The Importance of Knowing What Type of Aircraft Buyer or Seller You Are. Step 3 of 9

Bringing a plane to market and the different types of buyers and sellers:

Hello, Jake Huling here with Aircraft Sales Advisor. I’d like to welcome you to the third report in a new series called, 9 Steps to a Successful Sale or Purchase of Your Plane. 

In the last report we discussed the Aircraft Blue Book Appraisal and how it’s only one piece of the information needed to get an accurate appraisal on a plane. We went on to talk about the four different sources of information you’ll need for an accurate appraisal. 

We also covered the importance of not only looking at planes currently on the market, but also in finding at least three recently sold planes that are similar to your plane or the one you are looking to buy. If you haven’t watched the first and second video reports in this series, I recommend you check them out first.

Video #1 covers the Aircraft Brokers reputation and the top complaints from buyers and sellers.

Video #2 covers how Aircraft Brokers determine the value of a plane, the good, the bad, and how to use that to your advantage.

In this third video report, I promised you we would go over the different ways to bring a plane to market, the margin differences between wholesale and retail, and what that means to you when buying and selling. We’re also going to cover how to go about the search for a plane, and the different types of buyers and sellers. 

And lastly we’ll cover commission rates, what they should and should not be, and the different types of percentage based commissions. As I've said before, I like to keep my reports as short as possible, so hang on to your seats were going to get right down to business.

To begin with, let’s talk about bringing your plane to market and the different types of buyers and sellers:

Now, at this point there are several different factors to consider when deciding how to bring your plane to market. Your desired asking price, your time frame for selling, and if you are selling only or if you will also be buying a new plane.

Now, something that’s important to understand is that different asking prices will require different buyers and different strategies to reach those buyers. And if you are a buyer, this is also a good opportunity to decide what type of buyer you are. There are really two different categories that a buyer generally falls into, wholesale and retail.

Wholesale buyers are looking to buy a plane at the low end of the price range. An example may be, lets say, a broker who has a buyer or backer and is looking at planes as an investment where they want to buy low and sell high. 

It could also be an individual or company, who buys a plane at wholesale prices, flies the plane until it’s depreciated, and then sells for a retail price. Something to keep in mind, is that approach can also be a great way to help pay for your flying. 

Now if you are the seller, you would generally look for this type of buyer if you wanted to sell quickly and didn't need to get a higher retail price for your plane.

A retail buyer on the other hand, is usually an individual or company looking more for a quality plane at a fair price than they are a deal. They’re also more likely to be looking for, and willing to pay for, a plane with upgrades and/or lower total time on the airframe and engines. 

A word of caution here for the sellers, it usually takes more time to find this type of buyer and requires more active and focused marketing. This is where identifying the buying paths that we talked in the last report becomes important. So if you are looking for this type of buyer, factor extra time into your equation. That way you won’t get caught off guard or frustrated during the sales process, because I do see that happen quite often.

Now let’s cover the margin differences between wholesale and retail:

This amount can vary quite a bit depending on the plane we're talking about. So to keep this simple and give you an idea of what the difference can be, I’m going to use a King Air B200 and I am going to use the 2007 model. The Wholesale price for this plane is listed as $2.64M, and the Retail price is listed at $3M. So here you’d have a difference of $360K.

And just like finding a Retail buyer can take longer, so can finding a plane to buy at a Wholesale price, so again, factor in extra time. There is an exception to this rule, and that is if you know of an off market plane, or you found a Broker who knew of one or was good at finding you one.

Next let’s talk about how to search for your next plane:

If you’re buying, how do you go about finding the right plane? Well, again it depends on whether you want to buy Wholesale or Retail. If you look on some of the more popular listing sites, like Controller for example, you’re going to find almost all Retail planes. And if there is one that ever gets advertised for a Wholesale price, the difficulty is that it’s gone before you ever get a chance to even talk to someone about buying it. 

If you want to buy a plane at a Wholesale price, your best approach is to find one that’s off market. And again, that’s done by either you knowing of one, or having a broker who knows of one, or is good at finding off market planes. And remember, when choosing a broker, be careful who you work with, because it makes all the difference.

Commission rates, what they should and should not be:

There are several different factors that will determine the commission rate. The price of the pane you are selling or buying, and whether there are one or two planes involved. What do I mean? Well, an example would be if you are selling one plane in order to buy a different one. 

And if there are two planes involved the commission rate should reflect this. So let’s go over what the broker should be doing for you in each of these scenarios and a commission percentage range for each.

• The first scenario would be if you are selling or buying only one plane. If selling, the broker should be responsible for, and pay for, all marketing, advertising, and promotion of your plane. They should be taking all of the calls and sorting through the tire kickers and information seekers to get to the serious offers. Once they bring you a serious offer or offers, they should also be responsible for going back and re-negotiating any counter offers that you decide to make. They should also be able to give you an idea of what the buyer is actually willing to pay, and why. They also need to make sure the proper amount of money for any offer is placed into an escrow account.

• If you are a buyer the broker should be providing you with a complete list of planes for sale, both on and off market, with both the listing prices, and after contacting the owner or broker, once again an idea of what they will actually take. They should be responsible for any and all negotiations needed to get you the best purchase price for the plane you are interested in. They should also do a complete review of the logs and make sure there are no hidden surprises, including damage history, repairs done at questionable facilities, and make sure there’s nothing coming up due for maintenance, both big and small, that you don’t already know about.  

In this scenario, let’s start out with a value of the plane being $1.5M to $3.5M. The range of the commission should be somewhere between 2% and 4% of the sale or purchase price. If the plane's value is much lower you might find many brokers have a minimum commission rate. I am going to tell you a minimum commission for a single sided transaction in this range should never go much above $50K. 

And if the value of your plane is higher than $3.5 million all the way up to a $12- or $13M jet, they should be offering you a reduced commission rate. The very highest a commission should be, even for a very expensive plane, shouldn't be much over $100- to maybe a $120K at the very top. And they should be providing you with all of the services we talked about.

• The second scenario is when you have a two sided transaction. You are selling a plane and buying another one. In this case the broker should provide all of the services mentioned in the first scenario, and better still, they should be offering you a reduced commission that’s based on the total transaction for both planes. So instead of paying, let’s say a 3% commission on the sale of your plane, and 3% on the purchase of your next plane, the commission is reduced to say to around 2% of the total transaction for both planes combined. If you are selling and buying a plane this is a great way to save some money.

So that’s it for this report, in the next one we are going to cover selling a plane on your own, the pros and cons of this approach, the importance of keeping control of your information, and how to handle brokers that contact you about your plane. 

So that’s the next report, thank you so much for joining me on this third step in my newest series of reports called, 9 Steps to a Successful Sale or Purchase of your plane. This is Jake Huling with Aircraft Sales Advisor, and I look forward to seeing you on the next one.