About Me

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Rachel Kosmal McCart is a lifelong horsewoman and the founder of Equine Legal Solutions, PC, an equine law firm based in the Portland, Oregon area. Rachel is a member of the New York, California, Oregon and Washington State bars and is admitted to practice before the U.S. District Court for the District of Oregon and the U.S. District Court for the Central District of California. Rachel currently competes in three-day eventing.

Thursday, September 18, 2008

Selling Your Horse: Should You Take that Lower Offer?

Especially in a down economy, horse sellers are tempted to take their horses off of the market until the market improves. But, how much will it cost to keep a horse until the market does improve, and IF the market does turn around, will the increase in price be enough to justify having the kept the horse all that time?

Some horse sellers think, "I can't accept that offer. It's less than I paid for him. I've spent X dollars just in training on that horse. If I accept this offer, I'll be losing money." But, they are failing to realize that every week they keep that horse, they are still losing money in the form of what it costs to keep it.

To help horse sellers more easily evaluate the offers that they receive, Equine Legal Solutions has put together a simple Excel spreadsheet - see link below. In the first tab is a month-by-month list of the sale horse's expenses, which includes such regular costs as board as well as occasional costs such as vaccinations. In the second tab are the horse's asking price, the offer price and then the cost of keeping him. If the cost of keeping the horse exceeds the difference between the offer price and the asking price, the seller should accept the offer.

Beyond the pure mathematics, there's also the risk that the horse may decrease in value unexpectedly and/or incur unforeseen expenditures. For example, the horse could colic and require colic surgery. Not only would the seller have to pay for the surgery, they would then have to keep the horse during its recovery (incurring the regular maintenance costs) and when the horse recovers, the fact that it had required colic surgery would have a significant negative impact on its market value. In the case of a broodmare, if the seller keeps the mare another breeding season and then fails to get her in foal, the mare's value as a broodmare is negatively impacted (plus the seller has to pay to keep an open mare).

Another consideration is the likelihood that the seller will get another (higher) offer on that horse, and how long it will take to get it. The less marketable the horse, the longer it will take to get another offer.

In general, horses that aren't very marketable include:

-Broodmares that haven't produced anything of note
-Broodmares with a history of being difficult to get in foal and/or that have difficulty foaling
-Broodmares that have consistently produced undesirable traits (e.g., color breed foals without color)
-Any performance horse that has a significant soundness management issue (e.g., navicular)
-Any horse with a behavior issue (i.e., rearing, bucking, poor ground manners)
-Any horse that cribs, weaves, or has another annoying stall vice
-Any horse with a notable conformation flaw (i.e., parrot-mouthed)
-Any horse that is out of condition (i.e., hairy and ribs showing)
-Performance prospects that are behind their peers in terms of training (i.e., unbroke four-year-olds, yearlings that aren't halter-broken)
-Performance-bred horses that have average or below average ability
-Halter-bred horses that have average or below average conformation
-Stallions. Even if the stallion has a very strong production record, there is a very limited market for stallions, because few people have the facilities and experience to keep one properly. Those who do have the proper facilities and experience tend to already have a stallion (or not want one).

In summary, unless the offer price is ridiculously low, it almost always makes sense to accept that offer and get the horse off of your payroll. Keep in mind that you can make a counteroffer, too - ask for a just a bit more and you may minimize your losses and still have a willing buyer.


1 comment:

Lance J said...

As an accountant with a firm that handles a number of equine operations, I would also say another factor in determining when to sell the horse would be whether or not the horse is a business asset or a personal use asset. If you are in business and the horse is sold for a loss you would also get a tax deduction for the loss on the sale of a business asset. If throughout the year you had other horses which were sold at a gain you could offset those gains with the loss on the current sale. You would also be able to offset gains you may have had on other business assets or income. This being said, I always advise my clients never to let the decision to buy or sell an asset (business or otherwise) be driven soley by the resulting tax consequences. Cash flow should drive your final decision.

Lance Jacob
Naden/Lean, LLC CPAs