Tip 9 – A Touch of Gray
By: Jerry Temple
As published in Cessna Owners Magazine, Dec. 96
Phone: (972) 712-7302 Fax: (972) 712-7303
Other Publications this article appeared in: General Aviation News, 8/2/96
As a professional aircraft Broker I’m often asked, what is the most difficult element of aircraft transactions in the Piston Twin market in today’s general aviation environment? There are several choices. Here are a few.
Obtaining the listing. Making sure Sellers understand the contractual obligations of an aircraft Listing Agreement.
Researching data on a listed aircraft. Estimating the costs necessary to appropriately research an aircraft being brokered versus the potential commission or profit and the risk of succeeding in selling the aircraft.
An accurate evaluation of the aircraft’s value and sales price.
As in all sales, especially high-ticket items, qualifying customers responding to specific aircraft ads or general ads.
Budgeting the amount of time provided to a caller, especially on initial contact.
Deciding how much of a response is warranted. What materials and information is sent now or in the future?
As you can see, there are numerous “steps” that a professional aircraft Broker addresses on a daily basis.
Now let us skip to the point where a caller has evolved into a customer and is seriously interested in an aircraft that is being offered.
Assume all available, necessary and appropriate information about the aircraft has been provided to the customer. Let us agree the remaining questions can only be resolved with a Pre-Purchase Inspection.
The procedures for a Deposit, Escrow, Inspection and Delivery are explained to the customer.
Next comes a step I believe is the most difficult. It is a discussion with the Buyer and Seller in an attempt to have a clear understanding of the price and known discrepancies now known and any that may be found on the Evaluation Flight or Pre-Purchase Inspection.
Depending on the Broker or Dealer’s sales philosophy, professionalism and honesty, and the Buyer’s and Seller’s previous aircraft purchasing experience, this step can be a mild and light gray zone, or it can be a deal-breaking impasse.
Let us talk about something most adults have experience with, residential real estate. Let us say you and your spouse want to purchase a house. Loan approval is obtained. Budgets are determined. A broker is selected. Now it is time to shop. A particular area of town is desired. Various houses are toured. Pros and cons are listed. Asking price is noted.
One interesting house gets a second look. The carpeting is weak. The kids’ rooms need paint. The stove is old. The garage is large. The yard is fenced. Pros and cons.
You decide to make a formal offer. This offer is subject to a more formal inspection by specialists – roof, foundation, termites, etc. Your offer is made with the house in its present condition. The Seller will not be painting or carpeting. Your offer is a result of all of the facts you have. If major problems are discovered on a detailed inspection, you can elect not to purchase the house, or can revise your offer, in which case the Seller can agree, reject or offer a compromise to the revised offer. The house will not be prepared to the standard you plan to put it in.
In today’s general aviation environment your offer to purchase a piston- engined aircraft is almost identical to the real estate example. Your offer is based on the aircraft in its present state. You’ll evaluate the model year, hours, equipment and condition. An honest professional will provide you with all reasonable information. You may go see the aircraft and make judgments for yourself prior to making an offer.
Is this what you want to buy? If this is the one, an offer is required, based upon the represented state of aircraft. You are protected by the contingency of a Pre-Purchase Inspection and a Deposit is protected by Escrow. As with the real estate example, if major discrepancies are found, you may revise your offer, or elect not to purchase the aircraft.
Is it now gray, or getting gray?
The Seller needs to understand they will not be expected to repair small squawks or the very gray areas of normal wear and tear. Remember, we are often talking about an aircraft manufactured 20 to 25 years ago. However, a Seller must understand that if major squawks are discovered on the Evaluation Flight or during the Pre-Purchase Inspection, then the Seller will be expected to address them. Most often, the Seller simply makes a price concession and the sale is completed. The Seller usually wants to be paid and move on. And, most often, the Buyer wants to manage the needed repairs along with other maintenance.
It should be noted at this point many sales get bogged down in an impasse of words and ideas between the Buyer, Broker, Dealer or Seller. It is the point where many Brokers earn their fee. Hypothetical charges and accusations from the two parties that have never met can get extremely rough at this point.
A Buyer might say they are not going to “nit pick”, but wants everything working. What does that mean? Subject to individual interpretation? A Broker will repeat over and over, “If you find something major on the Pre-Purchase Inspection you can elect to pass or change your offer.” The Broker should educate the Buyer to the fact that there will be small squawks and normal wear and tear, and these items need to be factored into the initial offer. The Seller will not be repairing them. A Seller whose position is summed up in a statement such as “I know it’s a good airplane and I am not fixing anything” (no matter what is found) is not the person to buy an aircraft from. Gray?
OK, everybody understands the rules. Right? Let’s proceed. Caution
Buyers travel can be expensive and a thorough Pre-Purchase Inspection is a major undertaking. A Buyer should have a clear understanding of the total process before placing a deposit. Here again, an honest sales professional makes sure of this.
So this does not evolve into a discussion of Pre-Purchase Inspections, the Escrow process, selection of a Broker and other critical elements of an aircraft transaction, I’ll summarize:
Buyers: Research. Select the best aircraft for your needs and budget.
Obtain all the reasonable information on a particular aircraft. This may include Specifications, Photos, Videos, Logbooks, FAA research, etc.
Perhaps go see it. Consider employing professional help to do all of this for you. If you wish to purchase the aircraft, you will need to make an offer. This offer will be based on the aircraft as is. You have the right, and should conduct a proper Pre-Purchase Inspection. At this point either reject or modify the offer if major squawks are found.
Do not plan to get every small discrepancy fixed. You are risking wasting your travel and inspection dollars. Also, if you are not comfortable with what you are paying for the aircraft, do not plan to somehow get the price lowered through the Pre-Purchase Inspection process. A legitimate discrepancy will be addressed by the Broker and Seller. A sales professional will detect and will not deal with a planned strategy to lower the agreed-to purchase price.
Sellers: There are many elements to conducting a total aircraft transaction i.e., obtaining Listings, Seller Contracts, Ads, Aircraft Research, Marketing, Offers, Deposits, Contracts, Escrow, Inspections and Delivery.
Clearly understand that a Buyer has the right to a normal and reasonable Evaluation Flight and a normal and reasonable Pre-Purchase Inspection. Without listing each party’s costs, you the Seller are expected to take the buyer on a local Evaluation Flight and the Buyer will pay for the Pre-Purchase Inspection.
Small squawks and normal wear and tear simply are a part of the airplane and should be calculated into the Buyer’s offer. Major discrepancies will need to be addressed.
Now, let us jump to the close. Completed are Evaluation Flights, Inspections, Negotiations and Contracts. Escrow wires the money, and another aircraft has been bought and sold.
The sales professional must learn about the Buyer and Seller’s previous experience, the advice they are getting, and must know the marketplace and the particular aircraft desired. For the aircraft sales professional to successfully bring a Seller and Buyer together can be a great challenge.
Contact JTA at 972-712-7302 regarding professional brokerage of your quality twin or acquisition support services.