The “Yacht Selling Formula”

When it comes to selling your yacht, you must understand the “Yacht Selling Formula.”

Pric

 

PRICE

First and foremost, the price you set for your yacht is the one factor which determines the sale of your yacht above all else. The challenge with pricing a yacht properly is due to the fact that nearly every seller asks more than what their yacht is worth, while most buyers want to pay less than what sellers are asking. This fact makes pricing your yacht so challenging.

 

The “Hidden” Cost of Pricing High & “Testing The Market”

As you saw earlier, time is not your friend. In fact, it’s your worst enemy (due to running costs, depreciation costs, and market perception costs). When a yacht is first  listed for sale, most buyers, brokers, and brokerage firms will see it suddenly appear on the market. Initially, interest and activity will build over months one and two. It will peak between the second and third month then, after the third month, interest and inquiries begin decreasing substantially. At this point, in the eyes of the marketplace, your yacht becomes “old” and “stale.” And so, your initial “marketing momentum” is lost and the excitement of your yacht diminishes.

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What this means is, if you’re yacht isn’t priced properly from “day 1,” your yacht will receive fewer inquiries, fewer showings, and fewer offers during the height of greatest activity. While you miss this “window of opportunity”, the three forms of costs begin to increase significantly, month after month. Eventually, you’ll end up having to sell well below your initial asking price while accruing depreciation, market perception, and running costs.

A common mistake sellers (or inexperienced brokers) make is pricing their yacht higher in the beginning to “test the market.” The rationale behind this is that you can always lower the price if you don’t receive any offers. Or, the belief that you need to build in a cushion for negotiation. However, as you’ve just seen, most of the activity occurs when the yacht is first listed. And once the initial pool of buyers have seen the yacht and it doesn’t sell, you’ll then have to wait for new buyers to come into the market. You will have no other choice but to reduce the price of your yacht to remain competitive.

Price vs Time

Leaving your yacht on the market for too long might also create suspicion. Buyers and brokers may begin to believe that something is wrong with it and should be avoided. Also, if the market conditions are leaning towards a buyers market, it’s even more important that your yacht is priced correctly. In such a scenario, buyers are very sensitive to price and will look harder to find yachts that offer the most value. 

 

The Challenge of Pricing Your Yacht

A strange thing happens in our mind when we buy something. It doesn’t matter if it’s a pair of shoes, a car or a yacht. As soon as we become an owner, our mind undergoes a transformation.

Have you ever noticed when you buy a new car you suddenly start seeing the same model everywhere? It’s simply because you are becoming hyper aware of your car and emotionally attached to it. Now, as a yacht owner, you likely value your yacht more than its actual worth in the marketplace, and this is completely natural because we all do it. So, if someone offers to buy your yacht, chances are you want to charge much more than they are prepared to pay.

This psychological bias is called the Endowment Effect (also called Ownership Effect). A behavioral economic experts define it as: “A tendency to overvalue something just because we own it.” 

Have a look at the example in the graph below:

The Endowment Effect

A few years ago, social scientists Richard Thaler, Daniel Kahneman and Jack Knetsch conducted an interesting study. The professors distributed coffee cups to half of the students and left the other half of students empty handed. They then asked the empty handed group to estimate a buying price. The group who received the coffee cups were then asked to come up with a selling price. The experiment came with an interesting conclusion.

The students with the coffee cups were unwilling to sell for less than $5.25 while the group who didn’t have coffee cups were unwilling to spend more than $2.25. The 3 scientists observed the difference in price was nearly 50%. This is a perfect example of the influence of the Endowment Effect.

The role of your broker or yacht consultant is to act as a fiduciary and always focus on your best interest. The challenging part of selling a yacht often comes down to the fact that every seller usually wants more than what their yacht is worth while every buyer wants to pay less than what it is listed for. Your broker's job is to negotiate an appropriate price that attracts the buyer but also satisfies you, the seller. And this is often the most challenging part of the broker's job.

The reason we’re educating you about the Endowment Effect is because we want you to be aware of how to price your yacht properly. Doing so will help you avoid spending more time trying to sell an overpriced yacht while paying for running, depreciation, and market perception costs. 

Pride of ownership is not the only thing that will create a bias in your ability to properly price your yacht. The time you’ve owned it, the amount of money or effort you've spent on it, the attachment to the brand, and the memories associated with your yacht will all contribute to your appraisal of it. 

Many brokers or yacht consultants will agree to list your yacht at an unrealistic price to get a new listing. However, it’s best to avoid these brokers promising to do so, as they will likely have to reduce your asking price 6 months later due to few inquiries. The goal is not to give your listing to the brokers who will list your yacht at the highest desired price. Instead, the goal is to list your yacht at the Fair Market Value.

 

HOW THE SUNK COST BIAS AFFECTS YOU, THE SELLER

Another psychological biases that could occur during the sale of your yacht is the Sunk Cost Bias. Have you ever held onto an old piece of clothing because it was expensive? Have you ever watched a movie until the end despite the fact that you hated it? Psychologists call this the “Sunk Cost Bias.” 

One of the most well-known stories of Sunk Cost Bias is the Supersonic Concorde alliance between the French and British governments. They both poured billions into creating and making that program to run. It was an operational headache, and an absolute financial disaster that cost taxpayers billions! However, they kept the program running until a fatal accident in July 2000 that cost the lives of 109 people. When you’re experiencing the sunk cost bias, you’re not being objective and you may make the wrong decision that could end up costing you a lot of money.

 

Buyers Won’t Pay More Than Necessary

Adding to the challenge of pricing your yacht, is the fact that buyers won’t pay more than necessary. After all, they’ve been watching the market’s inventory closely and they know — very well — what’s available and for how much. So, if your yacht is priced too high, it will probably be overlooked. What’s worse, your higher-price may even make your competition look better than you. 

Do you want to sell your yacht or help others sell theirs?

If your yacht is priced at Fair Market Value, you should see strong activity and buyer interest. The higher you go above the Fair Market Value to “test the market,” the less inquiries, showings, and offers you will receive. On the other hand, if your yacht is priced at Fair Market Value, you’ll get more interest, more showings and more offers.

 

Why Your First Offer Is Often Your Best Offer

Another common mistake sellers make is to disregard the first offer they receive. Often, if they get an offer quickly, sellers have a tendency to become overly confident and believe they could do better if they wait for another buyer. Truth is, this is rarely the case.

When you first list your yacht for sale, new buyers and buyers who are waiting for the right fit, will inquire or come see your yacht. It is possible, if priced at a Fair Market Value, that you could get a good offer immediately. However, the longer your yacht stays on the market, the more dealmakers it will begin to attract. Then, after more time and price reductions, you will begin to attract the bottom feeders.

Who would you prefer to sell your yacht to?

Price and Time

How to Price Your Yacht to Sell

How to Accurately Price

In order to accurately price your yacht, your broker or yacht consultant should assess it in two ways:

  • 1) The current market conditions (these include national and international economic conditions, buyer demand, seasonal demand, the location of the vessel, availability of competing models, and the prices of recently sold yachts of similar models.)
  • 2) The specifications of your yacht (the size, design, age, layout, condition, engines, additional options, history and maintenance.)

 

Price Your Yacht Using a Comparative Market Analysis as a Guide

At the end of the day, the price of your yacht is not dictated by you or your broker. The market must be the primary indicator of the price of your yacht. Here is an example of how we conduct a Comparative Market Analysis to determine the Fair Market Value your yacht.

To estimate the potential selling price of your yacht, we use the most effective tool available: a Comparative Market Analysis (CMA). What’s more, we use our in-house database, Multiple Listing Sites (YachtWorld.com, Soldyachts.com), and a few other industry tools. Combined, we use these tools to conduct a comprehensive analysis of comparable yachts. Based on this evaluation of your yacht and the marketplace, we set an attractive yet realistic price for your yacht.

Specifically, this market evaluation looks at 4 factors which affect the price of your yacht:

  1. Active Listings: To identify comparable asking prices of similar yachts which are currently competing with yours (Note: remember that these yachts have not yet received an accepted offer.)
  2. Under Contract Listings: By looking at what other similar yachts have received and accepted to give us an indication of realistic pricing.

  3. Sold Listings: The prices paid for recently sold yachts provides the best foundation in determining your yacht's most accurate market value. (Note: adjustments must be made for your yacht’s build year, model, specifications, additional options, etc.)

  4. Expired Listings: These are listings which have gone through the duration of a listing period but failed to sell. Many factors could be responsible — poor promotion and poor presentation (the condition) — but most often it’s simply because the yacht was priced too high.

Example Market Analysis

Here’s a brief example of how we would use our CMA to properly price your yacht:

A potential client wanted to sell their 13-year-old Leopard 88'. They wanted 2M net for the sale which would have been 2.2M with 10% commission. Shown in the graph below, the red dot represents their yacht, while the other blue dots are similar yachts which sold over the last 4 years. This is a perfect example of the “Endowment Effect” described earlier. Therefore, we couldn’t list their yacht at such a price beyond the Fair Market Value.

Leopard 88 Sold In The Last 4 Years:

Leopard Sold

 


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