to buyer language"

 

[tiltrider1]

I’ve never liked that 30 day loose your deposit language. However, I understand the broker’s position. I’ve always made sure it said the 30 days didn’t start until after the survey and agreed to repairs were completed. In the end it never really mattered as i’ve Always closed in less than 30 days.

 

[BruceK]

There has to be some finality. Can you make it 30 days from your accepting the boat?
As to insurance, I make it subject to "acceptance without a loading by XX Co" (our most popular boat insurer co).
What "acceptable to buyer language"means is so uncertain to me I expect a Court would think it was without definable meaning. But that`s here, maybe it has an accepted meaning in USA.

 

[denverd0n]

What "acceptable to buyer language"means is so uncertain to me I expect a Court would think it was without definable meaning. But that`s here, maybe it has an accepted meaning in USA.

"Acceptable to buyer" is the standard language in the U.S. for the inspection clause on practically all home sales. There's really nothing uncertain about it. It means, quite simply, that the buyer can find the inspection (or survey, in the case of a boat sale) "unacceptable" for absolutely any reason at all.

 

[lipets]

Yep they accepted that change and accepted my below book offer


Onto the survey

 

[BruceK]

"Acceptable to buyer" is the standard language in the U.S. for the inspection clause on practically all home sales. There's really nothing uncertain about it. It means, quite simply, that the buyer can find the inspection (or survey, in the case of a boat sale) "unacceptable" for absolutely any reason at all.

Thanks for defining "acceptable to buyer". No issue there, but the phrase I quoted from the OP and did not understand was "acceptable to buyer language". Seems the word "language" was an error or typo.

 

[Seevee]

First, I'd NEVER put a 10% deposit with a seller or his broker and never have and second, I'd not sign an agreement like that. Not good for a buyer.

You don't have to put that much money at risk. When push comes to shove I've never had a broker require it (out of 20 boats).

I like to talk with the seller and I'll put money down only to show I have some... with MY rep and it will say, if I don't buy it, I get my deposit back. I prefer a very fast sale... not even enough time to put anything down of sign a contract for the most part. Never had an issue.

 

[Bacchus]

I put 10% down on one purchase but it was paid to my buyers broker and held in escrow with the previously discussed contingencies and acceptance.
There has to be some finite end or a buyer can string a seller along for a long time as they have a signed contract.
As a seller I wouldn't accept an offer w/o some end date. I'd say I'll take your offer if it's still available when buyer is ready and willing to pay up otherwise seller has the right to continue to show it and accept other offers... and close w another buyer!

 

[Portage_Bay]

Regarding timing:
When you make your offer convince the seller you are a serious buyer, not a flake. Let them know of your concerns re timing, but they need to be specific rather than general "what if...". Ask for an extension.

Worked for me recently when I made an offer 2 days prior to a 3 week trip. I didn't buy the boat because it failed survey miserably. But with extension in the contract I was able to walk loosing only survey and travel costs.

Regarding deposit:
Make sure the contract states the funds are held in escrow, not handed to the seller until the deal is closing.

 

[RossWilson]

The condition clause(s) for survey and sea trial (and insurance and financing, if necessary) should state that each is subject to the buyer's approval in his sole and absolute discretion. The contract should also include how the deposit is to be treated in the event the condition is not waived by the buyer. Normally, I'd suggest that the deposit is to be returned to the buyer on a timely basis and without interest or deduction.


And considering it's a firm and binding contract (unless poorly drafted), a contract is a contract. If the buyer fails to close on the agreed date, he may be deemed in default by the seller, who could conceivably sue the buyer for either completion of the contract by way of specific performance, or for damages. The latter would be determined after the vessel is re-sold. If sold again at a lower price, the damages could be the difference in the 2 sale prices plus any additional brokerage or legal fees incurred. Damages could also include addition storage and insurance costs incurred by the seller after the original completion date.


A court could decide, however, that since the returnable deposit clause was included, that damages would be limited to the original deposit. So, the best bet is to submit the smallest acceptable deposit with the offer.


In your case, the horse seems to have already bolted and is in the next county. Good luck.

 

[KDMann]

My broker just sent a contract, there's just one clause that I want feedback on if after survey etc I can't close for some reason by 30 days the seller & broker share the 10% deposit as liquidated damages.

While I intend to close but what if some unforeseen ever happens a hurricane forms or I get sick who know knows......

Is that a standard in the industry?

I've been on both sides of this language across a half dozen transactions over the years. Yes, it is standard and yes, it is fair and necessary for both parties.

I can sympathize with the eyerolling, but consider this in the context of 'offer and acceptance' in contract law. It's easy to google this.

Step back and look at the transaction from the other
party(s) perspective(s). Again, understanding "Offer and Acceptance" is a critical cognition.

1) Offer: You (the buyer) are promising to buy the boat for a certain price, subject to certain contingencies. In other words, you are entering into a contractual obligation to trade your dollars for the boat, provided it meets your purchase criteria (survey/sea-trial, etc).

2) Acceptance: They (the Seller) accepts your offer and terms, and is now guaranteeing and promising to sell you the boat for the price you offered. Once the seller accepts your offer, they have agreed to sell the boat to you at your price, no matter what. Effectively, they have taken the boat off the market for your benefit and are promising the boat to you. Even if another buyer comes along ten minutes later and offers MUCH more money, they cannot accept that offer. Once your offer is accepted, you effectively 'own' the boat -- subject to your final acceptance. The Seller cannot cancel.

This system allows you the buyer to begin the expensive process of 'due dilligence' (survey, sea trail, haul-out, etc) without the risk that another buyer might come along and swipe the boat out from underneath him.

Hopefully this is making sense, but of course, none of this makes any sense from the sellers perspective if an unscrupulous buyer can 'take the boat off the market', twiddle their thumbs for weeks or months and then simply walk away without any consequences. If this practice were allowed, then you would see 'shill bidders' and phony buyers conspiring to put a seller in a distressed and sometimes desperate situation. Easy to fleece a seller this way.

Don't think this happens? Read "The Art of the Deal". If an unscrupulous 'phony buyer' strings you out long enough, you'll lower your price.

Both parties must have skin in the game, and Time Is Of The Essence. If you (the buyer) are unwilling to put any money at risk, then why on earth would a seller take their boat off the market for you while waiting for you to do your due diligence?

I suggest you go back and re-read the language of the contract your broker sent carefully. If it is a 'standard' deal, you will read that the buyer has a fixed number of days to either (a) accept the boat, or (b) reject the boat for any reason, and if the buyer rejects the boat they get their deposit back. Moreover, you will read that even if you do not 'accept' the boat in writing, your failure to accept within the contractual timeframe will be construed as a rejection, in which case you will get your deposit back.

The thing you are not allowed to do is dawdle, while the seller has the boat off the market waiting for you.

Now consider...your risk of losing your deposit only arises after you have given "written acceptance of vessel" and then you subsequently failed to meet your contractual obligation to pay for what you bought.


It is almost unheard of that a buyer walks away and loses their deposit, but when it does happen it is usually because:

1) Buyer accepted the boat (following survey/sea-trial) but didn't show up for closing.
2) Buyer offered to buy and then accepted the boat, but didn't have the money to follow through (or could not get a loan).

Either of these are rightly considered a 'default' by the buyer. The Seller and the Broker(s) have all done their jobs in good faith. The boat was taken off the market for the Buyer's benefit (which is an 'expense'). When the Buyer stiffs everyone by simply not following through, then YES, he has to pay, by forfeiting his deposit. This is fair and just as it should be.

I'm sure it will make perfect sense to you if you put your self in the seller's or the broker's shoes and think it through.

Anyone who enters into a contract to buy a boat and then cannot hold up their end of the deal (through no fault of the seller) should be liable. That is why your deposit needs to be 'at risk'.

Yes...it is very much 'politically correct' to ridicule lawyers and legalese to great popular applause. Very easy to 'roll your eyes' and assume someone is pulling the wool over your eyes. After you give it some thought...things look different.


Hope this helps...

 

[BDofMSP]

THAT is quite a first post! Welcome to the forum!
BD

 

[O C Diver]

Maybe a more simple way to look at it.
If a buyer can't loose his deposit, what's the purpose of a deposit? The deposit is the guarantee that you will adhere to the rules in the contract in a timely fashion.

Ted

 

[BruceK]

.....Both parties must have skin in the game, and Time Is Of The Essence. If you (the buyer) are unwilling to put any money at risk, then why on earth would a seller take their boat off the market for you while waiting for you to do your due diligence?.......

Good post.Reading the thread previously, the phrase highlighted above,"Time is of the Essence" came to mind. Here it is a "technical" term sometimes seen in real estate contracts, meaning that if one party defaults, the other can terminate and or take the deposit without giving Notice beforehand. That is,without having to serve a Notice(here called a "Notice To Complete") of the intention to do so unless the other party meets their obligations within a specified time.
A contract to purchase a boat is pretty much an option in favour of the buyer. Once the buyer declares "acceptance" there has to be a firm obligation on the buyer to complete the purchase in a specified time.

 

[nemier]

I've been on both sides of this language across a half dozen transactions over the years. Yes, it is standard and yes, it is fair and necessary for both parties.

I can sympathize with the eyerolling, but consider this in the context of 'offer and acceptance' in contract law. It's easy to google this.

Step back and look at the transaction from the other
party(s) perspective(s). Again, understanding "Offer and Acceptance" is a critical cognition.

1) Offer: You (the buyer) are promising to buy the boat for a certain price, subject to certain contingencies. In other words, you are entering into a contractual obligation to trade your dollars for the boat, provided it meets your purchase criteria (survey/sea-trial, etc).

2) Acceptance: They (the Seller) accepts your offer and terms, and is now guaranteeing and promising to sell you the boat for the price you offered. Once the seller accepts your offer, they have agreed to sell the boat to you at your price, no matter what. Effectively, they have taken the boat off the market for your benefit and are promising the boat to you. Even if another buyer comes along ten minutes later and offers MUCH more money, they cannot accept that offer. Once your offer is accepted, you effectively 'own' the boat -- subject to your final acceptance. The Seller cannot cancel.

This system allows you the buyer to begin the expensive process of 'due dilligence' (survey, sea trail, haul-out, etc) without the risk that another buyer might come along and swipe the boat out from underneath him.

Hopefully this is making sense, but of course, none of this makes any sense from the sellers perspective if an unscrupulous buyer can 'take the boat off the market', twiddle their thumbs for weeks or months and then simply walk away without any consequences. If this practice were allowed, then you would see 'shill bidders' and phony buyers conspiring to put a seller in a distressed and sometimes desperate situation. Easy to fleece a seller this way.

Don't think this happens? Read "The Art of the Deal". If an unscrupulous 'phony buyer' strings you out long enough, you'll lower your price.

Both parties must have skin in the game, and Time Is Of The Essence. If you (the buyer) are unwilling to put any money at risk, then why on earth would a seller take their boat off the market for you while waiting for you to do your due diligence?

I suggest you go back and re-read the language of the contract your broker sent carefully. If it is a 'standard' deal, you will read that the buyer has a fixed number of days to either (a) accept the boat, or (b) reject the boat for any reason, and if the buyer rejects the boat they get their deposit back. Moreover, you will read that even if you do not 'accept' the boat in writing, your failure to accept within the contractual timeframe will be construed as a rejection, in which case you will get your deposit back.

The thing you are not allowed to do is dawdle, while the seller has the boat off the market waiting for you.

Now consider...your risk of losing your deposit only arises after you have given "written acceptance of vessel" and then you subsequently failed to meet your contractual obligation to pay for what you bought.


It is almost unheard of that a buyer walks away and loses their deposit, but when it does happen it is usually because:

1) Buyer accepted the boat (following survey/sea-trial) but didn't show up for closing.
2) Buyer offered to buy and then accepted the boat, but didn't have the money to follow through (or could not get a loan).

Either of these are rightly considered a 'default' by the buyer. The Seller and the Broker(s) have all done their jobs in good faith. The boat was taken off the market for the Buyer's benefit (which is an 'expense'). When the Buyer stiffs everyone by simply not following through, then YES, he has to pay, by forfeiting his deposit. This is fair and just as it should be.

I'm sure it will make perfect sense to you if you put your self in the seller's or the broker's shoes and think it through.

Anyone who enters into a contract to buy a boat and then cannot hold up their end of the deal (through no fault of the seller) should be liable. That is why your deposit needs to be 'at risk'.

Yes...it is very much 'politically correct' to ridicule lawyers and legalese to great popular applause. Very easy to 'roll your eyes' and assume someone is pulling the wool over your eyes. After you give it some thought...things look different.


Hope this helps...

Nailed it! Great post KDMann.

As a Yacht Broker myself, I often read posts here on TF dealing with Brokers (and Contracts), and feel compelled to respond. However, I do feel the subject is a bit of a minefield, and I always wish to be respectful, and tread carefully. As I was considering my response, you sent in yours - and Wow, you said it all quite clearly, professionally, and profoundly. Well done. ?

 

[Seevee]

DK Mann,

Yes a very good post with the details of how it most often works. However, this was clearly puts the buyer at a HUGE advantage, with no risk of his deposit (other than fraud), and he has the advantage of taking the boat off the market AND the advantage of renegotiating after the survey or trial run!

For "me" as a seller, there's NO way I'd take my boat (house or plane either) off the market without a very short time fuse and then a non refundable fee to keep it off the market thereafter. But there's other options....

Now, a bit depends on the market. If one has a boat that just doesn't sell well, they may be more flexible with the time frame.

What I like to to: Accept their offer with the following conditions: If an offer comes in without conditions, I'll give them a short time (24 hours) to either purchase at that price or I'll sell it to the other guy and pay for any expenses they incurred. It wouldn't bother me to reserve the sale price to a buyer who is hopping on a plane to come for a survey, but that shouldn't take more than a few days.

I don't need a written complicated contract, nor a deposit, but don't want to hold up a better offer.

I sell things "as it" with right of inspection, no warranty. If ya like it, buy it, if ya don't, don't. But most of my stuff is in excellent condition, so it sells. Just sold a house and accepted an all cash offer at list price, no contingencies, close quick.... over an offer for $10k more with contingencies and financing. Sold a boat virtually the same way, short handwritten agreement, and yes, it did take a large deposit but didn't ask for it. Both closed in less than 2 weeks.

So... it all depends....

I NEVER give deposits to brokers... period!