In a turbulent economy, what’s a yacht worth? - Trade Only Today

In a turbulent economy, what’s a yacht worth?

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Figuring out a boat’s value depends partly on what it could be worth in a few years, and in today’s market that can be a lot like reading tea leaves.

“You’ve got to be able to project what a yacht will be worth in three to five years,” says Jason Dunbar, a broker and yacht value specialist for Luke Brown & Associates, of Fort Lauderdale. Buyers want to know that before they agree on a yacht’s price. Insurers want to know it before they agree to write a policy on the boat.

Predicting value isn’t easy when a 100-foot Broward that sold for $1.8 million in January 2006 fetches just $1.35 million three years later, a 32 percent price decline. What was the difference between 2006 and 2009? The recession, obviously, and a logjam in the brokerage market.

In 2006, eight similarly sized Browards were on the market. In 2009, 44 Browards of that type were courting buyers, says Dunbar. “Determining value is difficult with the rapidly changing prices in this market,” he says. When boats aren’t selling, inventory balloons, prices plummet and buyers cherry-pick the distressed offerings.

Dunbar, who spoke at a seminar at the Fort Lauderdale Mariners Club last year, says brokers’ methodologies for estimating luxury yacht prices have changed through the years as market conditions have changed. He describes the method from 1970-1990 as the construction and comparative analysis method. You took the measure of a boat’s construction — its features and how good it looked — and compared the boat with sister ships that recently had sold. Then you adjusted the price up or down, based on how well or poorly it compared.

In those days, there were a fairly small number of identical or nearly identical yachts, so comparing boats and setting prices was relatively easy. As the number and variety of megayachts and superyachts increased dramatically after 1991, the method for setting prices changed to a “gross investment” methodology, he says. You looked at how much the owner paid for the boat, added the amount that person invested in it, and compared that figure with the selling price of 20 other yachts like it.

Dunbar says brand loyalty is declining, and advances in technology have closed much of the quality gap among builders, so prospective big-yacht owners now look to buy a “footprint” — a certain size boat with this many decks and these features and accommodations for “X” guests and “Y” crew — for “Z” dollars per foot of length. “They’re buying boats by the foot now,” he says.

In this market, brokers should be looking for what a comparable boat sold for yesterday instead of three months, six months or a year ago to be current on price trends, Dunbar says. They also should distinguish between yachts sold at “fair market value” and those sold at “forced liquidation value” after a foreclosure or because of other circumstances that force an owner to sell quickly.

“What is the difference between fair market value and forced liquidation value?” Dunbar asks. Forced liquidation value can be as much as 40 percent less than fair market value, he says.

He warns, too, that some publications or Web services used as references for “book value” are as much as 30 percent above the asking price for boats currently on the market. “This skews the perception of what a boat is worth,” he says. He says the industry suffers from a lack of good empirical data — up-to-the-minute and reliable information about sales prices for boats.

Dunbar says that in down times, promotion — marketing, advertising, “selling the dream” — is an important ingredient in buoying value.

In June, Dunbar said he had done a recent analysis of model-year 1999-2004 Euro-style motoryachts of a certain “footprint” in the 80- to 90-foot range and found that on average the selling price of those yachts had risen from $1.2 million to $1.3 million. He says that suggests — at least in that style, model year and size range — renewed demand might finally be reversing the downward pressure on prices of recent years.

He says brokers must do an exhaustive survey of recent sales, identify the high selling prices and the low selling prices, and set a boat’s value based on an average. Armed with data to show both buyers and sellers what a particular kind of boat has been selling for, he says he has posted two of his best years ever in 2010 and so far in 2011.

His advice to brokers: Spiff up the boat, don’t cut marketing expenses and do your homework: Carefully analyze recent sales prices of comparable boats.

This article originally appeared in the July 2011 issue.

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