Pre-Purchase Inspection vs Aircraft Appraisal

© Copyright 2009
D. Alan Carter, All Rights Reserved

So you’ve found the aircraft you want to buy. Keep your head about you and don’t let emotions drive the purchase. Your lender certainly won’t. In fact, if the aircraft in question is the least bit used, abused, antique or otherwise unique, rest assured your lender will likely order an aircraft appraisal – at your expense. Understandable, since the lender wants to be sure of his collateral. Then again, you want to be sure of your life, which is why a pre-purchase aircraft inspection – in addition to any appraisal – is so important.

Pre-Purchase Aircraft Inspection

Most folks today wouldn’t buy a house without a pre-purchase inspection. You want to know if the house has mold or termites or a roof that needs immediate replacement. In a similar vein, if there’s anything wrong with the aircraft you want to buy, you want to know about it before you become the one who has to fix it. And then there’s the safety issue; those flying with you are trusting with their lives that you know your aircraft.

Points to keep in mind with an aircraft inspection:

• Aircraft Inspection - Don’t have your pre-purchase aircraft inspection performed by the same shop that maintains the aircraft. You want an objective opinion from a mechanic who doesn’t know the aircraft or the owner. If need be, fly it to a neighboring airport to be sure you’ve got "new eyes" looking it over.
• Aircraft Inspection - Try to find a mechanic who specializes in – or is at least experienced with – your make and model of aircraft.
• Aircraft Inspection - Insist on a thorough aircraft inspection: airframe, engine, instruments and avionics, log books and service records. Not every mechanic is equipped to test instruments and avionics: make sure yours can do it.
• Aircraft Inspection - If possible, arrange to conduct a test flight with your mechanic in tow, checking all equipment while in the air.
• Aircraft Inspection - Get a list of the aircraft’s defects, and the cost in parts and labor to correct them.

It’s a rare used aircraft that won’t have at least a few problematic issues that surface on an inspection. Oftentimes, sellers are genuinely unaware of the aircraft’s problems. Other times, sellers are just hoping those problems won’t be noticed. Either way, as the buyer you have three options:

1. buy the plane as is, assuming any needed repairs are minor
2. re-negotiate with the seller to take into account the necessity of any major repairs
3. walk away from the deal

By ordering a thorough pre-purchase inspection through objective "eyes" and having your aircraft pass that inspection, you can be relatively confident that your aircraft is safe to fly and that no major repair work is lurking just around the bend.

Aircraft Appraisal

An aircraft appraisal, typically ordered by the lender, is an impartial opinion of the value of an aircraft. While a good appraiser will inspect the aircraft and examine the log books and maintenance history of the aircraft, an appraisal is typically not as thorough as a comprehensive inspection. An appraisal is all about ensuring that the amount being paid for the aircraft is reasonable, and in turn supportive of the lender’s collateral position.

An appraisal is not always deemed necessary, particularly in the purchase of new aircraft, or when the lender is extremely experience in aircraft financing and the aircraft in question is a familiar make and model (especially a smaller single or twin engine craft). Though it mostly benefits the lender, if an appraisal is required, the buyer picks up the tab.

From the buyer’s perspective, it can be advantageous to include a contingency clause in the purchase agreement requiring the appraised value to match or exceed the sale price. That way, if the appraised value falls short of the sale price, and the seller unwilling to re-negotiate accordingly, the buyer has the option of walking away from the purchase.

Read what else the lender requires in the ABC's of Aircraft Financing.

–- D. Alan Carter