flyingS said:
Some people probably will tell me I am nuts. Some day I would like to develope a integrity based horse sale. I know lots of people will say that there are already lots of those around. Is there really. I am not interested in developing a big breeding program and marketing my own horses. Don't get me wrong I would have horses for sale as well. The standard for consigners to make it simple would be an unconditional guarantee, a wal-mart guarantee. All sellers would be required to sell there horses with the agreement that if a buyer has any complaint or proof of misrepresentation, they would buy them back no questions asked. I am not talking about a 3 day guarantee, I am talking about fitting horses to customers and lifetime guarantee's. A sale where people are allowed to come try the horses and get a feel for them before they purchase them. I would hope to build a reputable sale where buyers could expect to pay a premium for horses, with the majority of the consignors only selling a horse or two that is really broke. More than likely most of the sellers would be common ranch hands that use there horses and have no place to market them for what they are truly worth becuase they do not carry a well known name.
Flying S, as a buyer I would absolutely love that kind of guarantee. How much of a premium would I pay for a horse with that kind of guarantee? Probably not enough to cover the seller's risk premium. Here's why.
The biggest problem I've run across with this type of guarantee -- with private treaty sales and leases -- is that too many of the folks that tend to want to bring back horses are those that tend to ruin horses that start out being perfectly sane and handy. I've seen cases -- in sales and leases my friends and I have made -- where a horse will come back three or six months after the transaction, and that horse, which left the seller's or lessor's hands a perfectly sane, healthy, handy, and trusting individual, has become a head-shy, distrustful, hot-tempered, unsound, wreck-causing machine. I've seen horses come back with cut tongues, bucking habits, blown legs, injured backs from ill-fitting saddles, rope burns, and all sorts of other stuff. And that's usually within a few months.
You see, not every buyer's horsemanship skills are appropriate to keep a well-tuned horse well-tuned, and there are enough buyers out there with flat-out poor horsemanship skills sufficient to ruin any horse within a four or five year warranty window like you mentioned. Shoot, just this year I saw an experienced team roper -- who, by the way, takes great care of his own horse and whose horse is never, ever hurt, overworked, or unsound -- blow out the legs of two leased "slave horses" that he overworked practicing during the week while he saved his personal competition horse for the weekend ropings.
But back to the case of an unconditional, 100% money back guarantee for a horse sold through an integrity sale. Let's say I sell a horse at a sale with this type of warranty for a final bid amount of $20,000 (since we're being really optimistic about the premium a buyer is willing to pay for a 100% sound, 100% broke, and 100% bomb proof horse...). The sale barn will take either a flat sale fee of somewhere around $500, or a percentage of the sale price, or both. Let's say the sale barn's cut of the sale is $1,000. I, as the seller, have netted $19,000. The buyer is happy, the sale manager is happy, and I (theoretically) am happy because I have $19,000 and a new client that might represent repeat sales in the future. But, what happens if after two years, the buyer loses his income? Or gets transferred to a new job a thousand or more miles away to a location where boarding costs are quadruple what the buyer is currently paying to board his horse? Or the buyer dies and the widow (or widower) doesn't want the horse? All these situations, under an unconditional 100% money back guarantee, would allow the buyer to bring back a horse -- even a horse that he absolutely loves -- and demand that I reimburse the buyer's $20,000. In order to honor the warranty, I would have to cough up $1,000 over what I netted from the sale of the horse two years before, and also make up -- out of my own pocket -- the taxes I paid on $19,000 revenue two years before (about $5,000 or $6,000 at current tax rates). So I'm out of pocket $6,000 or $7,000 to take back the horse. And this is the best case scenario, since in this case I would be buying back a perfectly good horse for $6,000 or $7,000 over what I paid for him two years before. So, I´m ahead on the deal because I've saved myself two years worth of feed, farrier, and veterinary care, and theoretically I still have a $20,000 horse.
Now, let's play a little bit with the scenario. Five years after the sale, the market has tanked (sound familiar?), and horses are now worth 40% of what they were when the sale was made. The buyer decides he can use a spare horse for his guests or grandchildren to use when they come to visit. He brings the horse back to me, I give him $20,000 (when I only got $19,000 minus taxes for the horse five years prior...), and now I've paid $20,000 for a horse that at sale time netted me $13,000, and is now an $8,000 horse. And, the buyer (now returner) now has the funds to go out and buy two horses of the same quality as the horse I sold five years ago, and still be $4,000 ahead to pay for feed, vet, and farrier for the next year.
Now let's get a little more gory; the guy buys my horse and takes him home. But the buyer is less of a hand than his ego leads him to believe. His saddle doesn't fit the horse right, he weighs 100lbs more than he should, has awful balance because he only rides once a month (and he has those extra 100lbs to deal with), and compensates for that awful balance by balancing with the reins; he's really heavy-handed. And he absolutely loves those beautiful spade bits that the real Californios use, and so he custom orders one such bit the day he brings home my perfect horse. The perfect horse I sold him puts up with the pain in his back from the ill-fitting saddle being sat by an out-of-balance, overweight rider. After all, it's only once a month. And one day, about six months after the purchase of the perfect horse, when that fancy new spade bit arrives, the owner decides to try it out on the perfect horse I sold him. The perfect horse puts up with getting the bit with the full spoon jammed into his mouth. He's never carried a bit with a spoon, doesn't know what the signals to his palate mean, feels half-gagged because he doesn't know he should be picking the bit up with his jaw, and is kind of confused. But he's a perfect horse, so he puts up with it as he's led to the mounting block. The horse's new owner pulls himself up, settles himself in the saddle, and asks the perfect horse to walk off to get started with his ride. So far all is well. It's a beautiful Saturday morning, the weather is perfect, and about ten minutes or so into the ride, the guy decides to ask the perfect horse for that wonderful rocking-chair lope of his. The horse lopes on cue; the rider now grabs hold of the reins to keep his balance (like he's been doing to my perfect horse for the past six months). Only this time, there's a full spade bit in the horse's mouth, and when the jerk on the reins comes, it just about chokes the horse and he picks his head up in pain, slowing down into a fairly frightened trot. The rider and his ego get thrown further off balance by the unexpected slow down; his hands come up and back further to compensate being off balance, the horse gets gagged even more. The horse stops and starts to back up, nose forward and back hollow, yielding to and begging for relief from the pain in his mouth. The rider is mad and even more off balance. He chastises his misbehaving horse by kicking with his spurs as hard as he can, and jerking on the reins to show the horse who is boss. Up comes the front end, back even farther go the rider's hands, and within about three seconds, the unbalanced, overweight rider has pulled my perfect horse into rearing over on top of him.
A couple of days later, while the guy is still in the hospital with a busted spleen from the big horn of that Wade saddle crushing his abdomen, the rider's wife ships my perfect horse back to me and demands the $20,000 back. After all, I guaranteed a bomb-proof, super-broke horse that then went on to rear over on his owner for no reason. Of course, I only got $19,000 for the horse ($13,000 or $14,000 if I've already paid my taxes), but a warranty is a contract and I have to come with the entirety of the sales proceeds, plus anywhere from $1,000 to $7,000. Assuming I have that cash immediately available (either from not spending a single cent of the sales proceeds and having another $1,000 or $7,000 of uncommitted funds in my savings account, or from some other source).
So, let's say I have the $20,000 and I cough it up, taking back the horse. Only now, my horse's mouth is ruined; his palate and tongue are cut and he'll never be as sensitive -- or consequently as good -- as he was when I sold him. Not to mention, it will take me weeks to get the horse to tolerate a bit in his mouth again. So now I've paid $20,000 for a horse that may now be worth $5,000, at best. And, the rider's lawyer, claiming I had guaranteed a bomb-proof horse, is now taking a look at just how much of the hospital bill I should be footing.
So, anyway, back to the statement I made at the beginning of this post about the seller's risk premium. As a seller offering a lifetime warranty on a horse I sell, I'd essentially need to leave the proceeds of the sale of that horse in an interest-bearing account at the bank until the horse died of a cause that was medically and legally verified to not qualify for a refund of the full sale price. And unless the sale manager offered a similar warranty to the buyer for the amount of the sale commission that I as a seller paid to the sale barn, I would need to cover that cost, as well. Plus, the amount of the taxes I need to pay on the profit from the sale.
So I would be entering into a sale agreement under conditions that a) make the entirety of the proceeds from the sale taxable, but b) preclude a prudent seller from spending any of the proceeds from the sale for an undetermined period of time (that could conceivably be up to twenty years), and c) cause me to incur a penalty beyond my net proceeds from the sale in case of a return.
There is no price premium I can think of that would allow me to accept a sale under those conditions, since in this case as the premium grows, so, too does the penalty I have to pay (in the form of sales commission and taxes) in case the horse is returned for any reason, when many (if not the majority) of those reasons are beyond my control (and more than likely beyond even my knowledge, so I can't defend myself with any proof when it comes time to assign legal responsibilities before a judge or an arbitrator).
And that is why sales offering this type of unlimited warranty have failed in the past. If you can figure out a way to solve this issue, you'll be a rich fellow and I'll be banging on your door to consign my horses to your sale.
