Equipment Appraisal Blog | Understanding Machinery Appraisals

Reasons for Retrospective Appraisals

Posted by Equipment Appraisal Services on Tue, Feb 23, 2016 @ 10:00 AM


Oops! When you've made a donation, are involved in litigation or have had an insurance loss, there's nothing quite as concerning as realizing that you needed to have equipment appraisals performed after the fact. How do you fix this problem? In this article, we'll discuss retrospective appraisals and how they can help you get the documentation you need to fix these troublesome problems. Here's how:

Documenting Donations

One of the most common areas where retrospective appraisals are used is in donations to non-profit or not-for-profit organizations that were not properly documented at the time. Especially when you're looking at taking a tax break for the donation, you need to have documentation to take the deduction. If the documentation was not prepared at the time of the donation by an equipment appraiser, it can be really difficult to otherwise prove the value of the equipment you donated. But at the end of your business year, your accountant informs you that they need you to provide supporting documentation for your donation. If you're stuck in this bind, you can still save the deduction by having a retrospective equipment valuation performed by a qualified machinery appraiser.

Proving Litigation

Another area where retrospective valuation can come into play is in litigation. One example of this is when going through a divorce where you need to buy out your spouse's interest in the business or prove that you're not hiding assets. Your spouse  may claim that you're undervaluing equipment that you've sold to keep things solvent while the transition is underway, because they want to get everything they can out of the buy out. A retrospective equipment valuation helps prove that your equipment was worth a particular amount prior to being sold, documenting that you were not hiding or undervaluing business assets.

Insurance Loss

When you've suffered a loss that sets your business back, it's upsetting when you realize you don't have documentation of your equipment values. Whether you're dealing with the fallout of a storm, a fire or a theft, documenting the value of your equipment is a vital part of the claim process. If you didn't have a machinery valuation performed ahead of time, you may be having a difficult time proving what the equipment was actually worth, especially when the equipment was customized or has unusual features that your insurance adjustor isn't familiar with. A retrospective machine appraisal helps prove the exact value of the machinery when the loss took place.

Tax Issues

What about when you're dealing with a tax agency? Equipment can lose value quickly at times, especially if it is in a struggling industry or when technology quickly changes. When a tax appraiser doesn't have a solid grip on the value of the machinery you own and just uses accounting depreciation, it's difficult to prove your side of the appeal without documentation. A retrospective valuation helps prove that the machinery was worth looking at market conditions, the condition of the equipment and similar elements that affect your machinery's final value.

If you find yourself needing to do the time warp to prove equipment values, a retrospective equipment appraisal can help document past value. At Equipment Appraisal Services, our job is helping you document equipment values, even after the fact. Please contact us today for help with your retrospective machine appraisal.

Tags: Litigation, Insurance Loss, donation appraisal, retrospective appraisals

How does online equipment appraisal work?

Posted by Equipment Appraisal Services on Mon, Feb 15, 2016 @ 03:30 PM


When you think of machinery appraisals, you probably imagine a qualified equipment appraiser coming out to your facility, examining your equipment in person, and delivering a machinery valuation based on the in-person visit. You know that online machinery valuations are an option, but can't help worrying whether they are a good substitute for the in-person visit when accurate equipment values are needed. We at Equipment Appraisal Services offer online appraisals along with in-person appraisals. We have put together our thoughts on online appraisals to inform you what to expect when getting equipment appraised online and help you make the right decision for your needs. 

What to Expect With an Online Appraisal 

The online appraisal process is similar to the in-person appraisal process. In a typical online equipment appraisal, the appraiser will ask for the make, model, and serial number of the equipment. Since the appraisal cannot examine the equipment in person, he or she will request pictures or video that show the equipment's condition in detail. This is something many equipment appraisers do in person anyway, since they finish the appraisal offsite. The client will provide some additional information regarding condition, repairs, or rebuilds.  Mileage and hours will also be requested.

You may be expected to provide the appraiser with maintenance reports, service logs, upgrades, or any other written material you have that would help the appraiser determine the appropriate equipment values, just as you would in an onsite equipment appraisal. The appraiser will tell you what paperwork they need to see in advance of the appraisal, so you can gather and send all the relevant documentation. 

The appraiser will then review the information that you provided and perform their own research to determine machinery value. Finally, the appraiser will write up a report (which notes the appraisal was performed as a desktop appraisal) that sets out all findings. 

Knowing what happens during an online appraisal can set your mind at ease if there are no local machinery appraisal experts near you. It can also help you make the right choice for your appraisal needs. When you need an appraisal done quickly, an online machinery valuation firm may be your best bet if local appraisers are unable to fit you in.

Ultimately, both in-person and online equipment appraisals can work well. The key here is selecting an appraisal specialist who is properly qualified and will deliver an appraisal report that is consistent with the Uniform Standards of Professional Appraisal Practice (USPAP). If the report you receive is not USPAP compliant, it will not hold up in court or under IRS scrutiny. 

We at Equipment Appraisal Services perform desktop appraisals of equipment and machinery als well as on-site appraisals. Each of our appraisals is prepared by a qualified machine appraiser, then assembled and reviewed by one of our accredited appraisers in Machinery & Technical Specialties. All of our online appraisals are USPAP compliant and therefore guaranteed to hold up to IRS, legal, or financial review. 

Whether you decide to hire an in-person appraiser or an online equipment valuation firm, the appraiser should be able to discuss the valuation process with you beforehand. He or she should answer any questions you have, and set your expectations for the time frame, process, and appraisal report. 

We would be happy to discuss your online equipment appraisal needs, and give you a quote for the appraisal, in a phone call. To learn more, call us at (888) 343-9335.

Tags: desktop appraisal, online equipment appraisal

What is the principle of substitution in machinery appraisal?

Posted by Equipment Appraisal Services on Tue, Feb 09, 2016 @ 07:30 AM


The concept of the principle of substitution comes up any time that machinery and equipment appraisal is discussed. It is important that you understand what this concept means if you are seeking equipment appraisers for a machinery valuation. Learn what is the principle of substitution and what it means for both buyers and sellers of machinery and equipment. 

What is the principle of substitution?

In equipment value terms, the principle of substitution means that a party will not pay more for the piece of equipment in question than the cost they would pay for an equivalent piece of equipment with the same purpose.

For example, consider a tractor that is 10 years old and has an asking price of $5,000. If you can purchase a comparable tractor that is also 10 years old, yet costs just $4,000, why would you pay the extra $1,000 for the first tractor? Under the principle of substitution, the maximum acceptable buyer's out of pocket cost for the tractor would thus be $4,000. 

The principle of substitution is also affected by market demand. If hundreds of used tractors become available near you, sellers will have to lower their prices to attract buyers. If used tractors are scarce, sellers can raise prices above the equipment value if there is demand from buyers for the piece of machinery. 

The principle of substitution is a fundamental basis of the cost approach to machinery valuation. In the cost approach, an equipment appraiser usually determines the replacement cost of a new item (i.e., a new tractor) and then factors in lost value from age, wear and tear, and other variables to arrive at the equipment value in real terms. 

Why the principle of substitution matters in a machinery valuation

If you are in the market for a new piece of equipment, it is only natural that you would want the highest value for your budget, whether buying a used tractor or a new piece of factory machinery. Knowing the cost value of a piece of machinery can help you determine whether it is a good use of your funds. 

Even after the sale, the principle of substitution can be used to help insure the piece of equipment. Were your asset to be stolen or damaged, an insurer would not pay you more to replace the item than it was worth. Insurance agents will thus use the principle of substitution to calculate the amount to which you would be entitled in case of loss. In some cases, an insurer might send a machine appraiser to estimate your equipment's value before issuing an insurance policy. 

Likewise, businesses often need the appraised equipment values for tax purposes. Investing in something as important as a tractor is certainly a business write-off; to claim that it is worth the stated amount, you may need an equipment appraisal that is accurate and irrefutable in case of audit. 

Whether you are buying a piece of equipment or selling one, knowing the equipment value ahead of time can help you determine a fair price for the item. This can help equipment buyers move forward with the deal with confidence and assist sellers in pricing the item fairly enough to move it quickly. Equipment Appraisal Services offers machinery and equipment appraisals nationwide. Get peace of mind before you buy or sell your next asset by seeking an independent machinery valuation from our certified appraisers.

Tags: replacement cost new, principle of substitution, cost approach

What are standards of value in equipment appraisal?

Posted by Equipment Appraisal Services on Wed, Feb 03, 2016 @ 10:30 AM


One of the key concepts used in equipment appraisal is that of standards of value. Though that term is often bandied about, what does it actually mean? In this piece, we'll investigate what standards of value are, how it affects your equipment's value and what types of standard is used based on your end goals.

How standards of value affect your equipment appraisal

What are standards of value?

Standards of value is a term that can be somewhat confusing, as it refers to two different concepts. One is the machinery valuation in a particular currency or medium of exchange, which can be of vital importance on the international market. But it can also refer to the type of valuation that is performed by a qualified equipment appraiser on your machinery. For the purposes of this article, we'll discuss the second standards of value referring to the value of a piece of business equipment that needs to be appraised and how the different values can affect your bottom line. Depending on your end purpose for the equipment in question, you may need a significantly different valuation method used, so it's of vital importance that you discuss your intentions with the equipment appraiser before the machine appraisal process is started.

How do different standards affect your equipment appraisal value?

Businesses have many different reasons for having an equipment appraisal performed for their company. They may be trying to determine when it becomes more cost-effective to sell off older machinery that is no longer keeping up with demand. They could be determining the salvage value on older equipment to determine whether it makes better economical sense to continue repairing older equipment or to replace it, and how much the salvage of the older equipment may offset the cost of the replacement equipment. They may need to know the replacement value in case of a fire or other disaster for insurance purposes. 

What standard is best for your purposes?

Unless you're considering a forced asset sale due to financial difficulties, most standards of value are used for a few specific purposes. The first is to get a more accurate financial picture for the business by updating the actual value of equipment that has been completely depreciated, whether it's because you're considering a merger, buy out,  sale of the business or other ownership change. The second is to prove the value of machinery in case of a loss, so that insurance claims can be filed in a timely manner, ensuring your company is able to recover from the los and continue operations effectively and with minimal down time. The third scenario involves expanding or reinventing the business' direction, with the appraised equipment standing as collateral for a potential financial loan to make the expansion or change more feasible. Of course, any of these types of standards will also provide you with a better view of your business' financial health, making it much easier to make smart investment decisions.

By keeping these different standards in mind, you can have a machine appraisal completed that is in line with where your intentions lay. At Equipment Appraisal Services, our valuation specialists are certified through the American Society of Appraiser's Machinery & Technical Specialties designation, so they deal only with heavy equipment on a regular basis. This helps our appraisers give you the most accurate equipment appraisals in the industry. Please contact us today to discover exactly what your equipment values are and to get a better picture of your business' bottom line.

Tags: standards of value, appraisal