What Should I Counter?
During the fourth quarter of 2008, the question of “what should I counter” was not one that came up very often. According to Jetnet database, the number of retail transactions during the 4th quarter of 2008 was down 37% from 2007. It is a bit harder to track the number of offers that were submitted during a particular time period, but based on reports from the brokers and dealers I spoke to I would argue that number was down even further.
However, today we are finally starting to see some offers coming our way. As you would expect these offers are quite low, in some cases approaching the ridiculous. So how should one respond to low offers in today’s market?
The first piece of advice I would offer is that a seller should take the time to counter any offer that is submitted in writing, no matter how low it might be. Some sellers feel that an extremely low offer does not deserver a counter, and as a matter of pride, refuse to do so. However, with so many aircraft for sale, a seller does not want to perpetuate an idea that they might be difficult to deal with or not willing to sell at current price levels.
Even if a seller feels that an offer is so far off the mark that a counter would be a waste of time, it still provides the seller with an opportunity to submit a fair and attractive counter to the marketplace in a timely manner. This can create somewhat of a buzz and generate additional offers. A negative buzz can also be created by telling a prospect that their offer is not worth your time to counter.
My second piece of advice is to counter very close to your final number. The days of giving a strong counter in hopes of maximizing your sales price are behind us for now. Prices have been falling rapidly and any time you might waste in negotiations will further erode from your eventual sales price. Be prepared to receive an offer 20% below what you think your aircraft might be worth based on a recent comparable sale. Then, if you want to come to terms with this prospect, you should probably be willing to accept something 10% lower than that recent comparable.
Finally, I would argue that a seller should keep the terms and conditions of any counter offer extremely simple. Use the format the buyer has submitted and make any “redline” changes that are necessary, but try to keep them to a minimum. Leave a vast majority of the complicated issues off the counter; those can be addressed in the definitive purchase agreement. The primary terms that should be detailed in the offer are price, scope of pre-purchase inspection, any time constraints, details of the deposit and escrow account and the condition that the aircraft shall be delivered in. This allows the important points to be discussed quickly, without either side having to involve their attorneys until later.
Getting an offer is one thing, actually putting a deal together in this environment is quite another. If you want to sell today, be prepared to play by today’s rules.
Toby J. Smith
JBA Aviation, Inc.