Equipment Appraisal Blog | Understanding Machinery Appraisals

Retrospective Machinery & Equipment Appraisals

Posted by Equipment Appraisal Services on Mon, Oct 18, 2021 @ 07:00 AM

Machinery and Equipment Appraisals Retrospective Past Effective Dates

There are instances when tangible asset appraisals are required for effective dates well in the past. In some cases, this time period can be years prior to the actual date of the analysis and report. How do accredited machinery & equipment valuation professionals determine the right approach to these projects, given these retrospective circumstances?

Some of the more common areas where a historic effective date is required would be for the following types of valuations:

Insurance Appraisals: Casualty damages settlements, such as a fire or road accident, which are being litigated or otherwise disputed, are often valued months or years after the initial incident. This is usually because the case has been ongoing for a period of time before the parties determine an equipment valuation is required as part of the dispute.

Property Tax Appeals: Business owners who believe their town or county is basing their property tax assessment on inflated tangible asset values can go through an appeal process in an effort to reduce this annual tax obligation. When determining the overall effect of this tax, the company can reflect back on prior tax years leading up to the current assessment and request an appraisal of their property for multiple periods including these past assessment dates.

Estate Settlement: When a business owner passes away, there is the possibility their estate will need to be valued as part of the overall settlement of property to respective family members and other heirs. This process can become bogged down in the court system and take months or even years to finalize, with the necessity to appraise certain assets to facilitate the settlement. The effective date of these appraisals usually reflects back to the day the individual passed.

Mergers & Acquisitions: In certain cases, when companies require an allocation of value to the respective assets in M&A transactions, the appraisal requirement is not addressed until very late in the process. The due diligence steps involved with larger, more convoluted deals are many, and the appraisal required to reset the accounting of the new entity being acquired may be one of the last. The effective date typically reverts back to the official transaction date.

Regardless of the reason why a retrospective valuation is required, the equipment appraiser should take a consistent approach to adjust for these situations, as the majority of sales comps available today represent current transactions. Reasonable methods to complete this step include utilizing existing databases that may have historic data available to research, valuing older equipment in line with the difference in the time period, and reviewing industry price adjustments between the effective date and the report date. As long as one or more reasonable steps are considered prior to the final estimate of value, a retrospective appraisal is just as reliable and defensible as any other.

Tags: Machinery & Equipment Appraisals, Retrospective, in the past, effective dates

How Supply Shortages and Order Backlogs Can Effect Equipment Value

Posted by Equipment Appraisal Services on Mon, Oct 04, 2021 @ 07:00 AM

Used Machinery Equipment Appraisal Supply Shortage Increased Demand

Image source Random Retail on Flickr license

The COVID-19 pandemic has brought with it many unanticipated shifts and changes. Some of the more prominent of these occurring in the global business marketplace include unanticipated machinery, parts, and raw materials shortages in a number of key industries including construction, transportation, automotive manufacturing, furniture, and technology.

Prior to the COVID pandemic, many regional areas, both domestic and overseas, were experiencing a prolonged lack of economic growth, which led manufacturers to slow production across key economic markets. By the latter half of 2020, these same manufacturers began experiencing historically high levels of demand driven by workplace and consumer lifestyle changes creating a supply shortage.

This supply shortage, coupled with an unabated increase in demand, has resulted in significant price increases and backorder delays for many types of equipment, personal property, replacement parts, and raw materials. The providers' costs to purchase and transport these products have increased so dramatically that some are simply waiting for the market to adjust while others are passing these costs onto their clients who have no choice but to pay now or lose out on precious contracts. The growing concern is that this severe imbalance in the market is not going away anytime soon, and manufacturers will therefore continue to be unable to provide a reasonable product delivery timeline for correspondingly reasonable costs.

The resulting impact in the used machinery & equipment marketplace is one that is fairly obvious. Any business looking to sell or liquidate their excess property is able to find a greater number of potential buyers, leading to a material increase in value for their assets, given the immediate availability to sell. This increased demand may be short-term, or more likely, it will last for the better part of 2022, given the slow lag time before new tangible products are more readily available.

If you’re considering selling used equipment, parts, or inventory, make sure you can easily replace it, either through the company’s existing asset base or with replacement machines that are available at a reasonable price in the market. If you are looking to purchase used equipment or parts, it may be the best option from a deliverable timing viewpoint, however, you may have to increase your budget to reflect this shortage in the market.

From a valuation perspective, an appraiser may or may not take the impact of these market changes into account when completing an assignment. It will come down to the circumstances involved in the overall scope of work effort and their own subjective opinions on the long or short-term effects in the marketplace. Either way, you should look to engage an experienced, accredited appraiser to complete the work.

Tags: machine appraisal, machinery & equipment appraisal, used equipment, equipment valuation, supply shortage, increased demand, used machinery