Equipment Appraisal Blog | Understanding Machinery Appraisals

What's Involved in the Appraisal of Construction Equipment?

Posted by Equipment Appraisal Services on Wed, Nov 14, 2018 @ 10:23 AM

appraisal of construction equipment

When you work in construction, the value of your equipment often falls by the wayside compared to the income that is generated by that machinery. But when it's time to purchase new equipment, the value of that construction machinery is suddenly of paramount importance in terms of how it helps you finance your new machinery. The process involved in the appraisal of construction equipment may seem confusing, but it's actually fairly straightforward. Here's a quick look at the overall process to help you get a better grasp of how it works.

 

What's Involved in the Appraisal of Construction Equipment?

When used construction equipment is appraised, there are a few steps involved in the process:

  • The appraiser gathers the initial information about the equipment. This includes the manufacturer, model, any additional kits or options that have been included and similar data which helps give the appraiser a baseline to determine the value of the equipment. This part of the process may also include a rough estimate of the machinery's condition by the individual securing the appraisal, but not as a final assessment.
  • The equipment itself is appraised for condition and value. This includes taking a solid look at the entire piece of machinery, including the condition of the body, mechanical condition, performance and similar aspects which help the appraiser determine both the current condition of the machinery as well as the expected useful remaining lifespan of the equipment.
  • The market may be considered. If the equipment is of a type that can only be used in construction, the market conditions can have a strong impact on the appraised value. For example, if the construction market is going strong, the machinery may have a much higher resale value based on that aspect of market demand than when the market is very weak and demand for machinery of this type is very low.
  • The market may be of limited interest. If the machinery in question is, on the other hand, reasonably useful in a range of other industries, such as a forklift, the condition of the construction market may have a much lower impact on the final value of the equipment. For example, the previously mentioned forklift can be used in a range of other applications, such as shipping, warehouse and similar industries, which means that its value can be carried by these industries.
  • The final value of the machinery is calculated. Once these different aspects are taken into account, the appraiser uses a calculation methodology to determine the final fair value of the equipment. As the different factors are taken into consideration, the formula used adds or subtracts value based on whether that aspect increases or decreases the equipment's overall value. This information is consolidated into a final report by professional appraisal firms, especially those that use certified equipment appraisers.

By having a solid grasp of what's involved in the appraisal of construction equipment, you can have a better appreciation for what happens behind the scenes when you're getting ready to trade or sell your used equipment and need to know what it's worth. Make sure that if you decide to have a professional appraisal performed that you work with a certified equipment appraiser to ensure that the valuation report has been developed using standardized methodologies that help protect your interests in your equipment.

Tags: appraisal of construction equipment

How can an equipment valuation help you take advantage of economic growth?

Posted by Equipment Appraisal Services on Tue, Nov 06, 2018 @ 10:43 AM

When the economy is strong, you want to take advantage of that growth to make the best gains you can before things slow down again. But how do you know if you're using your equipment assets to their best advantage during this process? An equipment valuation can be a valuable tool to help you gain significant growth out of the good times to help you through the bad. Here's a quick look at some ways you can use a valuation report to your benefit during periods of strong economic growth.

How can an equipment valuation help you take advantage of economic growth?

  • Finance: A strong economy is a common indicator that it's a good time to take out a loan to grow your business or consolidate your position. However, securing that financing for the best possible rates can be difficult, especially if your business struggled during the last recession and has a few stains on its credit report. When you know exactly what your equipment is worth, you can use it as collateral for your financing. Furthermore, an equipment appraisal report from a certified appraiser holds up to strong scrutiny, bypassing the need for having a secondary appraisal for the financial institution.
  • Improved Production: Downtime is the enemy when production is running hot and you need every possible bit of outcome from your equipment. During an equipment appraisal, a qualified machinery valuation specialist may notice a number of different issues with your equipment. Because they deal with this type of equipment on a daily basis, it's much easier for them to notice when something seems a little off and may be able to provide advice with regards to potential upcoming failures. This allows you to make timely repairs before a major breakdown takes place.
  • Improved Overhead Costs: As part of your overhead costs, knowing when to replace aging machinery is a vital part to ensure that you're putting out as little equity as needed when the time comes for replacement. When you know exactly what your machinery is worth at the time, it makes the replacement decision and the calculations involved much easier to determine. This allows you to make the right decision at the right time for the right cost, saving your business money in overhead costs for replacement machinery.
  • Avoiding Poor Property Tax Assessments: As the economy recovers, every tax agency wants their piece of the pie. When your tax bill goes up, you end up having a lower amount of funds available for rolling into other parts of your business. This means that you need to make sure that your equipment is being accurately assessed by the tax office to ensure you're not paying too much in taxes. Because a certified appraisal holds up well to strong scrutiny, it's accepted as proof of value by many tax agencies.

By having an equipment valuation performed, you end up with the tools needed to take full advantage of the situation. But what kind of valuation should you have performed? Rather than taking the word of an appraiser who has an interest in the outcome of the valuation, such as an equipment sales representative, you'll get much better, more accurate and more actionable results from a certified equipment appraiser. Be sure to ask your appraisers whether they're certified and ask which organization they're certified with.

Tags: equipment valuation

Using Construction Machinery Valuation to Grow Your Company

Posted by Equipment Appraisal Services on Tue, Oct 30, 2018 @ 12:19 PM

Tradesmen International's recent study of the economy and construction industry projects that the construction sector will be one of the fastest growing areas of the economy over the next few years. Where is your contracting firm positioned to take advantage of this growth? Using a machinery valuation as an asset to leverage your company's value may help you get the best growth from the current boom cycle before we hit the next downturn. Here's a quick look at several ways you can use an equipment valuation to improve your company's growth and solidify your position in the market.

Using Construction Machinery Valuation to Grow Your Company

  • Does your equipment still have value, or is it just about shot? Because equipment appraisers spend all day looking at machinery, they have a pretty good idea of what regular wear and tear looks like compared to failing parts that may cause expensive repairs down the road. Use the information to decide whether to repair or replace your aging equipment instead of taking a wild guess at its longevity.
  • Can you afford a lot of down time? By knowing what condition your equipment is in allows you to replace it when it makes sense, rather than waiting for it to break down and wreak havoc on your job site. Use the appraisal information to make planned replacements instead of having to make an emergency purchase at the wrong time. This allows you to make the purchase when you're ready.
  • Do you really need that much insurance coverage or are you too low? It's hard to decide how much coverage you need on your equipment. When you have an equipment appraiser take a solid look at and value your machinery, it becomes much easier to know how much coverage to retain, especially since an appraisal report from a certified appraiser will hold up well under scrutiny by your insurance carrier.
  • Are you ready to get that loan from the bank? The economy is still a little shaky, and financial institutions aren't as willing to put out loans as they were before the recession. Being able to document your equipment's value allows you to provide solid proof of your assets as well as providing a basis for collateral if it's needed for your business loan.
  • Are your taxes in line with your equipment's real value? Property taxes are a pain, but if you've noticed a strong upswing in your taxes without a related asset purchase, you may need to fight the appraisal. By having the documentation you need, you can spend less time fighting your appraisal and more time investing the money saved in the process.
  • What will that old equipment really sell for in the long run? When it's time to sell that old skid steer, backhoe or loader, are you just guessing what the market will bear or are you basing your asking price on real-world figures? Having an appraisal means you have a solid basis to back up your end of the negotiations.

By taking the time to have a machinery valuation performed on your construction equipment, you can leverage that information to get the best possible growth out of the current upswing. Consider each of these points carefully, then hire a certified equipment appraiser to get a high-quality report you can use for a wide range of purposes. 

Tags: machinery valuation

What You Need to Know About Fair Market Value in Machinery Appraisal

Posted by Equipment Appraisal Services on Tue, Oct 23, 2018 @ 02:24 PM

The term "fair market value" often comes up when discussing machinery appraisals. Do you know what it really means and why it's important? Find out how an appraiser determines the fair market value of a piece of equipment and why this matters for your company's bottom line. 

Understanding Fair Market Value in Machinery Appraisal

Fair market value represents how much a neutral buyer (i.e. someone who isn't personally invested in your company and who might overpay for that item) would be willing to pay for your equipment, whether you're talking about a bakery oven or a set of bicycle repair tools. 

Fair market value reflects how much the buyer would pay assuming there were no extenuating circumstances. A caterer would pay a lot more for that bakery oven if their oven failed the day before a large wedding than they would pay if time was not pressing. This valuation also assumes that all parties have equal knowledge -- that the seller is not attempting to hide any flaws in the equipment. 

Fair market value may affect the price of machinery installation or transit, notably with large items that must be installed before use.

Why Fair Market Value Matters

Assets are always in a state of flux in businesses: A new piece of equipment comes in and something old goes out. 

Maybe you decide to donate the old equipment, so you can take the tax write-off for dropping off that bakery oven at a soup kitchen that needs an oven. While this is a fine impulse, there is no way that you can write off the equipment on your taxes accurately without knowing the accurate valuation. 

Perhaps you decide to get some return on your investment by selling the old piece of equipment. If you're in a generous mood, you might even get that oven cleaned and serviced, so you're selling something that is clean, ready to use, and reads temperature accurately. What if you found out that your old oven had a very low value and you would not recoup what you spent getting the oven serviced? 

Alternately, maybe you have a favorite tool -- like those bike tools that fit your hand really well. What if there was a break-in at your bike shop and those tools disappeared? Or a fire that destroyed all of your equipment? How could you make an insurance claim not knowing the value of what you lost? 

As these examples illustrate, you can only realize the value of an asset when you know what it's worth -- which is subject to change in time. Without an appraisal of fair market value, you can't realize your equipment's value whether you're looking to sell it, donate it, or replace it. 

You may believe that you can look up the price of equipment online or use the tax documents, which take depreciation into effect. While this is a valid impulse, you can't compare your used equipment to a depreciation table or to the cost to replace the item new. It all depends on how often (and how well) you use the machinery in your work. An oven that's taken care of and serviced annually has a higher value than one that is never cleaned and never serviced. 

If you haven't had your equipment appraised recently, now is the time to get your business's critical assets valued. Find a machinery appraiser that has experience valuing equipment commonly used in your industry, whether it's culinary, sporting goods, or anything else. 

Tags: machinery appraisal, fair market value

What's involved in the process of becoming a certified equipment appraiser?

Posted by Equipment Appraisal Services on Tue, Oct 16, 2018 @ 10:03 AM

When you're considering having a machinery valuation done, have you ever considered what makes a certified equipment appraiser qualified to determine the value of your equipment? It's a bit of a process, but we thought we'd share what our appraisers go through before they're considered ready to look at your machinery and come up with a solid value that will hold up under strong scrutiny. Here's what's involved in becoming a certified machinery appraiser.

What's involved in the process of becoming a certified equipment appraiser?

There are several different appraisal associations, each of which often has their own appraiser certification process. The ASA focuses on pure appraisal science and is the premier appraisal society in the US. The ASA accreditation is one that lenders and attorneys look for as the bar is high to obtain compared to some of the others.

Almost every certification process entails a combination of education and experience. To become certified, an appraiser needs to have a certain amount of time in training, whether in a curriculum of specific courses or a range of continuing education classes to make up their education. Methodologies need to be standardized based on historical performance to ensure that they hold up well to strong scrutiny, whether that's in a court of law, a tax agency, a financial institution or an insurance claim. 

Experience is typically developed under a senior appraiser who can show a new appraiser how to approach the valuation process and some of the variables they may encounter in the field. This experience typically lasts several years, providing the appraiser with the opportunity to pick up experience with a wide range of machinery, exposing them to a number of different aspects of the process. This will also give them the opportunity to see how valuation works in practice, depending on the specific need for the appraisal and why it's needed.

Once the candidate has acquired the necessary education and experience to complete their program's requirements, they'll need to pass an in-depth exam that provides the association with a solid idea of the candidate's abilities. This may include a range of question types, from basic multiple choice or answer-selection formats to requirements to explain in detail how to appraise a specific item and why the appraiser came up with that specific value in that particular situation. Once they've passed the test, they're able to receive their certification and begin practice as a certified equipment appraisal specialist.

Now that you know what's involved in the process of becoming a certified equipment appraiser, you'll have a better grasp of what your appraiser has gone through to be able to provide you or your business with a solid idea of what your equipment is currently worth. The methodologies used in developing a certified appraisal report provides you with a solid basis for value, whether you need the appraisal for a sale, insurance, legal purposes, taxes or financing for your company.

Tags: certified equipment appraiser

What exactly is machinery valuation and how does it benefit your business?

Posted by Equipment Appraisal Services on Tue, Oct 09, 2018 @ 04:48 PM

After you've been in business a bit, you may have heard the term machinery valuation tossed about on occasion. If you've wondered what it's all about and why you might want to consider getting one on your own business, you're not alone. Here's a quick look at what exactly an equipment appraisal is and the many benefits it can bring to your company.

What exactly is machinery valuation and how does it benefit your business?

Most people have been through or are somewhat familiar with the process of having a home appraised or a vehicle valued when considering selling it or trading it in. Someone who seems to maybe know what they're doing will look it over, hem and haw and finally tell you what it's worth. This process tends to be a good bit more reliable in real estate than cars or trucks, but either process can be up to some level of interpretation. 

Now imagine this process but with machinery. You may be dealing with an equipment dealer, but much like the process of trading in a car, you'll often end up getting the value they want you to get - high if they need sales or low if they don't want to deal with selling your used equipment. Fortunately, there's a much better way to have your equipment assets appraised - by using a certified equipment appraiser.

When equipment appraisers work through the process, they are an independent third party. They don't have any reason to push for you to trade now or keep your current equipment. They simply analyze what is. Instead of worrying about what their commission will be, they can get into the nuts and bolts of your equipment, the industry and what it's actually worth. They use this information to create an equipment valuation report that provides you with a number of benefits:

  • The appraisal itself tells you something about the condition of the machinery. Is there a particular part that you missed a recall on? Perhaps there's some wear that isn't that interesting in and of itself, but it could point to wear and failures elsewhere in the machine that could lead to expensive repairs.
  • Because appraisers are familiar with your industry, they may know that though the region you're located in is currently in a slump, the market in another area may still be rather hot. They may even have some connections there, giving you the opportunity to make a profit off of machinery that would otherwise sit around or lose value.
  • Certified appraisers use tested methodologies to calculate the value of your equipment. Because these methodologies have been around for a long time, they've been tested in court, tax agencies, financial institutions and insurance companies. That means they stand up to strong scrutiny, allowing you to save time when dealing with these organizations.

Now that you know what a machinery valuation is and the many benefits of having one performed on your equipment assets, it's time to act. By having an equipment appraisal performed on your assets now, you can help avoid a lot of hassles no matter what life throws your way. Make sure you work with a certified equipment appraiser to ensure that they're familiar with the many factors that can come into play when you have your machinery appraised.

Tags: machinery valuation

What's involved and how do you win in oil & gas equipment property tax appeals?

Posted by Equipment Appraisal Services on Tue, Oct 02, 2018 @ 08:43 AM

When you receive a bad property tax assessment, how do you fight it? The best way to win when you're dealing with oil & gas equipment property tax appeals is by knowing what's involved in the process and the best steps to take to get through the process as quickly and effectively as possible. Here's a quick look at what's involved in a property tax appeal and the steps to take to win your appeal without a lot of extra work.

What's involved and how do you win in oil & gas equipment property tax appeals?

Though getting a bad property tax assessment is a terribly unpleasant surprise, you do have options available to fight the assessment. Virtually every tax agency includes an appeal process. Many businesses have been through the process and come out well on the other end, but only by knowing how the process works.

To start, look at the documentation that was provided by the tax agency in question. It should include information about your rights and where to look to learn about the process. Start with that information to determine what your available timeline will be through the process. The information will also tell you what your rights are.

The process may also require that the assessor follow certain procedures, such as the use of a standardized valuation guide and that the tax codes for that agency be applied uniformly to all taxpayers. Do you have the ability to request the documentation of how your equipment was assessed? Can you request other records from the tax agency's office? By knowing what your rights are, you can better defend them.

The next step is to prove the actual value of your equipment. The best way is through an equipment valuation. The value in your depreciation schedule may not reflect equipment that has been heavily used. If you depend on your equipment dealer, you'll get the value they think you're looking for. There are any number of other ways to come up with a value for your equipment, but it's not necessarily going to be an accurate value.

When an equipment appraisal is performed, it looks at what the equipment's value actually is. They look at the overall condition of the equipment, providing you with not only the value based on those aspects, but also prospective issues that need to be handled and the expected overall lifespan. They take into account the current market conditions, whether a hot market is raising the value of your equipment or a slow one is lowering it. They can provide you with the most accurate value that will hold up well in tax appeals.

Getting a bad property tax assessment is stressful, but knowing what's involved in fighting it so that you can win oil & gas equipment property tax appeals makes it much easier to get through the entire process successfully. If you decide to get an appraisal of your machinery, make sure that you work with a certified equipment appraiser. The certification process uses standardized methodologies that have been tested countless times in legal, financial, insurance and tax circles, ensuring that they'll hold up against strong scrutiny. Ask whether the appraiser you're hiring has been through the certification process.

Tags: oil & gas equipment property tax appeals

How do you accurately determine used equipment values?

Posted by Equipment Appraisal Services on Tue, Sep 18, 2018 @ 02:13 PM

When you have used machinery, how do you figure out what it's worth? You have a few different options available, but only one really solid one. Used equipment values can vary widely, with a number of different sources, but how do you make sure that your equipment value is as accurate as possible? Here's a quick look at different ways you can have your equipment valued, along with the benefits and drawbacks of each method.

How do you accurately determine used equipment values?

So what are the different ways you can have your equipment valued? You could take a good look through online or live auctions, classified ads, magazines or similar markets to see if you could find the same or similar equipment. You could talk to your local dealer and find out how much they would give you for the equipment on trade. You could pay to an equipment appraiser to determine the value of your equipment. Though each of these approaches would give you a value for your equipment, only one of these would be accurate.

Equipment that is being offered for sale is priced based on how quickly the seller wants to move the equipment. If they're going for a quick sale, they may try to low ball the price or put on a fast paint job to hide years of abuse. If they're really not that enthused about trying to get rid of the equipment, they may price it high so that they're only getting rid of it for the price they want.

A dealer may offer you a price based on whether they need to sell new equipment or want to deal with the hassle of trading in used equipment. If they need to make a sale to improve their commissions for the month, they may offer you a much higher value than your equipment is really worth. If, on the other hand, they have a decent paycheck coming up and don't want to deal with the hassle of handling your used equipment, they may offer you significantly lower than it's actually worth.

Though you need to pay for an equipment appraisal, it actually provides you with the most value. An equipment appraiser deals with similar machinery every day can tell what kind of condition your machinery is in, and may even be able to recommend repairs to help improve the value. They take into account your industry's current condition, helping you determine whether you should sell your equipment outside of your region due to a localized slump. The valuation report they produce uses standardized methodologies to determine the value of your machinery, which means it will stand up well to very strong scrutiny if you're getting a loan or facing an insurance loss, incorrect tax assessment or a lawsuit.

Though there are a number of different ways you can calculate used equipment values, getting the accuracy you need for most purposes can only be found when you work with a certified equipment appraiser. Because of their level of training, expertise and experience, certified appraisers are able to calculate values and produce valuation reports that stand up well to the strongest of scrutiny, including legal, financial, insurance and tax agency circles. Working with a certified appraiser is the best way to ensure you're getting your money's worth out of your equipment valuation.

Tags: used equipment values

How to use an equipment appraisal for asset allocation

Posted by Equipment Appraisal Services on Tue, Sep 11, 2018 @ 09:44 AM

When you're buying a business or a large lot of equipment, it can be difficult to determine how to allocate value across the assets. How do you determine how much of the value you've paid for the equipment should go to each piece of machinery? One of the easiest ways to make this work is through an equipment appraisal for asset allocation, which uses the values from the appraisal report created by a certified equipment appraiser to determine the overall value and how it should be spread across a number of different pieces of machinery.

How to use an equipment appraisal for asset allocation

Let's take a look at a possible scenario that is fairly common when a large lot of mixed equipment is purchased. A business needs to expand quickly and so buys out a bunch of equipment from a competitor. Though the equipment is worth a particular amount as a lot, it's hard to determine the value of each type of equipment, never mind each piece. How do you divide the cost of all the equipment up among the different pieces of machinery in a fair, equitable fashion?

One of the easiest ways to determine how to allocate asset value is by having an equipment appraisal performed. When an overall valuation is performed, the valuation specialist looks at all the equipment you've purchased, which allows them to pick out differences between not only different types of machinery, but also individual pieces of equipment within that model. They can tell you when a particular piece of machinery has a lower value because it has damage or excessive wear. They're able to mention when a particular part of a lot has a higher value because it has an optional feature that wasn't included in the other machinery.

Once the appraiser has had the opportunity to review and examine all the machinery, they can create an overall report that sums up the total value as well as the individual value of each piece of machinery. A certified equipment appraiser used a series of standardized methodologies to calculate the exact value of the machinery. The certification process ensures that a certified appraiser has the knowledge, experience and expertise to determine the machinery's value accurately.

An equipment appraiser deals with nothing but machinery all day, allowing them to see how one piece of machinery compares to another. This gives them a unique insight to see every possible item that may affect its value, whether it's a stain from liquid that indicates a leak or drip, a bit of metal scraped free of paint that indicates a pulley out of alignment or a slightly different sheen to the paint that indicates repaired damage. Any of these signs can show you where any number of issues can come into play in the future use of your equipment, allowing you to make repairs as needed.

The process of allocating assets in your business can seem like a complicated process, but using an equipment appraisal for asset allocation provides you with a fair value for your equipment, making the process go much more easily. It also provides you with a background value for your machinery, providing you with a solid proof of value should you suffer any losses for your insurance company or need to prove the value of the machinery for legal, financial or tax purposes. 

Tags: appraisal for asset allocation

How Industrial Equipment Appraisals Protect Your Business From Natural Disasters

Posted by Equipment Appraisal Services on Wed, Sep 05, 2018 @ 11:46 AM

Natural disasters are getting more costly for businesses—and scientific studies suggest these disasters will only be more prevalent going forward, with this century forecast to see a 40 percent increase in tropical storms rated Category 3 to 5. The best way to protect your business assets from a natural disaster is to purchase sufficient business insurance—and this means getting your industrial equipment appraised. Find out how industrial equipment appraisals protect your valuable assets during a natural disaster. 

If you don't have insurance that covers your industrial equipment, you will be forced to pay for replacement equipment out of hand. Many businesses are forced into bankruptcy after a devastating event, such as a fire or flood, because they do not have the capital to replace the equipment they need to fulfill orders. Studies estimate that 40 percent of small business never reopen after a natural disaster. 

Before you can purchase insurance for your assets, you need to understand your risk. What types of natural disasters occur where you do business? Are there other incidents that are uncommon, but may happen? 

Consider that hurricanes typically affect coastal areas, but they don't always stick to the seaboard. While you may be at low risk of a hurricane, since these storms are relatively rare, it may make sense to buy hurricane protection because a single storm could wipe out your facility overnight. 

Next, determine your tolerance level for risk. Would you prefer to protect your business against all foreseeable hazards, or do you want to stick with coverage for the most common incidents that affect your area? 

Review your insurance coverage, paying special attention to policy exclusions. Insurance policies often exclude earthquakes for facilities that lie near fault lines. With hurricanes, some damage may be covered by business property insurance while other types of damage are excluded. For instance, policies treat hurricane rain differently when it's falling and on the ground. Once rain hits the ground, insurance companies consider it flood water, rather than part of the hurricane. They may then refuse to cover damage to your industrial equipment unless it was damaged before the rain hit the ground (for instance, if it came through a broken window). 

You may purchase supplementary insurance to cover these gaps or exclusions, safeguarding your assets and ensuring replacement in the event of disaster. 

To buy insurance, however, you need to know how much insurance you need—and that's where the industrial appraisal comes in. An industrial appraisal provides an accurate valuation for your equipment so you know exactly how much it would cost if you needed to replace, say, a hoist. 

There are different ways to value equipment. An appraiser might determine what it would cost to replace your industrial equipment by comparison shopping for used equipment of a similar make and model or by gauging the new replacement cost of a similar asset, then factoring in the indirect costs of ownership (e.g. maintenance, labor, and tax). 

Recent sales transactions shine a light on market value for a given item, so some appraisers take the market value by looking at recent sales databases or auction houses. 

Any method that delivers an accurate cost estimate of your critical equipment is acceptable. 

You never know when your area will be hit with fires, floods, or storms. To be safe, get all of your mission critical industrial equipment appraised as soon as it's convenient to get losses covered during the next natural disaster that affects your area. 

 

Tags: industrial appraisal