Equipment Appraisal Blog | Understanding Machinery Appraisals

Whether you're considering opening a new business, expanding your operation or dealing with a temporary cash flow issue in your business, qualifying for bank financing is a big part of the picture to your business' financial success. By having current equipment values for your business machinery, you can help document your business' assets and back up the figures on your balance sheet. Getting equipment appraisals on used machinery you need to expand your operation proves the equipment value and amount needed for your financing without a lot of run-around and repeated effort. Here are 4 ways having a machinery valuation completed before you start the process can ensure you have the bank financing collateral you need for your business loan.

1. A machine appraisal provides verification of your business' existing assets. If you have existing equipment that has been paid off or is in the process of being paid off, the bank can use the information provided by a machine appraiser to determine how much equity you have in your existing equipment. It also shows the current value of the machinery you already have in use instead of relying on a pre-determined depreciation schedule that may not show an accurate picture of your business' financial health.
2. A machinery and equipment appraisal proves the value of the machinery you're purchasing. When you're buying used equipment, it can be difficult to find a single definitive source of machinery value that covers your exact equipment and any modifications that have been made to it. An equipment appraiser makes their living studying equipment values for bank financing collateral, so having a machinery appraisal or valuation completed helps provide a solid number for the bank to base its decision.
3. An equipment valuation can provide needed information to your insurance company so that your policy can be updated to cover your equipment acquisition. A bank wants to know that if you have a warehouse fire, the machinery they're financing has been protected. Equipment appraisers provide reports with specific information needed by your insurance company to fully cover the equipment you're purchasing.
4. It's necessary in many cases for securing an Small Business Administration loan. With the economy still recovering, many businesses are still recovering their credit history, making them too high a credit risk for many bank financing collateral situations. Because it's much easier to pick up a loan that the SBA is backing, it's important to ensure you can meet the SBA's requirements for a small business loan whether you're just starting out, expanding your company or to help with a temporary cash flow situation.

By keeping these circumstances in mind, having a machinery and equipment appraisal performed by a qualified machinery appraiser will make your bank financing collateral process go much more smoothly. Make sure you use a certified equipment appraiser using the Uniform Standards of Professional Appraisal Practice (USPAP) and is a member of the American Society of Appraisers (ASA) to ensure that your financial institution will accept their equipment appraisal for your loan.

Machinery valuation is often a missed opportunity. While Equipment Appraisal Services knows most business owners appreciate the importance of properly functioning equipment for producing a revenue stream, it is difficult for them to go beyond that assessment and think of their machinery as a valued business asset. Many managers believe they can run their machinery until it is no longer useful, and then simply buy a replacement.

That approach is all well and good until an event occurs which requires the business owner to provide an equipment value. This could be related to an insurance claim or a potential sale, or an equipment appraisal may be required to allocate property as part of a divorce settlement. It can be difficult at that point to find a company that is capable of performing an accurate machinery and equipment appraisal within a limited timeframe.

Our equipment appraisers at Equipment Appraisal Services provide an unbiased and professional opinion of the value of a tangible asset. We may look at the original cost of the equipment less any accumulated depreciation, assess its age and current condition, calculate its estimated earning capability, and try to determine the cost to replace or reproduce it. Values may range from what it would cost to reproduce the equipment with new machinery all the way down to what its value would be as scrap. This provides accurate information on which to base further actions and decisions. There are three approaches we may use when determining equipment values:

• Cost Approach: This machine appraisal approach may be used most often for such purposes as an outright sale or for tax reporting purposes. It begins with as assessment of what it could cost to reproduce or replace the machine, deducts all forms of depreciation, and takes such factors as age and condition into consideration to determine an estimated value. For example, if you have a lathe that you want to sell, our equipment appraiser would determine what a knowledgeable buyer might reasonably pay for a new piece of equipment, and then make appropriate adjustments to account for the existing wear and tear, in order to justify a realistic sales price.
• Sales Comparison Approach: In this instance our appraiser will compare the value of your machinery to recent sales and offering prices for similar pieces of equipment. We will then make an upward or downward adjustment, depending on the particular condition of your equipment.
• Income Approach: This approach tries to determine the present worth of the future benefits that might be derived from a piece of equipment as the result of ownership.

Equipment Appraisal Services is a nationwide provider of certified machinery and equipment appraisals for litigation, bank financing collateral, allocation of assets, divorce and partnership dissolutions, property tax appeals, insurance recovery claims, mergers and acquisitions, gifting and donation justifications, estate settlements, financial reporting, and risk management.

There are few people who work as hard as farmers do, with as much dedication to the land, to making their living from it and to leaving a legacy to their children and grandchildren. But when it comes to machinery and equipment appraisal, many farmers don't know what their equipment values are to protect their investment and provided guidance to future generations. It's important to your farm's bottom line to have an equipment appraiser provide tractor valuation and machine appraisal for your records. Here's how a tractor valuation and equipment appraisals gives you the best information to make plans for you and your farm's future.

Budgeting Concerns

When you're working on your accounting records, what is your machinery worth? If you know your machinery valuation, you have a better idea of how much it should be depreciated, allowing you to take advantage of your machinery's changes in value in your accounting and on your taxes. Talking to a machine appraiser will help you estimate how much your new equipment will lose value over time and how to budget for those changes accordingly.

Proper Insurance Coverage

Do you have sufficient insurance coverage on your farm equipment? When you suffer a loss, it's vital that you know what the equipment value is for the damaged or stolen machinery. If you don't know the value of your equipment, you can't determine how much of a loss you've taken and whether you're being treated fairly by your insurance company. Farm equipment appraisers provide a detailed description of your agricultural machinery, including its actual value. 

Know Your Trade-In Values

When it's time to replace or upgrade farm equipment, do you know how much your equipment is worth to negotiate with the sales representative? We've all heard stories of people who have been cheated on their trade-in value by unscrupulous dealers. Even when you're dealing with an honorable dealership, how do you know that you're getting the best possible trade-in value on your existing equipment? By having an equipment appraisal performed by an accredited agricultural equipment appraiser, you'll have proof of the exact value of your machinery, giving you a position of power at the negotiating table.

Planning for the Future

When you're making plans to pass your farm onto the next generation, are you passing them a farm that's successful or one that's in financial trouble? With estate taxes and the confusion that often arises around the transfer of ownership, having a solid plan in place to pass your estate to your children or grandchildren will help ease the process. If financing needs to be obtained to help the process move along or modernize your farming operation, having a solid farming equipment appraisal in place provides solid documentation of your farm's assets. With knowledge of your farm machinery's proper values, it's much easier for your heir to plan what steps to take for future changes and expansions.

No matter what your reasons, having a solid grip on your farming machinery values is a great benefit to keep your farm operating successfully. By having an accredited appraiser perform a valuation on your farm equipment, you have a better idea of what your bottom line actually is and where your finances are going. Don't put off having an appraisal done on your ag equipment - tomorrow will be here sooner than you know it.

You're busy running your business.  Knowing the ups and downs of the market, which price entices and which sends buyers packing, or even how rare your piece of equipment is just not your area of expertise. Realistically, a successful business owner or manager rarely has the time to learn the strategies of machinery and equipment appraisal beyond a shallow understanding - and perhaps not even that. Does that mean you just make an educated guess and move on with their to-do list? Absolutely not - corner-cutting can cause a negative cost effect that will ripple through the financial books for years to come. 

Why Your Equipment Appraisers Should Be on Speed Dial

A professional equipment appraisal takes guesswork off the table and gives you a solid starting point to depreciate the used equipment if recently purchased, determine loan amounts, or figure out how much operating insurance you really need to replace damaged equipment if a catastrophic event hits. Overestimating or underestimating value as well as not having proper documentation could lead to problems down the line.

Instead of guessing at your machinery valuation, call in an expert appraiser to give your equipment a skilled, unbiased pair of outside eyes and a professional machine appraisal. Your appraiser will know how to present the equipment information and specifications to help you get the most for your sale or equipment collateral move. The report will even provide invaluable documentation that will help restore normalcy to your business operations if you are ever hit with an event that shutsdown operations due to equipment damage. If you can't accurately describe your equipment prior to loss, the insurance company has no proof that you aren't padding your used equipment value.

Yes, Even Your Business Needs It

Even if you only have a handful of equipment assets, don't make the mistake of thinking your operation is too small for this level of documentation and protection. An equipment appraiser can value single items all the way up to entire industrial facilities.

There are a number of reasons why you may be considering selling your industrial or specialized equipment. Regardless of whether you're upgrading your work floor, getting estimates for a new insurance policy or loan collateral, or moving towards an equipment auction or liquidation, accurate machinery valuation and asset appraisal is vital. Machinery and equipment appraisal isn't a simple matter of looking up a similar product the way one might a rare baseball card, there are a lot of questions that even a seasoned operator can't answer with clarity:

• How much has wear-and-tear affected the value?
• What is the market demand for similar pieces?
• How much are similar used machinery pieces selling for?

Simply put, those that use machinery know how it operates, what parts it uses, and perhaps even how to maintain or repair it - but pinpointing equipment values that will hold up as collateral or that will pique interest in the open market is another matter altogether.

A Quick Sale at the Right Price

You know that your equipment value incorporates these facets, but "taking a guess" or estimating when you're ready to sell can either leave your machinery languishing on the market with an unrealistic price tag or sold with a huge cost to your company in missed profits. Working with professional equipment appraisers mean that you'll receive documented equipment appraisals that can be referred to in sales listings and prevent a your negotiated prices from dropping below where they should. While your own estimations may be honest and well-meaning, an equipment appraiser is a professional, neutral third party and thus lends the negotiated starting point more credence.  

Peace of Mind, In Writing

Business can be fickle, and loan applicants are forced to jump through more and more hoops to secure funding for new ventures. A professional machine appraisal helps support your efforts by providing trustworthy proof of current assets for overall company valuation or specific loan collateral. Rather than a basic list of ultra-specialized machinery that may go over a loan officer's head, he or she receives the derived worth numbers they need to make the decision more quickly.

In addition to loans, insurance reimbursements due to loss become infinitely easier when armed with the same asset appraisal documents. In a catastrophic event, having a professional estimation on hand means less downtime waiting for an insurance representative to determine value from wreckage, rather than the actual worth of the previously-functioning machinery. Working with an equipment appraisal service also offers an additional point of reference that may end up being priceless if your files are damaged in the same catastrophic event.

Comparative Advantage in Action

Face the facts: you run your business with expertise; you are not a machine appraiser by trade. Rather than struggling through the appraisal process internally, taking time away from your job duties and ending up with a likely under-or-overvalued result, working with machinery and equipment appraisal professionals allows you to return your focus back to where it belongs: with your workflow and your staff. While there may be a few questions you'll need to answer about your specific equipment, on the whole you'll be free to move your business forward without trying to learn appraisal methods on the fly. You wouldn't mop the floors if you have a janitorial staff in place, nor do your own payroll if you have a service working on it - leave your asset appraisal in the capable hands of a professional team and you'll instantly knock a particularly difficult item off of your to-do list.

Industrial Appraisal — it may not seem like something you would encounter in your day-to-day work or personal life, but it may surprise you. You may need the services of a machine or equipment appraiser more often then you may need. Discover a few of the reasons why industrial appraisal may be necessary and the basics of how an appraiser does his or her job. Then, you will realize how many occasions this service could benefit you.

Why Appraise?

Usually, you will only use your equipment with no worries of the value. After all, as long as it is serving its purpose, why does it matter what the value is? However, sometimes something occurs where the value will matter. In fact, there are numerous reasons why you may need to have industrial equipment appraised. Here are just a few of the most common:

• Financing or Refinancing – If your equipment is under bank financing, it is important that the bank have an accurate accounting of the value of the equipment. Only a quality appraiser can give you this information.
• Accounting or Taxes – Though you may simply depreciate the value of your equipment over time, there are occasions where this does not work or where your accountant or the IRS requires that you have a more accurate accounting of the value. Appraising is the solution.
• Litigation – Court cases, bankruptcies, and other legal issues can be a serious problem for your company. Good appraisal services make this a much easier process and ensure that you are not harmed any worse than necessary.
• Company or Personal Splits – When a company is bought out or a couple divorces, there is often a need to split up equipment and property for litigation purposes. Appraising it to get the correct value is vital.
• Sales or Auction – Are you selling or auctioning off part of your equipment, perhaps because you are upgrading or replacing your old items? You want to get the best price for your old equipment. Offering an appraisal when you put your item up for sale will give buyers confidence.

How Does the Appraisal Process Work?

There are a number of appraisal companies out there offering this service. However, not every firm appraises in exactly the same way. You want to work with a machinery and equipment appraiser who is certified, trained and does not just “guess” at values. Ideally, you will find a company that will provide an appraisal report consistent with the Uniform Standards of Professional Appraisal Practice (USPAP).

The process takes time and involves more than merely looking at a depreciation schedule. The process may include data collection, research, analysis of the equipment in detail and considering data such as equipment depreciation - deterioration and obsolescence. Together all of these things help us put together an appraisal that will meet your needs for court, accounting or any other purpose.

If you would like to learn more about the appraisal process or you want to talk to an expert, contact us at Equipment Appraisal Services.

When you're considering buying or selling a piece of equipment, it can seem as though there is a world of difference between the price you expect and the price that's paid. Why is there such a difference in machinery valuation? Though we expect differences in price based on condition, age, location and similar properties, there can still be drastic differences in equipment values for virtually identical equipment, depending on the situation. Let's take a look at the differences in equipment value and why this happens.

Appraised Value

In the complex world of machinery and equipment appraisal, an appraised value is the most accurate indicator of the equipment value across the board, but doesn't always take into account issues such as local market conditions or an individual's motivation to buy or sell a particular piece of machinery. A machine appraisal involves having an equipment appraiser thoroughly examine the machinery and take into account any mitigating factors, such as modifications, kits or accessories that were added after the initial manufacture of the equipment. An appraised value is vital if you need to get financing on the equipment or are considering donating equipment with a value over $5,000. If you don't have equipment appraisals completed, you may not be able to finance the piece or write off the full value on your taxes.

Market Value

Beyond the value assigned by equipment appraisers, there's also the difference you'll see in the local or regional marketplace. As everyone learns in economics, this value is strongly tied to the laws of supply and demand. If you're in an area where a lot of construction is needed following a hurricane, you may pay a high premium to purchase equipment locally. If, on the other hand, you wait until the vast majority of the construction has been completed, you may be able to take advantage of lower market values because the market is suddenly being flooded with a lot of surplus equipment.

Offered Value

Adding even more complexity to the problem is the concept of offered value, or the motivation a seller has to lower or raise the price, depending on what their needs are. If a business has some surplus equipment but has the space to store it inexpensively or are taking advantage of an item that's hard to come by, they may ask a higher price than they would normally, waiting for a buyer who will maximize the money they're making off the deal. On the other hand, a business that is in a serious cash bind may be willing to let the equipment go for a lower amount than the machine appraisal would suggest. But beware - if a price seems too low, you may want to have an independent appraisal done to ensure that you're actually getting what you pay for. The machinery could have issues that are being covered up, such as an oil or hydraulics leak, that a trained equipment appraiser would be able to spot, saving you from expensive repairs.

In any of these situations, having a solid appraisal to back up machinery valuation helps protect your interests by justifying your price when selling and allowing you to negotiate when purchasing equipment. Make sure you use an appraiser accredited through the American Society of Appraisers and follows USPAP (Uniform Standard of Professional Appraisal Practice).