Bluebook, VREF and Mooney Values

[Bug Smasher]

I agree with the idea that Mooney buyers tend to be heavy researchers. That's why they have zeroed in on Mooney types in the first place. Speed, efficiency, safety, capability, value = Mooney. 

[jgarrison]

7 minutes ago, Bug Smasher said:

I agree with the idea that Mooney buyers tend to be heavy researchers. That's why they have zeroed in on Mooney types in the first place. Speed, efficiency, safety, capability, value = Mooney. 

Yessir... There's a lot of smart in a Mooney owner.

[Bug Smasher]

Jimmy, your issue with lenders applies only in cases where the buyer needs maximum leverage and the bank's valuation comes up short, right? In many cases, I imagine the buyer would bring in additional cash to make up the difference. If the buyer is unable to scrounge up an additional $10-20k for an increased down payment, they may be unprepared for airplane ownership.

[jgarrison]

7 minutes ago, Bug Smasher said:

Jimmy, your issue with lenders applies only in cases where the buyer needs maximum leverage and the bank's valuation comes up short, right? In many cases, I imagine the buyer would bring in additional cash to make up the difference. If the buyer is unable to scrounge up an additional $10-20k for an increased down payment, they may be unprepared for airplane ownership.

That's part of it, yes. The second part is psychological. Guy (or girl) wants a plane. He has done his research. He has selected the plan he wants and negotiates the purchase, with a fair amount of research of the market (remember we are talking smart people if they are shopping for Mooneys). The buyer submits the aircraft to his lender for approval. The lender, a 'professional' tells him it is worth less than he bargained for. So he walks away. It doesn't happen often. But often enough. Worst case I have ever experienced is one where an M20C had a prop strike 15 years before. Lender put something like negative $15,000 on the plane for damage history. The buyer called me and was MAD that I was selling him a plane that was worth way less than we had bargained for because the lender told him I overpriced the plane. I blew my top. Called the underwriter. She was firm in her conviction that a prop strike was damage history and that it was significant, regardless of a new prop on the plane and a teardown inspection years before. I called the president of the bank. He said he would go with whatever the underwriter said. Never again with them.

[jaylw314]

22 minutes ago, Bug Smasher said:

Jimmy, your issue with lenders applies only in cases where the buyer needs maximum leverage and the bank's valuation comes up short, right? In many cases, I imagine the buyer would bring in additional cash to make up the difference. If the buyer is unable to scrounge up an additional $10-20k for an increased down payment, they may be unprepared for airplane ownership.

The insurance company also gets info from the bank, and the underwriter's assessment may influence how much they are willing to insure the plane for.  It might not, but it might.

[MIm20c]

1 minute ago, jaylw314 said:

The insurance company also gets info from the bank, and the underwriter's assessment may influence how much they are willing to insure the plane for.  It might not, but it might.

I’ve seen planes initially insured for 30% higher than purchase price with no changes made. I doubt it would be a problem. 

[jaylw314]

3 minutes ago, MIm20c said:

I’ve seen planes initially insured for 30% higher than purchase price with no changes made. I doubt it would be a problem. 

Yes, realistically it probably would not be a problem, but that info might be enough to put a buyer off before the sale

[INA201]

It seems to me that there are a lot of lending opportunities for aircraft due to the lenders miscalculating valuations.

[jgarrison]

3 minutes ago, INA201 said:

It seems to me that there are a lot of lending opportunities for aircraft due to the lenders miscalculating valuations.

There needs to be a good source of determining collateral value. I don't think anyone should jump into it without a good basis from which to protect themselves. However, If there were some private money out there that wanted a nice steady income OR if there were a lender out there who actually knows a thing or two about what makes value in a plane, there certainly are some opportunities. I am even thinking about putting a program together with a lender, private or otherwise, where I will guarantee some buyback based on a some formula, should the plane be repossessed for some reason. If you know of someone that wants to discuss, I am open. I have a few calls out now.

[Bob_Belville]

3 hours ago, jgarrison said:

<snip>

I am even thinking about putting a program together with a lender, private or otherwise, where I will guarantee some buyback based on a some formula, should the plane be repossessed for some reason. 

That reminds me of a sale I made in Hungary shortly after the breakup of the USSR. The company was a startup with American investors. They were financing everything to the hilt through a bank in the Isle of Jersey as I recall. The buyer needed his capital equipment vendors to provide buy back agreements for the bank. My competitor was unable to do that... against company policy... we've never done that. I said sure... no problem... as long as I set the terms. I gave them a schedule of declining value for several years that was generous for year one and decline steeply in subsequently years. (The company was financing everything @ about 110% of cost... I was sure they could not run out of money for a year or two.) And I added a caveat that I only would buy the $500,000 machine after it was brought up to operating condition by my crew and transported back to the USA. I had no real risk, the buyer got his machine and the bank got a piece of paper for his files. Happy, happy, happy.  

[jgarrison]

16 hours ago, Bob_Belville said:

That reminds me of a sale I made in Hungary shortly after the breakup of the USSR. The company was a startup with American investors. They were financing everything to the hilt through a bank in the Isle of Jersey as I recall. The buyer needed his capital equipment vendors to provide buy back agreements for the bank. My competitor was unable to do that... against company policy... we've never done that. I said sure... no problem... as long as I set the terms. I gave them a schedule of declining value for several years that was generous for year one and decline steeply in subsequently years. (The company was financing everything @ about 110% of cost... I was sure they could not run out of money for a year or two.) And I added a caveat that I only would buy the $500,000 machine after it was brought up to operating condition by my crew and transported back to the USA. I had no real risk, the buyer got his machine and the bank got a piece of paper for his files. Happy, happy, happy.  

Creative... I like it. I may need to pick your brain if I get a little further on this.

[thinwing]

Just wondering...what percentage of final price was down payment ?For instance,I put down approx 25 % and lender never raised an issue...could low down payments raise bank concerns of loan to value?

[bonal]

On October 31, 2018 at 6:35 AM, gsxrpilot said:

Very late to this thread... but I tried to read the whole thing. 

It seems to me that placing a valuation on Mooneys is something closer to placing a valuation on classic cars. Valuing used cars is one thing, but valuing classic cars is something entirely different. But then banks might not loan money on classic cars. 

And another question... does rarity come into the valuation of Mooneys? C's through K's are all desirable for different reasons and none are being manufactured. I would think that the size of the fleet would come into the valuation at some point.

Not very often I find disagreement with you sir, but I think comparison to classic cars is not a good one. In fact they are at opposite ends of the spectrum. When one is doing a valuation on a classic car beyond the current market its all about having zero mods and or upgrades. Matching numbers also a very big factor. Our Mooneys as well as most GA examples it's all about upgrades and for those it falls into the be holders personal requirements. Like I know for you its all about avionics and auto pilot the most IFR capabilities. If one can find a 69 mustang boss 302 all original paint engine and zero modifications it would command the highest price for that particular model. On another note the demand is such a driving factor, example a nice Cessna 172 compared to an equivalent M20C the Cessna price is much higher even though the M20 is a much better performer and in my opinion a superior airplane.  The perception from the masses is the Cessna is going to be cheaper and perhaps more forgiving nothing to do with mechanical factors just a consumer perception. To the OP if you can develop a working database for this crazy market you sir would be quite the genius.

[gsxrpilot]

Just now, bonal said:

Not very often I find disagreement with you sir, but I think comparison to classic cars is not a good one. In fact they are at opposite ends of the spectrum. 

Hahahaha full respect sir.  But I think we do agree.  I didn't mean to say that the most original Mooney is comparable to the most original car (Mustang). But I did mean to say that just like classic cars, every single vintage airplane will be valued on a whole host of variables. In the classic car world perfectly original numbers matching is valuable. But has it been restored or is it untouched. Did the restoration retain all the original parts or are minor new parts included. And even a high modified classic car can be worth big money depending on the modifications. For example, is it a Chip Foose car? 

I don't think we value Mooneys the same way we value classic cars. But the wide variety of classic car valuations seems to me to be similar to wide variety of vintage Mooney valuations. 

Unlike the "used car" market where mileage, year, and general condition is really all that matters.

[bonal]

Definitely agree on the "used car" aspects you mention. But I still hold that a totally "stock" classic car will hold the highest value. Whereas with our airplanes the more mods and upgrades the better. 

[gsxrpilot]

Definitely agree on the "used car" aspects you mention. But I still hold that a totally "stock" classic car will hold the highest value. Whereas with our airplanes the more mods and upgrades the better. 

I agree with that 100%. And don’t believe that is in conflict with my original post.

[bonal]

Cool, I guess my point is the used airplane market has got to be the most dynamic any bodies guessing game there is.

[SpamPilot]

Although the market is very sparse compared to goods like cars, it doesn't take a lot of data points to get a fairly good estimate of an average.  Sorry I can't find the reference, but in the distant past I read about some research that suggested as few as three buyer-seller pairs may be enough to establish a "fair" market price.  In any event, basic statistics shows how few data points are needed to estimate a mean with good confidence, if certain assumptions hold true, which is likely.

Jimmy, your own sales database would probably be enough to make significant inroads into this problem.  You have already internalized this and can make accurate predictions without much explicit math; the only problem is you can't pick that semi-quantitative, semi-intuitive process apart to understand how it works objectively and eliminate sources of bias and error.  The basic math is not hard, though due to the number of parameters involved, I'd be tempted to see what value Machine Learning could add.  The results will be credible to different extents for different consumers, but you can work on that.  Confidentiality may require some thought; I'll just point out that real estate sales prices, for example, are usually not confidential, and maybe Mooney buyers and sellers would contribute that information if there's a public good or a benefit to them.  Or maybe it's sufficient just to eliminate personally-identifying information.  In any event, when I'm in the market for a new Mooney, I'd pay money for information built from your database, though I'd rather get it for free if I am buying or selling through you and had previously bought or sold an aircraft through you and contributed my data.  If enough people become convinced that your valuations are more right than the other available sources, banks will need to start listening to you, and may even pay you for information in order to help reduce their risk.

Edited November 2, 2018 by SpamPilot
typo

[carusoam]

We could probably ask a mathematician how to take 750 sets of data of various completeness and ages and turn it into a pricing function...

Calling on an MS math man... @aviatoreb

Jimmie has an interesting database that is looking for a math function to calculate prices of current Mooney machines based on historical sales figures...

Go any ideas how this could be accomplished economically?

Defining economically...

1) one person wants to pay for developing the program...

2) the end user will be paying that person to use the program to either create a Sales price, or a buy it now price...

Is there a piece of canned statistical software available for setting this up?

Jimmie has the data sets, and would like a fair market value for a Mooney to be calculated...

What anyone would pay in the end for the Mooney would be the market price... at auction it could be much higher based on competition of a number of people, the economy, cash or financing available...

Ultimately a ‘solid’ model to value the aircraft will allow a customer to get the needed financing...

There isn’t a solid enough model beyond the value Jimmie assigns it...

Let me know if I missed something...

Best regards,

-a-

[MIm20c]

One thing that got me thinking with the used car reference is the added risk lenders take on with this type of loan. 

The older aircraft (stated to be the harder ones to prove value on) can easily cost as much to operate as newer models. This makes it extremely easy to get upside down with the loan. If someone is stretching to afford the payments on a cheaper aircraft are they more likely to default if the engine starts making metal? Or if the first annual finds a ton of issues?

[carusoam]

Are there any other ways of obtaining a loan for a plane...

1) Bank...

2) specialized, aircraft loan, company...

3) AOPA bank partner...

4) Some have stretched the home equity loan...

5) Last time I bought a plane... AOPA/Bank of America arranged the loan, AAA set the price...

6) Bank lending rules have become really challenging since then...

All but the home equity loan are going to need a form of appraisal of value for the plane...

-a-

[jgarrison]

23 hours ago, thinwing said:

Just wondering...what percentage of final price was down payment ?For instance,I put down approx 25 % and lender never raised an issue...could low down payments raise bank concerns of loan to value?

Lenders advertise 15% down and I believe this guy was going with the 15. The 85% loan is based on the lower of sales price or appraisal. I think in order, strength of borrower comes in first and the collateral comes second. Some banks are ferocious on loan to value and even though they may say they will loan with only 10-15% down, the reality is that their underwriting will mean that they are not going to do many full retail deals because they wont give full value to the aircraft through appraisal.

[jgarrison]

15 hours ago, SpamPilot said:

Although the market is very sparse compared to goods like cars, it doesn't take a lot of data points to get a fairly good estimate of an average.  Sorry I can't find the reference, but in the distant past I read about some research that suggested as few as three buyer-seller pairs may be enough to establish a "fair" market price.  In any event, basic statistics shows how few data points are needed to estimate a mean with good confidence, if certain assumptions hold true, which is likely.

Jimmy, your own sales database would probably be enough to make significant inroads into this problem.  You have already internalized this and can make accurate predictions without much explicit math; the only problem is you can't pick that semi-quantitative, semi-intuitive process apart to understand how it works objectively and eliminate sources of bias and error.  The basic math is not hard, though due to the number of parameters involved, I'd be tempted to see what value Machine Learning could add.  The results will be credible to different extents for different consumers, but you can work on that.  Confidentiality may require some thought; I'll just point out that real estate sales prices, for example, are usually not confidential, and maybe Mooney buyers and sellers would contribute that information if there's a public good or a benefit to them.  Or maybe it's sufficient just to eliminate personally-identifying information.  In any event, when I'm in the market for a new Mooney, I'd pay money for information built from your database, though I'd rather get it for free if I am buying or selling through you and had previously bought or sold an aircraft through you and contributed my data.  If enough people become convinced that your valuations are more right than the other available sources, banks will need to start listening to you, and may even pay you for information in order to help reduce their risk.

Quoting the whole thing because it is very well written and thought out. I appreciate the word 'objectively' that you used. Problem in this endeavor is that in aircraft valuations, not only are there subjective additions/subtractions to value (which is why you will never see me use the 1-10 scale on paint and interior - I look at a plane and decide 'will the buyer like what he sees on first impression or will it turn him off') but there are levels of objectivity (FIKI TKS to one person may be minimal in value to me <Texas resident> but may be worth more than the typical addition another <Chicago resident>). However, there are basics that everyone SHOULD be able to agree on, within degrees. And that is what I am after. When you have a non-pilot underwriter who is trying to put value on an item that is not specifically listed in the guide, you run into problems. And that is where this thread originated from. $10K worth of true value that the appraiser gave $3K toward appraisal.

[rbridges]

I actually used a valuation by Jimmy in a MAPA years ago to give the bank something to base the cost. That was in 2010 or so.  

[M20F-1968]

Jimmy,

The fleet of vintage Mooney aircraft has become very diverse and very difficult for a buyer to put a value on.  There are subjective numbers that could be assessed, namely what a buyer "feels" an aircraft equipped in a particular way and/or condition is worth to him/her.  However, if there were a repository of objective data available to the Mooney buyer of what an aircraft sold for in the past, or what aircraft is professionally appraised for, along with its condition and equipment, there would be a way to compare the validity of a buyer's subjective feelings against retrospective objective data.  I say this as an owner  of a unique 1968 F model, rebuilt to be a modern aircraft, and that is (I believe) professionally appraised and insured as likely the most expensive F model out there.  Planes like mine define the envelope, and the majority define the middle of the bell curve.  Perhaps a repository of objective data such as this can be of monetary value to future buyers and sellers.  An objective databank such as this would enhance communication as to the financial state of the Mooney fleet and add stability given the historical data.  

John Breda