Equipment Appraisal Blog | Understanding Machinery Appraisals

Online equipment listings are an excellent starting point for estimating machinery and equipment market value, but asking prices alone rarely reflect the price a willing buyer will ultimately pay.

When business owners need an equipment appraisal or their professional advisors need to estimate the market value of used commercial equipment, they will typically complete an online search for comparable items listed for sale. This is a natural starting point and matches what you would do if you needed to know the market value of your house or automobile.

However, unlike homes, commercial equipment resale information is not publicly recorded; and unlike cars, individual machines of the same make and model that appear identical may have substantially different internal components.

Further – especially when considering machine tools, processing machines, and installed industrial machinery in general – trade volume of a specific machine is very low. Equipment sellers may not perceive current demand accurately, or may be building in large negotiating margins. Additional services such as warranties, service contracts, or delivery and installation may be built into the pricing as well.

Does this mean online listings are useless for determining the market value of commercial equipment? No. For commercial and industrial machinery and equipment, asking prices shown in online listings are useful market data points, but they are not always representative of what a buyer will actually pay. Asking price may – but does not always – equal market value.

Asking Price is the Seller’s Opinion, Not the Buyer’s

Online listings tell you what sellers are asking. They do not tell you what buyers are paying.

An online machinery listing includes a price that was set by the seller. No buyers or potential buyers were involved in setting the list price. If the seller is motivated to sell quickly, they may reduce their price; if they do not need to sell quickly, they may keep their price high. If the seller believes the condition of their item is above-average, they may list high; if they believe their machine is overdue for maintenance, they may list low. If the seller feels there is high demand for their machine, they may list high; if the seller believes demand for their machine may be limited, they may list low.

The common thread in all of these scenarios is that asking price for used equipment is determined by what the seller believes to be true, or by the seller’s personal desire to sell. In none of these cases have the feelings or beliefs of buyers been taken into account!

A market value is a price that would actually be achieved by a real-world buyer and real-world seller, under certain specified circumstances. For example, “fair market value” means the transaction is between a willing buyer and willing seller at arm’s length. “Orderly liquidation value” means the transaction is between a willing buyer and a compelled seller at arm’s length in a compressed timeframe. Many other value definitions exist, each with their own description of the transaction being considered.

In all cases, a buyer and a seller must both agree to the price under the terms of the sale. Even in a forced sale – for example, a bankruptcy auction – the seller agrees (or is required to agree by a judge or trustee) that the highest price offered will be satisfactory for each item.

Most of us have seen friends or family price their home optimistically and then be disappointed when buyers show limited interest. Usually, the seller reduces the price until a sale is achieved. Equipment market value works similarly: sellers may have personal reasons, such as time constraints, emotional attachment, or debt burdens, that incentivize them to list their used machinery above market. Only when the item has been properly exposed, and buyers have demonstrated their actual willingness to pay, will the seller’s list price come down to market value.

Online Listings Show What Hasn’t Sold

When reviewing open listings for commercial equipment, one typically only sees items that are currently for sale. It is common to find listings labeled “SOLD” without being shown when the item sold, how long it took to sell, or the actual sale price achieved.

Buyers using online marketplaces are naturally going to prefer a lower-priced machine, all other factors being equal. Hence the machines priced most competitively are likely going to be sold earlier than similar items.

This means that in many used machinery listing platforms, the machinery value – which is the price buyers are actually willing to pay – will not be reflected in the asking prices shown, because any machines at that price level will have already been sold and removed from the platform.

Machinery is Typically Customized and Unique

Most types of commercial and industrial M&E are manufactured to order. Some items such as heavy trucks or farm tractors may be mass-produced and sold from lots, like automobiles. But almost every type of machine tool, processing line, packaging machine, or other industrial equipment item is built specifically for the business and facility in which it will be installed. Because of this, finding truly identical comparable sales and offerings for any commercial equipment is very difficult.

An online search for comparable items may result in machines of the same make, model, age, and condition, and that look identical from the outside. However, each machine may have a highly customized package of options, controls, drives, motors, software, tooling, and other internal components. The online listing may only detail the high-level capacities of the item, and may not mention each of the options and configuration specifications.

A searcher who is not experienced and familiar with the used machinery marketplace is unlikely to recognize where the differences between each item lie, and how much market value may be associated with those differences.

Even beyond physical equipment differences, the specifics around each seller and listing can heavily weigh on both the initial asking price and the eventual sale price. For example, the maintenance history, software upgrades, rebuilds and overhauls, manufacturer warranties, and the item’s location can all increase or decrease market value. These items are rarely detailed in an online listing; the seller expects interested buyers to inquire further.

The market value of any individual listing will only be determined after the buyer has satisfied their own inquiries and adjusted their offer for the risks and benefits of the unique machine being traded.

Asking Prices Provide Room for Negotiation or Add-On Services

Have you ever sold a used car by yourself? If so, you will understand that asking price is almost always optimistic! If a seller believes their car is truly worth $7,000, they will typically put a sign in the windshield that says something like “$8,000 Or Best Offer.” The seller knowingly lists their car above-market for two reasons: 1) they hope they’re wrong and the car brings more than expected; and 2) they know that some buyers insist on negotiating every purchase, and they want a high starting point for negotiation.

These same concepts hold true for used commercial equipment and machinery. The seller of a machine may not be fully certain of its market value, and they may price the machine conservatively in the hopes that they will achieve a sale above their expectations. Further, the seller may have experience dealing with professional used equipment buyers who habitually offer below list price, and may build in a negotiating cushion in order to have room to bargain with such buyers.

Unlike a car traded between two individuals, used machinery and equipment transactions can include several additional deal terms which may affect the final market value in ways the seller is not able to predict. This is particularly true when the seller is a professional dealer, as opposed to a fellow business owner.

For example, the dealer may accept another machine as a trade-in; they may offer in-house financing options; multiple machines may be bought with a package discount; the dealer may offer freight, rigging, and installation services; service and parts contracts may be sold along with the machine; and so on.

A professional used equipment dealer may want to incentivize buyers to purchase additional goods and services and increase the value of the total sale. The easiest and most effective way to do this is to decrease the price of the original machine so that the buyers perceive themselves to be receiving a bargain. In order to be able to offer discounts without losing money, the dealer will frequently list their machines above their expected selling price in order to provide a higher starting point for discounting.

This may be the most important reason why the asking prices of comparable sales and offerings are not generally equivalent to market value. Market value is the final selling price of the machine, which may or may not have included discounts, additional sales, or terms beyond the knowledge of the internet searcher.

The Appraiser’s Role

A machinery and equipment appraiser will most certainly use asking prices as a starting point for valuation. Certified appraisers are trained to survey the marketplace for comparable sales, listings, and offerings. However, the M&E appraiser does not stop with list price.

A qualified M&E appraisal includes a consideration of the entire seller and listing details. The appraiser will ask themselves questions such as: is the seller distressed? Where is the item located? How long has the item been listed? Has the price been discounted from its original level? Is this an experienced and knowledgeable seller? Is the seller offering auxiliary services beyond the used machine, such as maintenance or training? Does the machine come with a warranty or any assurance of performance?

Certified M&E appraisers consider asking prices, verified sales when available, auction results, dealer offerings, replacement cost, depreciation, condition, and the intended market before developing an opinion of value.

A professional appraiser is also knowledgeable about the used machinery marketplace and can discern between broker listings, auction results, excess dealer inventory sales, and private-party sales. Each of these scenarios will lead the appraiser to different assumptions regarding the asking and selling prices, as well as the terms of sale, for the machine in question.

In some cases, the appraiser will heavily discount list prices, and in other cases, their opinion of market value may be near or equal to list price. But in no case does the appraiser take list price to be equivalent to market value without further investigation and comparison into these and other issues.

Understanding Asking Prices Leads to Better Decisions

For business owners and their professional advisors, an online search for comparable equipment is the simplest and fastest way to estimate market value. However, asking prices are generally only a starting point for negotiating an eventual transaction. The asking prices listed online are the opinions of each specific seller and reflect their own unique machine, situation, and motivations.

Financial decisions should not be based on asking prices only. A lender should not make a collateral-based loan; an accountant should not record a purchase price allocation; and an attorney should not file a lawsuit based solely on list prices. The decision-making process should include a researched and developed opinion of market value, completed by a qualified M&E appraiser who can explain their results to the client and other users of the results.

Comparable sales are one of the primary forms of market evidence considered in an equipment appraisal. Therefore, asking prices are an important piece of data for developing a market valuation, but in the end they are simply one piece of the appraisal puzzle.

Common Questions

Can you determine equipment value from online listings alone?

No. Online listings are an excellent starting point for estimating equipment market value, but they rarely tell the complete story. Asking prices reflect a seller's opinion and may include negotiating margins, additional services, or unique equipment configurations that are not apparent from the listing itself.

Why are asking prices different from market value?

Asking prices are established by sellers before buyers have agreed to a transaction. Market value, by contrast, is the price a buyer and seller actually agree upon. The difference often reflects negotiation, equipment condition, seller motivation, financing, warranties, freight, installation, or other terms of sale.

Do equipment appraisers use online listings?

Yes. Qualified machinery and equipment appraisers routinely use online listings as one source of market evidence. However, they also consider verified sales, auction results, dealer offerings, replacement cost, depreciation, condition, and the specific characteristics of the equipment before developing an opinion of market value.

Corporations maintain fixed asset records for property tax and financial reporting purposes. The value of all company assets (including real estate, equipment, and vehicles) is calculated using standard accounting procedures. However, this value – known as net book value – typically has no relation to the market value of those same assets. Business owners are often shocked to find that the net book value and market value of their assets are nowhere near each other.

What is Net Book Value?

When a company acquires an asset – such as a piece of real estate, a machine, or a vehicle – the purchase is recorded on the company’s fixed asset record. This record (which may have alternate names such as depreciation schedule or tax asset detail) captures the date and purchase price of each acquisition.

Corporations will then depreciate the purchase price over time, typically according to standard accounting procedures such as GAAP, or Generally Accepted Accounting Principles. The acquisition value minus the accumulated depreciation is the asset’s net book value.

There are multiple methods and timeframes for calculating depreciation. However, in all cases, after the entire accounting life of the asset has passed, the net book value is recorded at either a nominal salvage value, or simply and most commonly taken all the way down to $0.

In many jurisdictions, business personal property taxes are based on the depreciated asset values reported by the owner. Corporate accountants will therefore often select the shortest asset lives defensible in order to depreciate equipment purchases as quickly as possible.

How is Market Value Different from Net Book Value?

While the net book value of equipment is calculated according to common accounting procedures, market value is determined by real buyers and sellers in the equipment marketplace. Another way to think of the difference is this: net book value says, “How much is this asset worth for tax calculations?”, whereas market value says, “How much would somebody actually pay for this item?”

Market value is therefore not a mathematical calculation like net book value. Instead it is an opinion or estimate of potential transaction value. Net book value is determined by accountants, while market value is estimated by professional equipment appraisers.

Unlike net book value, market value cannot be calculated from a formula or depreciation schedule. It requires professional judgment supported by market evidence, comparable sales, cost analysis, and other valuation methodologies depending on the type of equipment.

Net book value is used primarily for tax accounting and financial reporting purposes. Market value estimates may be used for a wide range of purposes including collateral valuation, purchase price allocation for financial reporting, acquisition due diligence, insurance, and litigation.

Do Fair Market Value and Market Value Have the Same Meaning?

A market value is an estimate of what an asset may sell for in a specific circumstance. But there are many different types of market values, depending on the situation being considered. An equipment appraisal may include multiple types of market value, including fair market value, orderly liquidation value, forced liquidation value, or several other types.

The most common type of market value is “fair market value,” which is the price a willing buyer would pay a willing seller with neither party under any compulsion to make the transaction.

For example, when you buy a used car from a dealer, you are not compelled to buy the car – after all, there are many other car lots in town. Also, the dealer is not compelled to lower their price to entice you – they can wait for another interested buyer.

When you and the dealer have agreed to a price for the car which satisfies both of you, you may consider that a “fair” price, and that price would be a good indicator of fair market value.

However, there are other situations which result in market values which may not be considered “fair.” For example, in a bankruptcy auction, the seller is typically compelled to sell to the highest bidder by the court.

Besides the compulsion to transact, other circumstances such as marketing timeframes, buying terms, and relationships between the parties can also result in transactions which are not deemed to be “fair” in the sense of representing fair market value.

Appraisal organizations, such as the American Society of Appraisers, provide equipment in alternative situations.

Is Market Value Always Higher than Net Book Value?

An equipment appraisal estimates market value based on actual marketplace conditions rather than accounting depreciation, which is the basis of net book value. Because of this foundational difference, market value and net book value are rarely equal. For older equipment in particular, market value is typically higher than net book value.

It is not uncommon for companies in equipment-heavy industries, such as agriculture, construction, manufacturing, packaging, and processing, to own many long-lived equipment assets which have net book values of $0. But when these items are sold in the open marketplace, they often have positive market value.

A common example would be a semi tractor. Large trucks such as semi tractors are often assigned a 5-year accounting depreciation life on fixed asset records. A 10-year-old semi tractor with 1,000,000 miles would therefore often be assigned a net book value of $0. However, the actual resale value of such a tractor may be between $5,000-$25,000, depending on the model, condition, and configuration. In this case, market value is clearly higher than net book value.

However, market value is not always higher than net book value. For newer equipment in particular, market value may be lower than net book value.

A common example of this may be restaurant equipment. Food service furniture, fixtures, and equipment (FF&E) are often assigned a 7-year accounting depreciation life. If the restaurant owner’s accountant decides to use a simple straight-line depreciation method over 7 years of accounting life, the net book value of a 1-year-old fully-furnished commercial kitchen would have been depreciated about 15%.

However, the actual resale value of commercial restaurant equipment tends to fall very quickly, often as much as 25%-35% in the first year of service. Dining furniture, store fixtures, and point of sale systems may lose value even more quickly. In this case, market value is clearly lower than net book value.

Certified equipment appraisers can help business owners and accountants determine whether market value is expected to be higher or lower than net book value. Only rarely, and only by chance, would the two values be equal to one another.

Understanding the distinction between book value and market value is essential when financing equipment, preparing financial statements, negotiating an acquisition, settling litigation, or obtaining appropriate insurance coverage. An equipment appraisal helps ensure those decisions are based on actual market conditions rather than accounting conventions.

Commercial lenders such as banks, credit unions, and alternative financiers each may have unique approaches to risk tolerance and lending parameters. But they tend to look at industrial machinery and equipment through the same lens: “If this loan defaults, how much will I recover from this collateral?”

An independent equipment appraisal helps lenders understand collateral strength and liquidation risks.

The Commercial Lender’s Perspective

For borrowers, equipment is a contributing factor to business earnings. Business owners see each piece of equipment as a revenue-generating asset. This often causes a disconnect between lenders and borrowers, because lenders are not generally concerned with the value of individual assets in a going concern.

The reality is that at a high level, lenders are focused on two broad outcomes: either the borrower performs as agreed, or the lender will have to evaluate alternative recovery options.

In Situation 1, the market value of the business assets has limited relevance to the lender. Cash flow and payment performance take priority as long as the loan is current. Whether a particular machine is worth $1 or $100,000 is not particularly important.

In Situation 2, the lender may have to decide whether to renegotiate the loan or whether to liquidate their collateral.

In either situation, lenders focus on repayment and recovery outcomes rather than maximizing the operating value of the business itself. If a borrower defaults, the lender is generally not going to repossess and operate the business as a going concern. They are in the business of lending and finance, not business operation.

They are going to either restructure and work toward repayment, or they are going to cut their losses and liquidate the business.

Special Assets and Workout Departments

If a borrower defaults on their commercial loan, the loan often moves to a department of the bank called “special assets” or “workout.” (Special Assets refers to the lending team responsible for managing high-risk or distressed loans. Workout is the active process used to restructure a loan or recover collateral.)

In smaller banks where employees may wear multiple hats, the two terms are often used interchangeably to refer to the same concept: a loan that is in default. In these cases a lender’s mindset may shift; the loan is no longer a certain revenue-generating asset, but rather a puzzle which can only be solved with information, consideration, and thoughtful decisions.

The lender’s priorities are complex. They must balance minimizing risk, preserving community reputation, preserving borrower relationships, maximizing return potential, and minimizing legal battles, among other concerns.

When commercial machinery and equipment (M&E) collateral is involved, the first step for the lender is to understand the market value of the assets.

Realistic Outcomes for Machinery and Equipment Collateral

There are many ways to consider market value for business equipment.

• “How much would it cost me to replace these machines?” This is useful for insurance purposes.
• “How much life does this facility have left before major replacements are required?” This is useful for transactional due diligence.
• “Are all of these machines active and earning income for the business?” This is useful for Fair Value and financial reporting appraisals.
• “What would I get if the business closed and we sold these machines?”
• Fair Market Value estimates what the equipment may be worth if offered in a willing buyer, willing seller situation, and an extended period is allowed for resale.
• Orderly Liquidation Value estimates what the equipment may be worth if offered as-is, where-is, with a reasonable time allowed for liquidation, such as 3-6 months depending on the equipment type.
• Forced Liquidation Value estimates what the equipment may be worth if sold as-is, where-is, in a public auction or in a similar environment where buyers are assuming all risks and required to purchase immediately.
• A low M&E appraisal may encourage the lender to allow the business to continue operations as the most likely way to recoup some financial return. However, a low appraisal may also push the loan over a minimum debt-to-equity threshold which could send the borrower further into a special assets spiral.
• A high equipment appraisal may allow the borrower to claim more collateral than expected and restructure their loan favorably. However, a high appraisal may also convince the lender that an immediate liquidation will provide their easiest and best financial return.

But for a commercial lender, only one question is important:

The reality is that if a loan defaults, the lender is not often able to sell an entire facility as a going concern. In the majority of cases, the business is liquidated and the personal property, real property, and any other business assets are sold piecemeal in the open market.

The M&E can be sold under varying terms and timeframes, which create the different levels of value commonly used by lenders:

Because of the different levels of risk and timeframes involved, FMV tends to be the highest value, with OLV and FLV each lower. The differences between each value type can be very large or very slim depending on the equipment type and situation.

The M&E Appraiser’s Role

The lender cannot determine the most appropriate path forward for a distressed loan without understanding the likely outcomes of each alternative. Collateral value is only one input in that decision. Lenders must also weigh borrower cash flow, guarantees, customer concentration, management quality, and other factors that influence recovery outcomes.

The equipment appraiser’s role is to advise the lender of the likely results of an equipment liquidation, including risks, potential complications, and financial return.

The equipment appraiser does not always know how their assignment results will be utilized. Oftentimes borrowers will believe that a higher or lower value will help their cause, but the reality is more nuanced.

The appraiser must be unbiased and disinterested in the outcome. Their job is to provide professional opinions and informed context to their client; the commercial lender has the ultimate job of deciding how to utilize the appraisal results.

When appraising machinery and equipment, clients may believe that the estimated value translates to a sure bet that it will sell for that price. It is important that your report distinguish between the two concepts. There are variables, both known and unknown, that could play a part in the final sale outcome. An appraisal is an independent opinion based on sound research and does not guarantee the ultimate disposition price of the asset.

The appraised value of any piece of equipment is based on a combination of market and cost data, which looks at factors such as comparable sales and depreciated replacement cost. This is a solid foundation and provides an estimate of what the equipment is worth as of a specific effective date. The definition of value may be at a fair market or liquidation level, which will dictate a materially different resale market price level. If the appraisal is estimated at Fair Market Value and the seller places it in an auction, the price realized will be very different than the estimated value.

The condition of the equipment will impact both its worth and potential sale price. Proper maintenance and upgrades can maximize its value, while excessive wear and tear and outdated technology can bring it down. Most accredited equipment appraisers are not mechanics and assume the assets are in normal operating condition unless informed otherwise. Even when an appraiser adjusts value for a lesser condition, a buyer may believe there are significantly more repair costs involved to bring the machine into good operating condition.

For custom-built equipment, the resale market will be limited. An appraiser assumes the equipment will be sold to another user who will pay a fair price; however, finding the right buyer may take significantly longer, which will affect the price.

Buying and selling are often about psychology as much as they are about numbers. Buyers often want a deal or a sense that they are getting something special. This means the equipment might sell for less if there are concerns or doubts—even if it is technically worth more. How the sale is negotiated, the relationship between buyer and seller, and the urgency of either party can all affect the closing price.

Understanding that there may be a gap between an item's appraised value and what it might sell for is key to setting realistic expectations. Research the market, consider the timing, and prepare for negotiation. By doing this, you can find a fair middle ground that respects the equipment's worth, while also being competitive in the current market landscape.

Regardless of the state of the overall economy or particular industry, there is always a demand for machinery and equipment valuation work. It is essentially a recession-proof business. There are potential customers across various market sectors seeking experienced appraisers to assist with their transactional or dispute-resolution matters.

Here are a few examples of the more common client types:

Business Owners

Companies that use a lot of equipment in their day-to-day operations will look to buy used equipment to replace older assets that need to be sold in the secondary market. Appraisers can assist in both ends of these situations. Owners will also need valuation work when acquiring other businesses for tax and accounting purposes.

Financial Institutions (Collateral-Based Lending and Leasing)

Whether it’s a traditional bank looking to support a loan or a leasing company wanting to set realistic residual values and resell returned equipment, accredited machinery appraisers are involved in valuing on both the front and back ends of these deals.

Private Equity Groups

In the merger and acquisition (M&A) market, private equity will target investments in certain equipment-based companies. They make a long-term growth acquisition or a shorter-term buy-sell opportunity. Machinery appraisals are needed from a risk, accounting, and tax perspective.

Attorneys-Partner Dispute Work-Divorce-Insurance

For experienced appraisers with the right credentials, there are plenty of opportunities to team up with law firms on business disputes, divorce cases, insurance claims, or tax and accounting issues, and to get involved in litigation support work as an expert witness. This creates the ability to build up a resume of testimony experience as well.

Individual and Corporate Donors

Donation appraisals are quite common as businesses and individuals will give their used assets to technical schools, universities, museums, and other non-profits, requiring a qualified appraisal for items valued over $5,000.

In summary, this broad range of clientele affords machinery and equipment appraisers several avenues for effectively growing their businesses.