By Tom Pilkington
Early on in my brokerage career after closing a sale of a boat, the listing broker said, “Yes, it was a very nice boat. You could hardly tell it was a charter boat.” After the shock, I asked why he did not tell me this important information about the boat during the previous weeks prior to the closing. He replied, “You never asked!” Ethically I knew I should have been told about this, but is there also a legal responsibility?
Around the same time as my dilemma a judge ruled that an Ohio brokerage had to pay a boat owner $1.9 million for failing to tell him the powerboat he bought from the dealership had been badly damaged in a grounding and then inadequately repaired. The judge characterized the fraud – the withholding of material information – as “particularly gross and egregious” and said it “constituted a pattern of conduct that was designed to sell a vessel to an unsuspecting buyer, regardless of its defects.”
The idea of a broker withholding information about a boat that he is clearly aware of is not only an ethical situation; the courts have consistently ruled it a legal one. Brokers have the obligation to protect buyers against fraud, and misrepresentations on the boats they are representing.
As with most buying practices, the Internet has changed the boat buying process and has made the whole practice of Full Disclosure more important than ever. Before “online” yacht sale sites, most clients worked with one broker. “Their broker” would search the “broker-only Multiple Listing Service,” talk to the different listing brokers for their client, find out all information on the boat, and then set up showings. Since most brokers knew each other, and more importantly the professional brokers knew what questions to ask about the boat, buyers went to see boats already knowing their history, etc.
Now things are different. Buyers act as their own brokers, search the Internet for listings, hop in the car, look at as many boats as they can in a day, and make an offer on the one they like most. Often they do not ask the right questions regarding any known defects about the boat. Since many non-CPYB (Certified Professional Yacht Broker) brokers are not aware of their duty to disclose all information about a boat, or choose not to disclose, they leave it up to the surveyor to discover the defects during the yacht’s survey. Thousands of dollars are wasted on surveys that discover defects known by the broker before the survey even starts! The buyer is left with the task to begin his search all over again. Often days, if not weeks, have been wasted.
Recognizing that this was an ever-increasing problem, the Association of Professional Yacht Brokers clearly states in its CPYB certification manual, “A listing broker has the responsibility and an obligation to both a fellow broker and potential buyer to provide the most complete and accurate information on the listed vessel as possible, even if the information contains negatives.”
Simply, the CPYB practice is that a broker is obliged to disclose anything he knows about a boat – major or minor – that a potential buyer would want to know. Of course, the broker has to find out about the boat’s history. Often, just by being in the business, he will be aware of major problems with a boat but more often he has to rely on the information given to him by the owner that is selling the boat. The Association’s new Central Listing Agreement now asks sellers if the boat has been materially damaged. If so, an explanation is mandated.
The CPYB guideline is not perfect. The owner has to know any defects with his boat (sometimes an owner purchased a boat without survey), he has to make the broker aware, and the broker has to pass this information on to the potential buyers.
As usual, the best guard against finding out too late that the boat of your dreams has substantial problems is due diligence. First, if you are interested in a boat, ask the broker if he is aware of any negatives concerning the boat on your very first phone call. Also, ask if the seller has filled out a listing agreement stating if he is aware of any material damage to the boat. And lastly, hire a recognized surveyor to help you with the inspection process. Although these are no guarantees that the boat you are in love with has no hidden defects, it may save you time, money and disappointment during your search for the perfect boat.
Tom Pilkington is the owner of Prestige Yacht Sales, with offices in Norwalk, Essex and Mystic, CT. Tom started his boating career as VP of Yacht Haven Marine Center in Stamford CT. On weekends, Tom and his wife Jennifer can often be seen boating with their two Springer Spaniels on Long Island Sound.