Equipment Appraisal Blog | Understanding Machinery Appraisals

Exactly how do you determine normal useful life in your equipment?

Posted by Equipment Appraisal Services on Tue, Oct 17, 2017 @ 12:24 PM

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When you own equipment, do you know about how long you can expect to be able to use it? Though most owners know roughly how long their equipment will last, determining a closer estimate is a difficult process. Fortunately, it's a process that is familiar to many experienced and certified equipment appraisers. Here's a quick look at the factors they consider when determining normal useful life in a piece of equipment.

Exactly how do you determine normal useful life in your equipment?

 

There are a wide range of factors that contribute to the lifespan of a piece of equipment. Here are just a few that are taken into account by a certified equipment appraiser during the process of calculating useful life.

  • Environmental conditions. There can be a huge difference in the lifespan of a piece of equipment based solely on the conditions where it is stored and used. Equipment kept in a dusty warehouse with extremes of temperature and a leaking roof will almost certainly have a much shorter lifespan than one kept in a clean, dry workshop with climate controlled temperatures. Why? Moisture and humidity can lead to corrosion, while being used in hot, dusty conditions will lead to early breakdown of lubricants and cause excessive wear. Better conditions lead to a longer useful lifespan.
  •  Suitability to the work. If the equipment you're using is underpowered for the work, it will be used at the high end of its range for most of its lifespan. That means it will overheat more often, breaking down lubricants and causing excessive wear on the components. This in turn leads to other parts failing and a shorter overall lifespan than may be expected of a piece of machinery better suited to the work at hand.
  • Abusive usage. Is the equipment being used with care to preserve its condition? If it's being used incautiously or being beaten on to work controls, this level of abuse will quickly shorten its overall useful lifespan. As an example, we've all seen heavy equipment that has been bashed, dented and torqued early on in its lifespan, which quickly leads to early failure.
  • Expected longevity of that line of machinery. Some brands have a reputation for excellence and longevity that comes into play. For example, a store brand bandsaw with a reputation for poor performance and shoddy manufacturing won't hold up nearly as long as a finely-crafted one that has been well engineered, created from the best materials and delivers superior performance time and again. When the second example is used, you can expect a much longer useful lifespan than you may otherwise anticipate.
  • Regular maintenance and repairs. Though it seems like a simple step, regular maintenance in line with the manufacturer's recommendations can help ensure a much longer lifespan than equipment that has been neglected over the years. In the same vein, repairs that are caught early and dealt with quickly will help prevent damage to other components in the system.

Though the process of determining normal useful life in a piece of machinery is difficult, it's one that equipment appraisers are well versed in handling. By knowing when your equipment may fail, you can better plan for replacement and ensure you are still able to receive some resale value out of it. A certified equipment appraiser can help you determine this timeline for your machinery.

Tags: normal useful life, remaining useful life, fair market value

What exactly is a USPAP compliant appraisal?

Posted by Equipment Appraisal Services on Tue, Oct 10, 2017 @ 03:02 PM

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When you're considering having an equipment valuation performed, one option that is available is having a USPAP compliant appraisal performed. But what exactly is USPAP and how are appraisals that are compliant to USPAP standards different than other types of appraisals? Here's a quick look at this type of appraisal and how it can benefit you.

What exactly is a USPAP compliant appraisal?

Standing for the Universal Standards of Professional Appraisal Practice, this represents a set of standards set and published by the Appraisal Standards Board, which in turn is authorized by the Appraisal Foundation. The Appraisal Foundation itself was authorized by Congress to be the source of appraiser qualifications and appraisal standards. Though USPAP appraisal practices were initially focused on real estate appraisal specifically, it has since grown to encompass virtually every possible item that can be appraised in business. 

But how can these standards benefit your equipment appraisal? Because of the high scrutiny under which USPAP has been developed and the number of different situations under which it has been applied, it has developed into a comprehensive standard that deals well with a wide range of situations. Over time, it has been tested in a wide range of legal, financial, insurance and tax agency circles. For this reason, it has become a trusted standard that provides business and equipment owners with many benefits.

When a business suffers a loss, whether due to a fire, natural disaster or theft, insurance companies must be dealt with. If the equipment has not been properly appraised, the business has no basis for claiming a value different than the one generated by the insurance company. But the insurance figure may be a generalized average across the industry, which does not recognize that the equipment has been maintained exceptionally well in a clean, dry environment. How do you fight that figure?

What about when a tax assessment is much too high on a piece of machinery that was purchased as a disposable asset, intended to be used hard for a short period of time? When a piece of equipment is purchased as a stop-gap until something different can be made to work, it often doesn't receive the best treatment. Receiving a high assessment on a machine that has a much lower value can be difficult to fight.

When you're getting ready to expand your business, do you need to secure financing using your equipment as collateral? How can you prove to the financial institution how much it is worth? A business loan can be difficult enough without having to deal with proving your equipment's value to the bank.

Fortunately, when a USPAP appraisal is performed, it provides documentation of the machinery's value, which will hold up to strong scrutiny in a wide range of situations. The standard has been tested in many situations, so it is trusted as an accurate measure of value for the machinery in question. An appraisal report prepared by a certified appraiser ensures that your interests are being protected during the process.

Though a USPAP compliant appraisal seems like a complex process, its many benefits help provide you with a wide range of benefits. Because a certified appraiser is already familiar with these standards, they're able to properly apply them to your equipment appraisal to ensure you get an accurate value. Working with a certified equipment appraiser provides you with a range of protections that may last well into the future.

Tags: USPAP appraisal, standards of value, certified appraisal

How is actual cash value determined by a certified equipment appraiser?

Posted by Equipment Appraisal Services on Tue, Oct 03, 2017 @ 11:36 AM

appraising medical equipment

If you're thinking about having equipment appraised, you may have heard any number of appraisal types tossed around. One type of calculation that is commonly used is actual cash value. But what is this appraisal type, how is it performed and in what situations is it the best option to consider? Here's a quick look at these questions and how they apply to your machinery assets.

How is actual cash value determined by a certified equipment appraiser?

When it comes to determining actual cash value, many people are a bit confused over how this figure is calculated. It doesn't help that over the years, the court system has defined it in several different manners. Some people think it's the same as fair market value. Others think that it's replacement cost minus depreciation. Others think it's a hybrid of the two.

But what's the difference between these two approaches? Replacement cost minus depreciation can work in some situations, but not in others. A piece of machinery is lost in a fire, and the cost to replace it is $50,000. Depreciation on the original equipment would have been $5,000, so the equipment is valued at $45,000. Using fair market value, the same equipment may be older and fully depreciated. Using replacement cost minus depreciation may only provide a value of $5,000, but if the equipment was well maintained, it may still deliver years of reliable service. At this point, the value of $5,000 may be unrealistic for replacement in a loss.

Obviously, calculating actual cash value is a difficult process, with contradictory precedents depending on the state where the equipment or company is located and where you're going through legal or insurance issues. Despite the vague definition of actual cash value, many legal, financial, tax and insurance organizations still use it, leading to potential disputes between the customer and the company. Hiring a certified equipment appraiser to provide you with an appraisal report on the actual cash value of your equipment can help your side of the debate. 

In a number of court cases, the report or testimony of a certified equipment appraiser has made all the difference between a poor value and a fair value for equipment. A certified appraiser goes through an extensive educational process that includes learning which appraisal methods are applicable to which situations. Because they are taught proven methodologies that have been tested in legal, financial, insurance and tax circles, the reports they generate hold up well to scrutiny and are considered more reliable and accurate than a number of other sources you may be tempted to use in your situation.

A certified appraiser has the knowledge, experience and ability to help you fight a poor estimate of actual cash value. They've been trained to know in what situations different rules must be applied to determine a fair value for your equipment. When you work with a certified appraiser, you'll realize significant benefits for your machine values.

When you have actual cash value calculated on your equipment, you're gaining good insight into what your machinery is worth. However, if your appraisal isn't performed by a certified equipment appraiser, you may not be getting accurate information or an appraisal report that will hold up in financial, insurance, tax and legal circles. Make sure the appraiser you use is certified to ensure that your documentation will stand up to strong scrutiny in the future.

Tags: Insurance Loss, actual cash value, fair market value