What is the Difference Between an Aircraft Dealer and a Broker?
What is an Aircraft Dealer?
Aircraft dealers are typically businesses that take in airplanes in trade, or proactively buy inventory for the purpose of resale. Dealers are granted Dealer Registration Certificates from the FAA which exist as temporary registration documents during the period between buying and selling the plane.
What is the Advantage of an Aircraft Dealer?
The primary benefit of working with an aircraft dealer is that they may have the capability and interest in taking your existing airplane as a trade-in. In addition, they might have certain OEM factory-affiliations which allow you to purchase a factory new airplane through their business if they are an authorized reseller.
What is an Aircraft Broker?
An aircraft broker is a business or individual who assists buyers or sellers with aircraft transactions. You can think of this arrangement as being similar to a real estate agent for airplanes. They will be your guide through the sales process.
Selling an Airplane With a Broker
On the selling side, a broker will assist with listing your airplane and performing the marketing tasks required to reach a buyer. They will also assist with negotiations, paperwork, and logistics. You retain ownership of the plane until it sells. The broker is typically paid a percentage of the sales price at closing. The broker may require initial setup or marketing fees depending on their fee structure.
Buying an Airplane With a Broker/Buyer’s Agent
If you’re buying an aircraft, a broker may offer purchase assistance allowing them to work as your buyer’s agent. Unlike real estate, there are not regulated procedures in place for transactions, guaranteeing them a piece of the seller’s commission. In fact, it is in your best interest to not ask your broker to try to negotiate their own commission out of the seller. The best way to work with a buyer’s agent is to arrange a percentage or flat fee commission that you will pay them outright at or prior to closing. This ensures that they are not just looking for the deal that is willing to pay them the best commission. Rather, they can shop openly and with integrity to find you the best deal, and any negotiating efforts should then be used on your behalf for your benefit. Expect to pay a portion of the broker’s fee upfront, as they will invest a significant amount of time in the initial search for an airplane.
“Let Me Know if You Find a Good Deal”
I have heard this countless times. Please be aware that there are many customers who tell brokers to “keep an eye out for a good deal”. This is likely not going to result in any deals for you. Rather, if you actually want to buy a plane, pay a broker to proactively shop the market for you. Brokers are busy assisting paying customers who are committed to using them as their agent. If you are noncommittal, they will be too. Again, you may find that any good deals presented would only be the ones that result in a commission for them rather than the deal that is in your best interest. It has been said that you can know what your broker makes in a given deal, or you can wonder what they make. Better to know and have them fully engaged in your best interests. (And it typically costs you less.)
Is High Performance Aviation a Dealer or a Broker?
Both. At High Performance Aviation, we primarily broker planes, which has some advantages for our clients. On a trade-in, a client has to give up more value from their plane to account for the risk being taken on by a dealer. Depending on the plane, typically 15-25% of the airplane’s retail value will need to be allotted for the risk taken on trade-in. Therefore, trade-in values may be lower than desired for some clients. In brokering a plane, the client retains ownership of the aircraft and usually can continue flying it. There would be some time required to sell it, but ultimately the client would retain more of the value, and likely would save approximately 10% of the airplanes value by brokering it instead of trading it in.
Other Benefits of Using an Aircraft Broker
Some states, like Texas, have benefits related to sales/use tax if buying an airplane from an individual rather than directly from a dealer (check with a tax expert for clarification). Brokered planes typically meet this requirement, as the final transaction would be between the buyer and seller, while the broker just facilitates the transaction. This can be of significant value to a buyer and can elevate the perceived value of a brokered aircraft in comparison with an identical aircraft sold by a dealer.
When Should I Use an Aircraft Dealer?
If you are purchasing an aircraft from an aircraft dealer, it might make sense to trade-in your aircraft for simplicity and efficiency of the transaction. There may also be sales tax reasons to consider doing a trade, if it helps lower the sales tax burden for the aircraft you are purchasing. You should not expect retail value out of your trade. The aircraft dealer will likely need to make a reasonable profit on both sides of the deal, so expect to get a trade-in value that is a wholesale number which includes some margin for the risk the dealer is taking on your plane.
How do I Know if a Dealer Officially Represents a Particular Manufacturer?
If an aircraft dealer claims to be a dealer for a particular OEM, you should verify with the OEM. Many OEMs only sell factory-direct (with a few exceptions, common with international territories). For instance, Cessna and Cirrus mostly have factory-direct salespeople who are authorized to sell new airplanes in specific territories. If you are not sure, you can always check the manufacturer’s website for authorized sales centers or call their sales organization to confirm if a dealer is legitimately part of the sales network for that particular company.
How do I know if I’m Getting a Fair Deal on an Aircraft Trade or Purchase?
This is a challenging question to answer because it depends on several variables, many of which can’t be distinctly quantified without an overview of the deal in its entirety. If you want an outsider’s opinion on your particular deal, please feel free to call or email us directly.
If I’m Buying a Brand-New Plane from the Factory, Do I Need a Broker?
Yes, certainly. I have seen countless times where using a broker/buyer’s agent for a purchase, even if buying a factory new airplane, results in tremendous savings for the buyer. Even if you have bought several airplanes in the past and negotiate transactions in your day job, it is helpful to have an aircraft broker who has the connections to get the best deals and knows the pitfalls in certain deal structures. In addition, the broker can likely assist with arranging delivery and acceptance of your aircraft to make the process as painless as possible.
Want to Discuss Your Particular Sale or Purchase?
Schedule a Call with us.