Dollars and sense

 Expenditures: $Cost of boat $Slip fees $Insurance costs $Equipment costs $Labor costs $Survey costs $Fuel costs etc.,etc. then again like the ad says, some things are priceless.

“The Fair Market Value of Boats”

Determination of the fair market value is a subjective decision by any surveyor. Unlike the real estate market, there are no published and documented “sold” prices that can be used as “sales comparables”. There are publications issued by the industry that can give a “range” spread (high and low) of selling prices on boats. Like the blue books in the auto industry they report the MSRP, Manufactures Suggested Retail Price for new boats and price ranges for used boats. These “guides” are based on statistic models with deviations, etc. So, with that kept in mind, lets look at these guides. One online guide list boats sold, but without documented selling prices. This has had some reported problems of information being manipulated to enhance future selling prices.  One guide may have well known boats, like a 1993 42’ Catalina sloop or a 1993 40’ Hatteras with a “range” spread pricing of $5000.00. Another may have those same boats with a $8,000.00 “range” spread but a lower overall price with additional price variables. All guides have price variables that may include adjustments like, location, equipment, and condition. All guides are purchased by subscription by the surveyor.

Location: Some pricing guides do not address the location of the vessel at all. One may lists adjustments of a -5% to a + 15% on the range, dependent upon the type, size and location of the boat. In that guide, it appears to indicate the popularity of a type and size of a boat in a different part of the country and affects the local marketplace value.

Equipment: Some guides assume that if the boat was built with 2 engines, 2 engines are included in the range price, but may only allow for the difference in costs for upgraded engines. Others list engines separately. Some guides assume that that vessel left the builder with a bilge pump and is included in the “range”. Some value 1 bilge pump installed at $150.00 and that is reflected in their larger “range” spread. New electronics, old electronics, sail covers, water heaters, etc., all affect the fair market value.

Condition: This is the most important factor affecting the market value of boats and “range” prices quoted in the guides. The condition adjustments include the hull and all onboard systems. Some guides have 6 grades of condition, some only 3. The middle range, usually “average” can mean from, “Ready for sale requiring no additional work and normally equipped for her size” to “Clean condition with no visible damage or defects, showing moderate wear and tear, in running condition, investment may be needed for minor cosmetic or mechanical work”. In total, those are fairly wide definitions for “average” in determining fair market value and documents that the value determination is a subjective decision by a surveyor.

The final determination of fair market value for boats encompasses more than the price guides available and their condition and adjustments. Marketplace trends, social changes, vessel popularity, repair/warranty facilities and competence, alterations and restorations, all those and other characteristics must be evaluated into that calculation. A thorough fair market value determination should state the standards used and document the appraisal procedures. This can narrow the subjectivity of the value determination and allow for a recognizable process.

So, I have poked my nose and tools into every aspect of that boat that I can. Took all my notes and put them into a report that addresses the hull and all the systems, now it's time to calculate the fair market value as I see it. Is this the price you should pay? That would be like me telling you what your favorite color should be! The fair market value determined in the report is only a guideline for you, and a dollar value for the finance institution and the insurance company. You may be able to negotiate a better price, or you just "gotta" have this boat and you'll pay the asking price. The "range spread" of buyers motivations is beyond this surveyors qualifications, though my wife may have some thing to say when I buy something! Says she has paper work to that right.

Insurance Costs

Now for the very little I know about boat insurance. There are 1000’s of insurance companies with offices all over the world. This is a very basic explanation of what I think they are talking about concerning policies. Talk to your agent(s) they can explain much better than I can. These are just some of the items and terms I believe are important.

Insurance coverage is the same from company to company?  While that may be true for many kinds of insurance, it is not necessarily true for boat and yacht insurance. Marine insurers providing boat insurance offer a range of coverage suited to their level of expertise, underwriting appetite, and type of customer they wish to attract.

There are two basic sections of a typical boat or yacht insurance, physical damage and liability. The physical damage section covers loss or damage to the boat and its machinery.  The liability, sometimes referred to as Protection & Indemnity, covers your obligations to third parties. The legal liability can arise from bodily injury or loss of life, or damage to someone else's property.

Physical damage coverage generally pays for repairs to your boats that are necessary as a result of damage caused by a wide range of perils. Some policies provide "all risk" coverage meaning, that if the cause of loss is not specifically excluded, it is covered. Select a policy that can cover your boat while it is on land (boatyard), or if your boat is on a trailer. The owner must maintain the boat, and wear and tear is excluded under a policy. The numbers of damage exclusions vary from company to company, so compare.

The liability section provides coverage that is important to owners. Coverage for the removal of the wreck of your boat is important to have, especially if it is deemed to be a hazard to navigation. Containment and clean-up expenses resulting from oil pollution or contamination. Finally, for paid crew members it should ensure liability for the crew under the Jones Act and General Maritime Law.

A good policy will provide a separate coverage for liability under the Federal Longshoremen's and Harbor Workers' Compensation Act. This liability is for temporary shore-based workers, such as a mechanic or marina employee injured aboard your boat.

Verify that your policy has coverage for medical payments for someone being injured on your boat, even if you are not legally responsible. Does the coverage also apply while someone is boarding or leaving boat, and while being towed behind your boat, such as while water skiing?

Two more coverage’s are often found in boat policies. Personal Property coverage and Towing & Assistance coverage. Personal Property coverage includes such items as clothing, personal effects, and sports and fishing equipment aboard your boat. There are exclusions, again compare.

Towing & Assistance coverage reimburses you when you need emergency assistance for your boat. Towing, delivery of fuel, oil or parts; or emergency labor while underway. Check this coverage

There are three basic “amount” types of coverage. Understanding the differences and selecting the best for your needs will play a very important role should there be the unfortunate need to file a claim. They are: Actual Cash Value (ACV) Stated Value (SV) Agreed Value (AV).

Actual Cash Value: This is the typical type of coverage in a standard policy and pays a “depreciated” value in the event of a claim. As the vehicle gets older, its value decreases. The insurance claims adjuster decides what the vessel was worth at the time of the loss. Disagreements can sometimes only be solved with litigation.

Stated Amount: This is the type of policy is often used for historical vessel policies and is frequently misunderstood. Many "Stated Amount" forms state the insurance company will pay the lesser of  the Stated Amount or the cost to repair the covered vessel not to exceed the “Stated Amount” or The “Actual Cash Value”

The “Stated Amount” only serves to set the maximum amount that will be paid. It does not guarantee you a settlement amount that reflects the value of the vessel when a loss occurs. That “Actual Cash Value” language allows the claims adjuster to settle your loss for an amount less than the “Stated Amount.”

Agreed Value: This coverage you maybe able to purchase. With this policy you are guaranteed in writing the amount you would actually receive if you vessel is stolen or totaled. There should be no “Actual Cash Value” clause in the policy. The “Agreed Amount” policy should state that the insurance company will pay you the lesser of: The “Agreed Amount” or the cost to repair the vessel, not to exceed the “Agreed Amount”.

The “Agreed Amount” should be reviewed carefully with your agent before the policy is issued. Your agent and you must agree together upon the “Agreed Amount” before the policy is issued. The “Agreed Amount” could represent the true market value of the vessel, plus the amount of upgrades at the time the policy is written. If the market value changes during the policy period, the “Agreed Amount” can be changed by endorsement. Before policy renewal each year the “Agreed Amount” could be changed, if necessary, to reflect an increase in market value.

The underwriter must consider many factors when determining the costs to you and them. The value, length, and age of boat; type of boat, type of engines, mooring location; intended area of navigation; previous boating experience and claim history of the owner; and deductible amount. Sometimes the underwriter will also consider the automobile driving record of the owner(s), and whether they have taken any safe boating courses.

There are several ways that you can possibly reduce the cost of your boat insurance. The most common way is to select the highest deductible amount that you are comfortable with. Where will you be operating your boat? Close to your home port? Asking for a more limited navigational area on the policy can save you money, if you stay in that area. The condition of your boat is also mentioned as a rating factor. The better the condition, the less exposure for the insurance company. Insurance surveys that are required can be very specific beyond the mandated requirements from the Coast Guard stated in the CFR’s.  Installing certain safety devices on your boat can sometimes reduce the premium that you will pay. Credits for safety items as an automatic fire extinguishing system in the engine compartment, a fume or vapor detector in the bilge, or anti-theft alarm or tracking devices may reduce you costs.

As I stated, an insurance agent can explain in depth, policy conditions much better than I can and they do it for free! Call em’, you have an investment in the vessel, protect it and yourself.

More value, costs, and expenses to follow...

Contact me at,

Email: Bob@BoatSurveysHawaii.com

Phone: 808-375-8260

Robert J. Dupuis

Marine Surveyor/Consultant