What Should You Pay for That Aircraft?
Buying an aircraft is not like buying a house or an automobile, and establishing a fair price can get rather tricky. For instance, how does damage history affect market value, particularly if it has been properly repaired? What about a recent paint job whose design or color scheme is ugly? Or an interior that, while in excellent condition, looks as dated as a '57 Chevy? AVweb's expert on aircraft appraisal tackles these and other tough questions in this illuminating article.
The real measure of value of any consumer product is the price it sells for. Aircraft are no different. The buyer and seller must agree on a price before a sale can take place, and often the seller has his sights set on the high side while the buyer is looking at the low side. If no agreement can be reached there is no sale.
Aircraft are not a particularly hard product to sell, especially these days when there is a resurgence of interest in general aviation. The market has been hot for some time now, and a good aircraft priced fairly sells quickly.
How do you establish the price of a particular aircraft? For the most part, neither the buyer nor the seller is equipped to know the fair market value of the aircraft they are dealing with. Remember that each aircraft is unique, unlike other consumer products. It's not fair to either to use the average values that are found in the so called "appraisal books" or on-line services. Some of that information is generated using "asking prices" which are not a fair measure of the selling prices of those aircraft. Also, each party, the buyer and the seller, has his or her own biases. The seller is likely to see the aircraft in better light than it is, while the buyer will probably see it as worse than it is. So, who is right?
Harder than it looks
There's a lot more to properly evaluating an aircraft than most people imagine. I have talked to many pilots who think a quick cruise through the logbooks with a "fair" appraisal of the aircraft's equipment and cosmetics is enough to price it properly. Beware, there could be many traps along the way.
Not long ago I was looking at a Piper Dakota for a client of mine when I noticed an obscure entry in the Canadian airframe logbook. It said, "Repairs made to aircraft. See AI-101 Form." (The Canadian AI-101 Form used to be the equivalent of our FAA Form 337 until the designation was changed.)
Unlike the FAA, the Canadian Ministry of Transportation does not keep all its aircraft records in one central location. It took time to locate the records for this aircraft and find the form that detailed the type of repairs that were made. It turned out that the airplane had been nearly totaled and repaired. The repair work that was done was very good, but the perception of extensive damage history to a Dakota buyer means that the aircraft is not worth as much as one without damage history.
So we declined to buy it, and found another aircraft. Why? Because I didn't want my client to have problems selling the airplane later on. While the repair work was very good there are few Dakotas with that kind of extensive damage history, and most buyers would shy away from it, making it a hard airplane to sell later.
If you don't look at the logbooks hard enough, you could miss a simple entry that most people would ignore, like the owners of that Dakota did when they bought it. That could be an expensive mistake. I can relate many more incidents where what looked like routine repair entries proved to mean a lot more than the buyer or the seller imagined.
Factors affecting value
How do you factor damage history into the value of an aircraft? The average buyer or seller can't do that. Only a professional aircraft appraiser can come up with the true deduction for damage history, and he or she would have to see the aircraft, the logbook entry, and FAA Form 337, if one was issued, to make the evaluation.
One publication suggests deducting 5 to 25 percent for damage history, but those numbers don't mean much. How do you apply such a percentage? How much do you apply for each incident? By reducing the value a set percentage of the entire aircraft you are also deducting from the value of avionics, the engine, and other components, all of which (if undamaged) could be sold without any deductions. Furthermore, as we'll see, the effect of damage history can vary greatly depending on what kind of aircraft we're looking at.
Paint and interior can also be tough appraisal issues. For instance, I have seen aircraft that were painted in the ugliest colors imaginable (at least to my way of thinking). The paint might have been fairly new and in excellent shape, but certainly not "mainstream" in its choice of colors or design. Would a paint job like that be worth the same as one that was more pleasing to the eye? I suppose it depends on who's looking at it.
But remember that paint does two things for an aircraft: it protects the surface, and makes the aircraft look pretty. A paint job that is sound but ugly (at least to you or me) is still doing half of its job.
Interiors are similar. I once looked at an older Turbo-Commander that still had its original interior. It was in very good condition, but had a dated look because the fabrics and colors were not what are generally considered stylish today. The fabrics were not ripped or stained, and the carpet showed very little wear. But I felt like I was looking at the interior of a 1957 Chevy.
Airframe time has a direct effect on the value of an aircraft. With the average airframe times of our fleet creeping up all the time, we have to look harder for the very low time aircraft, and they are becoming more difficult to find. While average airframe times increase every year, most buyers don't want an aircraft with more than 5,000 hours on the airframe. That makes high-time aircraft harder to sell and therefore worth less money. On the other hand, while low-time airframes are worth more money, they are frequently overvalued by the owners or brokers who have them for sale.
While looking for a Warrior recently I ran across a low time one that was priced about $20,000 higher than others on the market. The seller was going to wait it out, hoping that someone would come along and pay him a large premium for his airplane. Surprisingly enough, someone probably will...but when they go to sell the airplane in two or three years, they will realize their mistake. What's worse, should the person who pays a premium for a low-time aircraft proceed to put a lot of time on it quickly, the value of the aircraft will be reduced even more as it gets closer to the average airframe time of others of the same type.
Be careful about well-meaning advice
Be careful how you search for an aircraft. I got a call from a low-time pilot who was looking for his first airplane. He wanted a Cessna 210, and his flight instructor and another local pilot steered him toward one in the local area. They told him that this was the airplane he should buy, and not knowing anything about the purchase process, he went to the bank and arranged for a loan. As part of the financing the bank insisted on an appraisal, and that report revealed a $15,000 deduction for major damage history.
With that consideration the airplane was overvalued. The buyer backed out, and he learned an important lesson. First, he would have bought the airplane on the word of his flight instructor and the other pilot. If it weren't for the bank insisting on the appraisal before the financing could be completed, he would have bought an airplane that would have been difficult to sell later. Like the Dakota I mentioned earlier, there aren't too many Cessna 210s with major damage history. Those that are on the market do not appeal to 210 buyers except at a reduced price.
With some types, it is not unusual to find damage history. Trainers, for example, get their nose wheels knocked off every so often. As a rule, that does not stop a flight school from buying an airplane. But when you get into the high-performance category, there are few aircraft that have been damaged. Those that have face a reduction in value because there are fewer buyers for them.
Be very careful when settling on the price of an aircraft that you want to purchase. If you are new to the purchase process get some professional help. It will cost you some money, but chances are you will save more than you spend, especially if something is found that reduces the value. It is not unusual that whatever bad news the appraiser finds is news to the seller, not just the buyer.
Cover your bases and do your homework before you buy. Buying an aircraft is not like buying a home or a car or anything else. Learn all you can about the purchase process and how to go about it. Then use common sense. Consider getting professional help in setting a value on the aircraft. Don't "wing it" using trade publications as your only valuation guide.
Don't skip any of the important steps that you should take when purchasing an aircraft, just because someone tells you this is a terrific plane, or suggests that you'll lose out unless you act immediately. Remember that if you get in a hurry and skip some of the steps, what looks like an attractive purchase could easily come back to haunt you in the future when you decide it is time to sell.