Equipment Appraisal Blog | Understanding Machinery Appraisals

Discover your equipment's real value beyond physical depreciation

Posted by Equipment Appraisal Services on Tue, Dec 26, 2017 @ 04:13 PM

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Your equipment is a big part of your business assets. But do you know what that machinery is really worth? Many companies rely too strongly on physical depreciation tables that take the age of the equipment into account, but not the market conditions or the condition of the equipment itself. Is that old table saw really not worth anything, or does it have value that can help you with negotiations down the road? Here's a quick look at what physical depreciation is and how to determine your equipment's real value.


Discover your equipment's real value beyond physical depreciation

Let's imagine a situation. A partnership is breaking up, and it's becoming rather messy. One partner is staying with the business and wants all the fully depreciated equipment to stay with the company. In his mind, it has no value on paper, so it shouldn't be an issue to hang onto it. The other partner who is leaving is demanding that his interest in the equipment be paid off, because the equipment is still used on a daily basis to produce income for the business. Therefore, the equipment does have value.

The next person involved in the dispute is the bookkeeper or accountant, who shows that the machinery has been fully depreciated and no longer has value as an asset to the company. But by definition, this means that the equipment should no longer be functioning effectively. Who is right and who is wrong in determining value?

When a physical depreciation is used, most commonly with income taxes, there is a strong expectation that the equipment will last a set period of time. It could be two years, five years or a decade. On average, that equipment will need to be replaced at the end of the depreciation period, therefore the equipment's value drops following a table as time passes.

But if the equipment is being maintained well, not abused or pushed to the end of its rated capacity, it can last much longer. Almost every business has a piece of equipment bumping around that is absolutely ancient, but it still performs very well. If the books show that this equipment has no value, how can you make a claim when it's destroyed in a fire or stolen? Two words: equipment appraisal.

An equipment appraisal looks at so much more than a simple depreciation table for taxes. The appraiser will take a solid look at the machinery, noting its condition, brand, model and any packages, kits or after-market add-ons that may boost its value. They will also look at how well the mechanical systems work, whether it consistently produces high-quality results and if it is in need of repairs or maintenance. Any abuse or damage will be noted, as well as wear that may shorten the equipments estimated remaining useful life. Finally, they'll look at the market conditions and determine whether demand will raise the value of the equipment.

When you take the time to have an equipment appraisal performed, you have proof of your equipment's value for insurance, tax, financial and legal purposes. However, to have that proof hold up in those circles, you'll want to make sure the appraisal is performed by a certified equipment appraiser. The certification process provides the appraiser with the appropriate methodologies to calculate equipment value that have been tested in a wide range of circumstances and hold up well for these purposes.

Tags: Physical Deterioration, physical depreciation

How do Standards of Value Impact Your Equipment's Appraisal?

Posted by Equipment Appraisal Services on Tue, Dec 19, 2017 @ 01:40 PM

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When your equipment is a large part of your business assets, the value of that equipment can strongly impact your bottom line. When equipment is appraised, standards of value are used to help calculate that value. But what are these standards, how can they impact your equipment's value and why are they used in particular situations? Here's a quick overview to help you get started in understanding this appraisal concept.

How do Standards of Value Impact Your Equipment's Appraisal?

Standards of valuation have been developed over the years to ensure that machinery is being appraised in a way that provides consistent calculations and results. Because of this history, an appraised value from a certified equipment valuation specialist holds up well to strong scrutiny in a wide range of areas. However, values are calculated differently depending on the situation.

A company that is undergoing bankruptcy may have their equipment appraised at liquidation value, as it's expected that the equipment will need to be sold quickly to pay off any debts. Investment value refers to the machine's ability to provide business income, such as a welding robot on a factory floor. 

One of the most common types of equipment appraisal that is performed is fair market value. It's such a wide-spread appraisal type that it's required in some specific legal situations, such as a divorce or litigation involving the dissolution of a partnership. In calculating this value, the appraiser looks at a wide range of aspects including the equipment itself, the conditions in the market where it is used and similar aspects. As an example, a drill for oil exploration will have a much higher market value during an oil boom than when oil prices fall and exploration is at a minimum.

These different appraisal types can drastically impact your equipment's appraised value. Fair market value assumes that you can wait a while for the right buyer who is willing to pay what the machinery is worth, while liquidation value may be much lower to assure a fast sale. Different values may be determined for large or difficult to move equipment based on whether the machinery is sold in place or to be moved, due to the high cost of moving it to a new location.

The different values are impacted by a wide range of factors, and the final appraised value may not match what you've been told by a local machinery dealer. Why? If a machinery dealer offers you a higher price for your equipment than what is calculated, it may be due to a push to move their new equipment, allowing them to make a higher offer on older machinery to get their new equipment moved.

On the other hand, they may offer you a much lower price to convince you that your machinery is virtually worthless to help encourage you to replace it with equipment that has more equity. Whatever reason for the disparity, a certified equipment appraiser has been taught specific methodologies during the certification process that have been proven to hold up well in legal, financial, insurance and tax agency circles.

By knowing how standards of value affect your equipment's reported value, you can get a deeper understanding of how the valuation process works and how different situations and conditions can impact that value. This helps you get a better comprehension of appraisal reports, allowing you to better leverage your equipment value to your company's benefit.

Tags: Equipment Appraisal, standards of value, ASA accredited appraiser

How is depreciation of equipment figured and how does it impact value?

Posted by Equipment Appraisal Services on Tue, Dec 12, 2017 @ 10:04 AM

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When you own machinery assets for your home workshop or your company, you know that the depreciation of equipment can rapidly change the value of those assets. But what is depreciation? Exactly how is depreciation figured? How does depreciation impact your bottom line and the value of the machinery? Are there any other ways to determine value for machinery assets? Here are the answers to these questions and more.

How is depreciation of equipment figured and how does it impact value?

Depreciation is one process by which equipment values may be estimated. It's commonly used for taxes and similar business financial documentation. Generally speaking, it breaks down the estimated value of a piece of equipment over the expected period of time that machinery will function. It creates a simple way to lower equipment values over time, accounting for the change in value of the asset. It's one of the most common ways to track changes in machinery value for many businesses. But that doesn't mean it's the best possible option for your company.

A depreciation table assumes that all machinery of a particular type ages at the same rate. But what about when you have a piece of equipment that is expected to last much longer because it's well cared for and lightly used? What about when a piece of equipment is abused and worked hard beyond its expected limits? At that point, the expected lifespan of the equipment may vary widely compared to a piece of equipment that has more standardized care and maintenance. This makes a strong impact on the machinery's actual value when compared to the depreciation table, throwing your business' finances off - specifically the value of your assets.

There are a few different but very common situations where this happens. Well maintained machinery will still have value after it has been fully depreciated. Abused equipment will fail before it has been fully depreciated. In either instance, the machinery's depreciated value does not accurately reflect its actual value. When you have machinery that is initially used extensively but then takes a back burner to other processes, the rate at which it depreciates can change over time, making the value change as well. What can you do to depreciate the machinery using an accurate value and timeframe?

When you have a machinery valuation performed, you get all the information you need to set up a proper depreciation schedule. The valuation will determine the machinery's estimated value using standardized methodologies and the expected useful lifespan of that piece of machinery. By having these two pieces of information available, you can create your own depreciation table that is backed up by the valuation report and is customized to your company's situation. Because the methodologies used by certified equipment appraisers has been developed over the past several decades in legal, financial, insurance and tax agency circles, they stand up well to strong scrutiny.

By knowing how depreciation of equipment is determined, you can figure out exactly what type of value method works best for your assets. But when you're starting with equipment that isn't brand new, how do you figure out an initial value to determine your depreciation from? Many equipment owners have found that having an equipment valuation performed can make a big difference in being able to track realistic machinery values. 

Tags: Equipment Appraisal, depreciation of equipment

Why should I work with an ASA accredited machinery & equipment appraiser?

Posted by Equipment Appraisal Services on Wed, Dec 06, 2017 @ 11:44 AM

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When you're considering having your equipment valued, do you know what kind of appraiser you should work with? Though you could work with anyone who had a general knowledge of machinery values, that may not be your best bet. The American Society of Appraisers has spent decades developing methodologies that have been proven in a wide range of real-world situations, and that knowledge is reflected in every ASA accredited machinery & equipment appraiser they certify. Here's a look at the reasons why you should only work with an ASA certified appraiser.


Why should I work with an ASA accredited machinery & equipment appraiser?

When you need an appraisal performed on your machinery or equipment, do you know whether the appraiser you contact is certified? Though it's not the first question most clients ask of an appraiser, it's a very important one with regards to the accuracy of your final valuation report. The certification process provides an appraiser with the background education, knowledge and experience to help ensure they're accurately valuing your equipment. As an appraiser is certified, they receive a specific amount of education in both how appraisals are performed as well as which situations demand specific calculations and methodologies.

The most common accreditation program is from the American Society of Appraisers, or ASA. As one of the leading professional organizations for appraisers, the program they offer for accreditation uses the methodologies that its members have been using for decades. This means that reports generated using these methodologies stand up well to strong scrutiny. But in what situations is this really important?

Almost everybody has heard of a situation where a business is dealing with an insurance company, a lawsuit, a tax agency or a financing company where the value of an asset has been questioned. Though most people know that there's an appeals process in most of these situations, they don't bother to pursue this avenue because they don't know how else to prove the value of the asset. That's one of the best places where an ASA accredited appraiser's report can benefit your business or situation.

Because reports generated by accredited appraisers use the same standardized methodologies that have been used for decades, the report is viewed with higher regard than one developed by your local equipment dealer or similar appraisal approach. These types of appraisals have been tested in court cases and often have made a big difference in the outcome of the case. In insurance claims, it's not uncommon for adjusters to make an incorrect valuation because they don't specialize in that type of machinery. In financial and tax circles, an appraisal report can help prove a piece of equipment's value.

When you work with an appraiser, the information you receive can help prove the value of your machinery, but the information is only as strong as the methodologies that are used to calculate that value in the first place. By working with an ASA accredited machinery & equipment appraiser, you're ensured that the valuation report that you receive is accurate and will hold up well to strong scrutiny in a variety of situations. Make sure before you get started with an appraiser that they are certified to ensure you're getting your money's worth out of the valuation report you receive.

Tags: certified appraisal, ASA accredited appraiser