Equipment Appraisal Blog | Understanding Machinery Appraisals

An accredited independent machinery & equipment appraisal needs to rely on several variables, utilizing components of both the sales comparison and cost approach to fully flesh out a balanced estimate of value. Researching and reviewing a reasonable amount of market sources that provide useful information is paramount to effectively working through an appraisal; however, it is common that all the pieces of data won’t consistently line up or even make logical sense in some cases.

An appraiser must understand that these market sources, while very useful, might not be entirely reliable and may even have a level of bias associated with them given the business and industry they operate in. A vital role of an accredited appraiser is to sift through the information they uncover and determine how best to put the pieces together to arrive at a conclusion of value.

This is where the level of experience an appraiser has comes into play. Determining which sources appear most consistent and reasonable, as well as making some commonsense decisions on how the particular assets being valued should trade in a secondary market throughout their useful lives will shed light on the situation.

There may be times when the equipment to appraise is very uncommon, with virtually no secondary market information available to research. In other cases, the appraiser will have dozens of sources available to them, each one marketing similar machinery for sale with a wide array of differing price points. Each situation will present challenges regarding how best to work through it and arrive at a reasonable assessment.

The purpose of the appraisal and the premise of value being estimated will also create different approaches that need to be thought through while completing the analysis. How an appraiser adjusts to each situation is based on their experience and overall understanding of the bigger transactional picture they are involved in.

The conclusion of value is ultimately the appraiser’s determination and theirs alone. The sources they rely upon are not responsible nor are they the ones being compensated to provide an independent estimate.

An opinion is always going to have some degree of subjectivity behind it, regardless of how much data supports it, and that’s okay. The more knowledge and experience an appraiser has backed up by a reasonable amount of supporting data, the better the final outcome will be.

Have you ever driven by an abandoned facility or work site and seen equipment that looks like it has been sitting there for months or even years, neglected and exposed to the elements? You can tell just from a casual view that the machinery is in dire need of major repair work or is otherwise headed to the junkyard.

This may be an extreme and broad example of how the value of equipment can be greatly affected by lack of maintenance, however, from an appraiser’s perspective, the history of an asset’s operation and care is a critical component to supporting value.

Most accredited and certified appraisers are not mechanics or technicians, and therefore cannot independently assess the cost of bringing equipment back into good operable condition. Therefore, an assumption is typically made stating that the associated values assume normal conditions exist, or they receive details from the owner or a qualified third party stating otherwise.

Even when a general visual inspection is part of the valuation effort, it is assumed that normal operating conditions exist, and effective maintenance history has been completed over the life of the assets unless the appraiser is told otherwise. If it is evident during the inspection that the assets have been out of service for an extended period and need repair work, the appraiser can apply a reasonable penalty to account for this, however, without support of the specific circumstances, the adjustment will be very broad in nature.

The fact is that in any situation, the appraised value is heavily predicated on the assumption that a potential buyer will be able to operate the equipment with minimal to no reinvestment once ownership changes hands. If the appraiser knows this is not a correct assumption, then they must determine a way to account for this that can be supported by their experience or ideally with a qualified assessment of repair costs.

Poor maintenance practices and long-term lack of use will eventually lead to a shortened life and significant repair costs for virtually all types of equipment, vehicles, and even certain personal property. If you own these types of assets and you know they will be out of service for an extended period, it is important to store them in a protected environment and keep the components running once a week or so to maintain them properly. This way, when it comes time to use them again or sell them on the open market, you can rest assured they will function reliably for you or your buyer.