Trading In Your Boat – Removing the Mystery and Emotion
The boat market is growing more slowly than the rate at which manufacturers are building new boats. This means that most boat buyers are already boat owners. These owners often want to avoid owning two boats at once and prefer not to wait for their current boat to sell before committing to a new one. These factors bring the option of a trade into consideration.
Before delving into trade values, it’s important to recognize that not all situations are suitable for trades. If a boat loan exceeds the market value, it complicates the process, requiring the owner to settle the loan before completing the transaction. Similarly, boats with values equal to or greater than the new boat can be problematic, as dealers are reluctant to pay to complete the deal. Additionally, location can affect a dealer’s willingness to trade, especially if the boat is hard to maintain and show.
For dealers, a trade means delaying the revenue and profit of the initial transaction and taking on the risk of selling a second boat. In our office, we refer to the total revenue and profit as the deal’s “bag of money.” The goal is to maintain the same amount of money in the bag, with or without the trade. Depending on the buyer’s perspective, the deal can take one of three forms:
- A fair deal on both the new boat and the trade
- A great deal on the new boat but less value on the trade
- No deal or an inflated price on the new boat but an inflated value on the trade
Scenarios one and two are preferable for both parties. Scenario three can leave the buyer with a boat valued less than its purchase price in the future. Also, state regulations might mandate minimum trade values, requiring dealers to provide proof of the trade value using sources like NADA. These regulations aim to protect consumers and ensure proper tax collection.
Before proceeding with surveys to confirm the value, the dealer must provide the buyer with an estimated trade value. This process should be transparent and justifiable, using data from Yachtworld and Soldboat Data, the largest and most accurate sources of this information. Sellers should have access to this raw data. The table below outlines the components of a proper trade valuation.
| Valuation Component | Description |
| Listing Price | The boat must be listed for sale within the normal range for similar models, years, and conditions. |
| Sold Price | The average price for similar models, years, and conditions sold within the last 12-18 months. Dealers may err on the low side if there’s a wide range of sold prices. |
| Time on Market (TOM) | The average time, in months, that similar boats took to sell. |
| Financial Carrying Cost | The cost of money times TOM. |
| Storage | The cost of storage times TOM. |
| Insurance | Monthly insurance premium times TOM. |
| Sales Preparation | Estimated costs to make the boat “dealer-ready,” including moving, maintenance, or repairs. |
| Survey | Fees for a survey of the trade boat, including mechanical inspections, typically $20-$30 per foot plus yard fees. |
| Commission | Commissions paid once the boat is sold, typically around 8% to allow for a co-broker commission. |
| Trade Risk Factor | A risk cushion dictated by faster turnover and an active market for the make/model, ranging from 5% to 10%. |
| Trade Value | Estimated Sold Price minus all other components. |
This open book assessment provides clarity, helping to move the discussion from emotional to logical. When the delivery of a new boat is set for a future date, the trade value can serve as a back-stop price. The boat can be marketed through a brokerage agreement until the new boat’s closing, maximizing its value while ensuring protection with the trade value if necessary.
Trading in a car is a common experience, integral to the car buying process. Dealers use databases, and customers accept the less-than-retail value of their used car. By applying the principles outlined above, we can reduce the mystery and anxiety of trading in your boat.
