Equipment Appraisal Blog | Understanding Machinery Appraisals

Top Ten Reasons to Have a Construction Equipment Appraisal

Posted by Equipment Appraisal Services on Tue, Jun 28, 2016 @ 01:30 PM


The construction business is a significant contributor to the global economy. According to Statista, the global construction equipment market was estimated to be $145.5 billion in 2015, with the North American market holding a position as the second largest market worldwide for construction equipment. Companies engaged in construction projects know the impact of crawlers, dozers, backhoes, excavators, loaders, earthmoving equipment, cranes, drilling equipment and more on their ability to perform effectively and sustain their profitability, but they don’t always know the current equipment values for the assets they have in their inventory.

Construction equipment often takes a beating, given the arduous conditions under which it is usually called to perform, but it can still have a value to the company for its useful remaining life and also as a potentially saleable asset. A professional machinery valuation can give managers the edge they need in the decision-making process, and can also serve as a protective factor in the case of untoward events. Here are the top ten reasons construction companies should keep in mind when considering whether or not to have a construction equipment appraisal:

  1. Tax Purposes: An accurate and updated record of equipment values is helpful in supporting depreciation claims when filing income tax returns.  
  2. Business Analysis Purposes: Business decisions are made every day which require accurate input and data. A manager needs to rely upon solid equipment valuations when deciding whether to expand, purchase additional equipment, seek additional funding, or bid on new projects.
  3. Sale of Business: A prospective buyer will want to know precise equipment values in order to ascertain a fair purchase price and initiate asset record-keeping.
  4. Bankruptcy: If the business does fail, it will be necessary to have an accurate machine appraisal for all equipment in order to place a value on the company’s assets for creditors.
  5. Dissolution: Whether a business is dissolved completely, or one partner buys out the other, a valuation is required to ensure an equitable division of assets or acceptable purchase price.
  6. Divorce: Business assets will be treated similarly to personal assets when dividing up property during a divorce.
  7. Insurance: Construction companies need to be as prepared as possible for the unexpected, so a sufficient amount of insurance coverage is required. If equipment is lost, damaged, or destroyed, current appraisal records will be required in order to negotiate a reasonable settlement amount with the insurance company.
  8. Loans: Existing equipment is often used as collateral when securing bank financing for operating purposes, expansions, upgrades, or purchase of additional equipment. Loan officers will want to see sufficient data to justify any loan amounts being considered.
  9. Donation: A business may decide to donate some of its older or outmoded equipment to a charitable organization in order to receive a tax consideration. Any donation listed as being over $5,000 on the 8283-tax form will require an equipment appraisal for IRS purposes.
  10. Estate Considerations: The executor of an estate must be able to reasonably demonstrate equipment values to all the heirs and the government to ensure an equitable distribution of assets.

When a business needs a construction equipment appraisal for any reason, it is best if the report is assembled and reviewed only by an accredited appraiser. These professionals are well-trained and experienced in providing accurate equipment appraisals. If the appraisal report does not meet the Uniform Standards of Professional Appraisal Practice (USPAP) guidelines, it is not considered a “qualified appraisal,” and will not pass intense scrutiny from buyers, attorneys, bankers, the IRS, or the courts. 

Tags: construction equipment appraisal

How an Equipment Appraisal Helps When Considering Potential Purchase of Equipment

Posted by Equipment Appraisal Services on Tue, Jun 21, 2016 @ 12:30 PM

When you're considering a potential purchase of equipment, making a good deal is half of the excitement. But how do you know whether the equipment values presented are accurate? How do you know if you're making a fabulous investment for your company or are buying a lemon that will pour your capital down the drain? Before you sign on that dotted line to buy equipment for your business, have a machine appraisal performed. Here's why it's important.

How an Equipment Appraisal Helps When Considering Potential Purchase of Equipment

  • A machine appraiser doesn't have anything tied up in the transaction. When a business or broker is selling equipment, their profit is on the line. Though they may not be intentionally misrepresenting the equipment's condition, they do want to present it in the best possible light. This can lead to accidental oversights in the purchase process and less than complete disclosure of the machine's features and history.
  • Do you need to get financing in place for the potential purchase? Equipment appraisals performed by a certified equipment appraiser are taken much more seriously in financial circles, because a certified appraiser uses standardized methodologies to calculate the machine's value. Unlike the finance guy at the car dealership who says he'll give you $5,000 for your 1992 Geo Metro with 200,000 miles on it through a few math tricks in the financing paperwork, an equipment appraisal is a solid value for that particular piece of equipment.
  • What about your insurance? If you're getting a great deal because a company is going out of business, do you know how much insurance to put on the equipment? If you base your insurance coverage on a wonderful price, you'll quite possibly find yourself unable to purchase replacement equipment for the same price after a loss. By having a quality machine valuation performed on the equipment you're considering, you'll know not only how good a deal you're getting, but how much it will cost to replace that equipment in a loss.
  • How long do you expect the equipment to last? Equipment appraisers spend all day looking at machinery. For this reason, an experienced appraiser has a good idea of how long a usable lifespan the equipment has left, a boon if you're buying equipment with an unknown past. The appraiser will know to look for delayed repairs that may have caused additional damages, such as a pulley that wasn't immediately replaced causing more wear on bearings elsewhere in the system, leading to an early failure.
  • Has the equipment been abused or pampered? We all know someone who never does any of the necessary repairs to their car. As time goes on, their vehicle has more and more serious problems until it hits the point of being too expensive to repair. The same goes of your potential equipment. Has it had after-market kits added that are overtaxing the hydraulics? Was it kept in perfect repair with exceptionally detailed logs? This kind of information helps you make a smart investment.

As you can see, having an equipment appraisal performed for potential purchase of equipment can help keep you from making a very costly mistake for your business.

Tags: purchase equipment, buying equipment

How to Secure Great Bank Financing Using Equipment Appraisals

Posted by Equipment Appraisal Services on Tue, Jun 14, 2016 @ 11:00 PM

Whether you're just starting a business with equipment from a serious hobby or are getting ready to make a significant expansion, securing bank financing that meets your business needs is vital to its success. But what about when you can't be approved for financing without collateral or can only qualify for a interest rate that is too high without proof of existing assets? In this post, we'll help you learn how to get better financing without breaking the bank.

How to Secure Great Bank Financing Using Equipment Appraisals

  • An equipment appraisal helps you know what your equipment is worth. Has your bank asked for collateral for your loan? The bank officer may be more amenable to accepting your equipment as collateral if they know the verified value of your machinery. By being able to document your machinery's value, you may be able to get better terms for your loan, such as a better interest rate, a higher loan amount or better repayment terms.
  • A machine appraisal from a certified equipment appraiser will be treated by the bank with more credibility than they would an advertisement online, your cousin Joe's opinion or similar, less binding documentation. This also means that they can provide a loan closer to the full value of the equipment when the equipment is used as collateral, because they know they'll get their money back if you aren't able to pay them what is owed on the loan.
  • How much your machinery is worth can vary greatly based on the purpose of the appraisal, the market and similar concerns. In some situations, the type of appraisal that is performed is mandated by law, such as in a divorce or partnership dissolution. When your market is booming, equipment may be hard to find and therefore will command a higher price than when it has gone through a bust cycle and the equipment is plentiful and cheap. Is your equipment usable in other industries? Does it require extensive retooling to be used by another business? 
  • Your machinery's value can also vary strongly based on the condition it's in at the time of appraisal. Has the equipment been properly maintained and repaired when necessary? It will have a longer lifespan and higher value if so. Does it has any after market kits or options that may have not been approved by the manufacturer? These may cause excess wear and tear lowering the value of the equipment.
  • A machine appraiser will estimate the expected useful lifespan of your equipment when asked. If you have a piece of equipment that is expected to have another 20 years of service but the bank has previously offered you only a 5 year term, having documentation of the expected lifespan may give the bank officer the opportunity to potentially extend the repayment period out to a more reasonable length of time.

By having a qualified equipment appraiser determine your machinery valuation, you can provide your financial institution with documentation of your equipment values, helping ensure your bank financing will come through.

Tags: bank financing collateral, bank loan

Before You Sign on the Dotted Line: Why Equipment Appraisal is Vital in a Divorce

Posted by Equipment Appraisal Services on Tue, Jun 07, 2016 @ 01:30 PM

He said, she said, they said - when it comes to dealing with a divorce, it's a very stressful time. The last thing you may be thinking about is getting equipment appraisals performed on your machinery assets. But when both parties are in a business together or if one party is contesting the divorce, you'll need to have a certified equipment appraiser take a look at what you have and prepare a report that will hold up in court. What's more, you'll need to have a particular type of machine appraisal performed to meet legal requirements. Confused? We'll help you figure it out. Here's what you need to know:

Before You Sign on the Dotted Line: Why Equipment Appraisal is Vital in a Divorce

Why Get a Certified Machinery Valuation?

A machinery valuation helps determine the value of equipment assets during a divorce. But what many people do not realize is that the type of appraisal is different depending on the situation. There are some legal restrictions, depending on your location, that control the type of appraisal that must be performed in a divorce. But beyond the type, you'll want to make sure your appraiser is certified. Why? Certification shows that the appraiser has been trained in standardized equipment appraisal techniques and types, ensuring they'll know how to apply the proper methodology to your equipment appraisal.

They'll also be a neutral party, providing a fair value for your equipment. If your appraisal report is not prepared by a certified equipment appraiser, it will almost certainly be contested or thrown out in court during proceedings. Even if your appraisal was performed by a certified machine appraiser, your spouse may choose to contest the report either out of an abundance of caution or out of spite to drag out the proceedings or force your hand in another area. In that situation, it's vital that you work with a certified machine appraiser who has experience as an expert witness.

What Type of Valuation Do You Need?

Beyond making sure that your equipment appraiser is certified, you may not realize that the law in some areas controls what type of appraisal can be used in divorce proceedings. Fair market value is typically used, with both parties agreeing to use the same independent certified appraiser. If one partner is pushing to get out of the business, fair market removal value may be used, which accounts for the cost of removing permanently-affixed machinery from a business location. In cases where both parties want to quickly leave the business and have the cash to start over, orderly liquidation or forced liquidation values may be used to speed the process along. Though this is relatively rare, it does show up in no-content divorces where neither party wants to retain an interest in the business. 

Though nobody wants to go through a divorce, knowing what's involved in deciding what to do with equipment assets can help a great deal. Remember, you'll want to work with a certified equipment appraiser to ensure your appraisal report will hold up in court and against legal scrutiny.

Tags: Divorce, divorce appraisal, fair market value