Equipment Appraisal Blog | Understanding Machinery Appraisals

Understanding Effective Age and How it Affects Machinery Values

Posted by Equipment Appraisal Services on Tue, Mar 28, 2017 @ 12:28 AM

There are so many terms in the equipment appraisals process that you would need a dictionary to understand them all. As long as you know the key terms that could affect your machinery valuation, you can interpret the results of an equipment appraisal and buy or sell used equipment for a fair price. When it comes to buying and selling used equipment, one key term to understand is effective age

Understanding Effective Age 

Appearances can be deceiving. If you were buying a die-cut machine at auction, for example, you would want to know whether the machine was 2 years old or 20 years old. The age would affect the price you were willing to pay for the machinery. You might be prepared to purchase a die-cut sealer that was either 2 or 20 years old, but for a very different price tag. Likewise, if you were selling the machine you would have a different expectation of acceptable prices based on age. 

What if the die-cut sealer was actually 20 years old, but looked so good you would have sworn it was last year's model? This is where understanding effective age in the appraisal process comes into play. 

Every piece of equipment has a real age representing the time from the date of manufacture to the present. Effective age denotes the look and feel of the machine... in other words, how old it appears to be to observers. 

Whether you are buying or selling, effective age is important to know. It tells you something about the equipment values set at auction.

Effective age is subjective. Depending on how the machinery was cared for, the effective age can be less than or greater than the actual age. 

A machine that looks new but is years old could have been recently repaired and painted to appear close-to-new. When examining old equipment, consider whether the piece was cosmetically enhanced to look good or truly rehabilitated to be competitive with current models. 

Consider the example of a home for sale in your neighborhood that's 30 years old. Let's say the current owner remodeled the bathrooms with low-flow toilets and an energy-efficient shower, put in a new tile floor, and refreshed the paint. The updated bathroom looks brand new even though the home is 30 years old. Now, imagine the same home is on the market, but the bathroom has only been repainted and the sink faucet was replaced. The bathroom looks somewhat newer than the rest of the house, but isn't actually more efficient. The work was simply window dressing to trick the buyer into paying a good price. 

The same holds true for machinery valuation of used equipment. Rather than trust what you see, it's important to dig deeper and ask questions to find out if the equipment meets your needs and if the price is fair. 

An equipment appraiser can help you evaluate equipment you are considering buying from a third party or walk you through the equipment values and effective age of an item before you take it to auction. This can save you time and money if you're selling equipment. Why spend money to fix an item if its effective age will still look poor compared with similar pieces of equipment? 

 Whether you seek equipment appraisals before buying or selling, it's key to find an appraiser who understands the industry, equipment, and core considerations.

Tags: normal useful life, effective age, remaining useful life

Understanding Remaining Useful Life of a Machine

Posted by Equipment Appraisal Services on Tue, Mar 21, 2017 @ 02:10 PM

If you're reading through a machinery valuation before bidding on a piece of used equipment at auction, you'll run across the concept of remaining useful life. By understanding remaining useful life, you can understand how much the equipment values are and purchase with confidence. Learn more. 

What is Remaining Useful Life in Equipment Appraisals?

Remaining useful life, sometimes abbreviated as RUL, refers to the amount of time in years a piece of equipment has before it will need replacement. 

To gauge the remaining useful life of an item, the appraiser will review service records, thoroughly inspect the equipment, and check out the environment where the equipment is used. A forklift that's kept in a salvage yard will age much faster than one that's always stored in a garage overnight, for example. Even if two forklifts were purchased at the same time, their remaining useful lives can widely differ. 

An equipment appraiser will consult guides that indicate equipment values over time, as well as the normal useful life of the unit, which is the typical life span of the unit. He or she may reach out to the manufacturer with questions that can help define a value if any questions arise. 

By subtracting the estimated period of use from the normal useful life, the equipment appraiser can deliver an estimate for the remaining useful life. For example, say that a canner has a normal useful life of 25 years, and the appraiser determines the equipment appears to have been used for 10 years. The canner may be older or younger than 10 years; what matters less is the physical age than the amount of use the equipment shows. The appraiser would then subtract the use from the normal useful life to arrive at an RUL of 15 years. 

How Understanding Remaining Useful Life Benefits You 

If you are interested in a piece of equipment such as a canning machine, used equipment auctions can be a great way to purchase the equipment you need at a price you can afford. Yet if you don't understand the useful life, you risk paying more than you should for an old canner that won't truly last. 

If you are the other party in the auction -- the owner of the canning machine who wants to sell it -- you also must understand the concept of useful life. By getting the equipment values taken ahead of time, you can gauge the fair market value of your item and decide your next steps. You might opt to have the old canner serviced, if a servicing can help you command a better price at auction. Or you might decide against servicing equipment, saving yourself money.  

Whether you want to buy or sell a machine, remaining useful life is an important concept to understand. A skilled equipment appraiser will know how to accurately determine the RUL and can explain it to you so you understand the estimate and can make the right decision for your business interests. While the RUL is always an estimate, not a guarantee, it's helpful to have a baseline estimate for a machine's lifespan. 

Once you know the remaining useful life of a piece of equipment you've just purchased, you can plan ahead for when the item might need to be replaced. This helps you budget accordingly for the replacement and avoid the unpleasant shock that comes with suddenly losing a piece of equipment you rely on every day. 

Tags: normal useful life, remaining useful life

7 Reasons You Should Work with an ASA Accredited Appraiser

Posted by Equipment Appraisal Services on Tue, Mar 14, 2017 @ 11:08 AM

When you're getting a business appraisal, have you checked whether the equipment appraiser is an ASA accredited appraiser? Though it may not seem important right now, ASA accreditation can make a big difference in how well your machinery valuation holds up to scrutiny, whether it's with a bank, an insurance company or a court of law. Here are a few reasons why you should always get an ASA accredited equipment appraisals.

7 Reasons you should work with an ASA accredited appraiser

  1. Standardized methodology: When an appraiser goes through the certification and accreditation process, they learn a series of standardized methodologies and the situations in which they are best applied. These methodologies have been developed over time and have been tested in legal, financial and insurance circles, proving their effectiveness in the field.
  2. Holds up to scrutiny: Because standardized methodologies are being used in the appraisal, it holds up better to scrutiny in the courts, with your bank or when making a claim with your insurance company. We've all heard stories where companies lose thousands of dollars because their equipment appraisal didn't meet particular standards; with an ASA accredited appraisal, you're covered.
  3. Knowledgeable about appraisal methods: Why do you need the appraisal? Appraisal practices are very different depending on why you need them. A forced liquidation will give you a much lower equipment valuation than a fair market value where you have plenty of time to move equipment without any outside influence.
  4. Knowledgeable about your industry: What's the market like for your business right now? If the market is in a slump, there may be a lot of that machinery hitting the market, driving the price down. An equipment appraiser who is aware of market conditions can better factor for these issues and account for them in the appraisal.
  5. Exceptional accuracy: How accurate is that machinery value you've received? Someone at your local machinery dealership may be able to give you a ballpark figure, but they're motivated by getting a sale. A certified appraiser is independent of these motivations, providing you with the most accurate possible picture of your machinery's value.
  6. Experienced in appraisal: Because equipment appraisers spend all day determining equipment values, they can provide a more accurate picture of what those values are. They're not figuring out the value of just one individual piece of equipment every once in a while. They spend their entire day looking at equipment, often within a single industry. This allows them to quickly ascertain the exact value of your equipment.
  7. Knowledgeable about equipment condition: Because accredited appraisers spend so much time looking at equipment, they have a very good idea of when a piece of equipment is in good condition and when it is in poor repair. This means that your equipment isn't being valued the same as broken-down machinery that isn't worth a thing.

By working with an ASA accredited appraiser, you can quickly discover the actual value of your equipment in a variety of situations. Staying on top of your equipment values will help ensure you have a more accurate picture of what your machinery assets are actually worth.

Tags: accredited appraisers, ASA

Why do equipment appraisals matter when you're buying a company?

Posted by Equipment Appraisal Services on Tue, Mar 07, 2017 @ 10:35 AM

buying a business equipment appraisal.jpg

When you're buying a company, one of the last things on your mind may be equipment appraisals. What does a machinery valuation matter compared to profit and loss, equity and overall assets? If you ask any equipment appraiser, they'll tell you just how important equipment values are in your business' bottom line. Here are a few reasons why you'll want to see a machinery valuation before you sign on the dotted line.

Why do equipment appraisals matter when you're buying a company?

  • They represent actual assets and equity rather than paper assets and equity. When a business is preparing its tax documents, machinery is often depreciated on a specific schedule. But in the real world, there are a wide range of factors that can impact how long the equipment can remain in service without compromising your profitability. A completely depreciated piece of equipment can continue working for years to come, while one that has had rough treatment or that is of poor quality may give up the ghost years before it would be completely depreciated on a standard schedule.
  • They give you a better idea of the condition of the machinery you need to operate your new business. Part of the process can involve looking over the maintenance and repair logs giving you insight into whether the machinery has been properly maintained to deliver years of service or if it is in poor repair, which may require negotiating to a lower sale price to compensate for equipment that will need to be replaced.
  • They help you plan for costly repairs or replacements down the road. An appraisal might contain the estimated normal and remaining useful lives on the equipment. This allows you to plan for these repairs or replacements long before they're needed so you can have the financial resources in place that will be needed.
  • Equipment appraisals can also be completed at the "Replacement Cost New" level which would give you insight on how much would go into replacing something if you had to buy it new.  This might be helpful when setting up your new insurance policy on the business that you are buying.

Equipment valuations may take a small part in the overall view you get when you're buying a company, but it can give you a solid view of the business from an asset perspective. But just as important as getting an equipment appraisal is the equipment appraiser who does the analysis. Hiring a certified equipment valuation specialist ensures that the calculations of the equipment values are determined by someone who has learned the appropriate methodologies for any number of different situations. This ensures the equipment values they calculate will hold up to strong scrutiny and will help you with obtaining financing, covering insurance losses or fighting a bad tax assessment.

Tags: fair market value, buying equipment, buying a company