What would Maverick do? Why auctions could be ace
Like Maverick, wise yacht brokers have a few tricks up their sleeves to serve their clients' best interests.
“He’s still back there. C’mon Mav, do some of that pilot sh*t.”
It’s the classic line from back-seater Goose as he urges his pilot Maverick to shake an enemy fighter in the movie Top Gun. It could also apply to eager-to-sell yacht owners looking out over the dock while speaking to their brokers.
Because sometimes, owing to the quirks of a boat or a fickle market, a spot of broker smarts is what’s needed, like Maverick hitting the brakes and watching the enemy MiG “fly right by”.
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And one of the tricks is to use an auction. Of course, auctions are common in real estate, art, cars, wine and other prized assets. But yachts? Not so much, although plenty have been sold at auction, often because of legal proceedings, including recently the seized 106m Lürssen Amadea. Dave Ritchie even sold the 67m Lürssen Apoise in an unreserved auction for $46m in 2010. But then he founded auctioneer Ritchie Bros. so he kind of had to.
“Auctions are just another arrow in your quiver as a broker,” Kevin Merrigan, chairman, Northrop & Johnson tells us. “Our job is to act in our clients’ best interest and sometimes an auction is the right way to do it. They tend to expedite a sale.”
Market value
The problem for most yacht sellers going down the auction route is not money, but time, according to Jack Mahoney, founder of online platform Boathouse Auctions.
“You might be able to get a higher sale number just staying online but when? Is it tomorrow? Is it next year?” he asks.
“Sellers get to a certain point, they’re just stuck. This is that mechanism to pull people in, get them excited and to get that boat sold. And, hopefully, at a price where everyone’s happy.” Far from taking over the broker’s role, Mahoney insists they’re “still doing their entire job”.
“The only major change is that the broker and owners are removed from the price negotiation, allowing the free market to set the price,” broker Kevin Kramer of Burgess tells us.
Merrigan and a long-time client, who already owned three yachts, once tried to buy a boat at auction. It wasn’t a must-have, but they thought it could be a fun project at a decent price. “I was sorely mistaken,” he says. “There was one other bidder there who had to have it. He outbid us, which tells you what the market value is.”
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Auctions are another ‘arrow in the quiver’ of yacht brokers, says Kevin Merrigan.
The same client did use Boathouse to sell the 2002 39.6m Westport Serengeti, based in Newport Beach, California. The yacht was a charter stalwart and had been with the owner the longest of all his boats, but it was time to move on.
“We had let it sit on the market to the point where it was not receiving any interest, so our option was to continue to lower the price or bite the bullet and take it to auction,” says Merrigan. As per Boathouse rules, they had comprehensive surveys done by a “very reputable surveyor”.
On the day of the auction, Merrigan and his team gathered around a laptop to watch the action play out with four competing bidders.
“It’s nerve-wracking, of course,” he laughs. “It’s not for the faint of heart watching it, knowing that you’re representing an outstanding client who wants as much money for it as possible. We were yelling and screaming at the laptop and the boat sold for a reasonable price, thanks to our yelling and screaming. We shouted it up.”
‘Time value of money’
Mahoney, a former financial services executive in Connecticut, USA was intrigued with the idea of a yacht auction site after numerous conversations over several years with his friend Chad Roffers, who founded Concierge Auctions, now part of Sotheby’s. Eventually, Mahoney was convinced there was a gap for yachting and set about building his platform.
Sellers are “very cognitive” of their carry costs as well as being mindful of depreciation and the opportunity cost in terms of what else the money tied up in a yacht could be doing, he explains.
“Our proposition to the sellers is the time value of money and just trying to get them out with the highest net return,” says Mahoney.
“You’re looking at maybe a third of the value of that boat every year that you’re losing by not selling it. So once we get to the sellers, it’s usually a pretty good conversation.”
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In the early days, Mahoney wore out plenty of shoe leather down in Florida trying to convince brokers. It was like “swimming upstream”, he says. But working methodically through the feedback, he got the message across that, unlike earlier auction sites, they were not trying to cut out the brokers.
“We just knew that they had to be paid fully in our model,” he adds. “They just need to hold their client’s hand and walk them through it.”
The marketing cycle lasts for 30 days at the end of which is the one-day auction.
“Regardless of how wealthy people are, there is still that thinking of, ‘Hey, I could get a deal on this,’” says Mahoney. “And even if that isn’t their thinking, they know that boat is going to be sold Thursday at 4pm.”
‘Crazy bidding’
One of the largest yachts sold by Boathouse was the 1988-built 52m Feadship Ice Bear, which had been on the market for two years. The sale, in partnership with Burgess’ Kramer, attracted nine bidders and 36 separate bids.
The yacht sold for “well over” expectations but Mahoney stresses sellers should not go into an auction expecting “crazy bidding”.
“It should just bid up to basically a fair market value. In that case, it went well over,” he adds.
“The interesting part was that all of those people had been aboard the boat over the previous two years and hadn’t made a decision. So it drives an auction fever.”
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For the seller, the disadvantage of using an auction is that bidding might not be competitive. “The risk is someone tries to low ball you on it and you don’t see a number you want,” says Merrigan. He gives the example of an owner expecting about $14m with a reserve price of $11m but only attracting a highest bid of $10m.
“Once that happens, you’ve denigrated the price of the boat,” he says. “You either have to sell for $10m or you’re stuck with a boat that every broker and their buyer knows didn’t get $11m at auction.”
Kramer and his client opted for a no-reserve auction, which he admits made it a “high-risk” venture.
“However, it’s the no reserve that catches people’s attention and drives the frenzy,” he says.
Ultimately, like Maverick locked in aerial combat, it’s all part of the sales dogfight. And just another way of doing some of that broker sh*t.
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