Equipment Appraisal Blog | Understanding Machinery Appraisals

When you have a serious investment in equipment, asset valuation can help you protect that investment. Typically only considered when a piece of machinery is being sold, there are a wide range of other situations where having your equipment values can be very beneficial. Here's a quick look at several different scenarios and how they can impact your bottom line.

Why do you need an asset valuation for your machinery?

Equipment Replacement

A woodworker is getting ready to replace his high-end cabinet saw, but isn't sure what it's worth. A local dealer has made an offer to take the existing saw as part of a down payment, but the figure doesn't seem quite right. By having an equipment appraisal performed, the woodworker can discover the true value of his equipment before agreeing to the deal.

Arranging Financing

A plastic manufacturer is getting ready to expand its operations and needs to secure financing to make the change. Because of past financial issues of one of the partners, the company needs to use its existing equipment as collateral for a business loan. When they provide the financial institution with a copy of the valuation report from a certified appraiser, the loan is quickly processed and the expansion is started, allowing the company to take advantage of favorable market conditions.

Insurance Claims

After a hurricane raged through rural Mississippi, flooding low-lying areas, a lumber mill faces serious losses due to damaged and irreparable equipment, potentially forcing the permanent closure of their business. Unfortunately, the insurance company that covered the machinery is taking heavy losses and trying to minimize reimbursements to clients. A machinery appraisal report verifies the pre-loss value of the machinery, leaving the insurance company with little choice but to pay the claim at the appropriate value.

Tax Assessments

A county tax assessor takes a look at a construction company's heavy equipment, but with the wide range of equipment that they assess every year, the assessor makes a simple mistake in the model number, options, packages or kits on a backhoe. It could even be that the backhoe looks okay, but has been used in harsh environments that have ended up causing significant damage to the backhoe, making it worth much less than the assessed value. An appraisal report uses solid methodology and calculations to determine the backhoe's actual value, reducing the assessment to an accurate value.

Legal Situations

During a divorce, both sides are fighting over the value of the machinery of a business that was built by the pair that is now splitting. The side that's keeping the business wants to understate the equipment value while the side that's leaving wants to get top dollar for their interest in the equipment. Getting an equipment assessment means that fair market value is represented to both sides in a court of law, meeting legal requirements for the situation.

When you understand all the situations where an asset valuation can be useful, the true value of an equipment appraisal becomes apparent. But don't settle for the dealership down the street or guessing at the value from local auction prices. To get an appraisal that will hold up well to strong scrutiny in these situations requires a certified appraiser. Make sure to check that any equipment appraiser you hire has been certified and has experience with equipment in your industry.

When you need to have an appraisal performed on your equipment, it's important that it be performed by a valuation specialist who has the proper credentials. One of the largest accreditation organizations for appraisal practices is the American Society of Appraisers. But what is it, why is it important to use a certified appraiser and what difference can it have on your equipment appraisal? Here's a quick rundown to help get you started.

What is the American Society of Appraisers and how will it impact your appraisal?

The ASA grew out of two organizations formed in the 1930s, the American Society of Technical Appraisers and the Technical Valuation Society. Incorporated in 1952, the ASA was formed to create an over-arching professional association of appraisers, regardless of their specialty. Through the decades, the ASA has worked hard to develop professional standards and practices for appraisal practice to bring regularity to the industry. It has focused on refining appraisal practice to the point that the methodologies that they have developed will hold up well to strong scrutiny in many situations, including legal, financial, insurance and tax agency circles. The organization has also developed sub-levels of its certification process to cover a wide range of appraisal practice, such as business valuation, gemstone and jewelry appraisal, real property, personal property and machinery & technical specifications.

The thorough certification process that the ASA has developed teaches new appraisers how to use those tested methodologies and in which situations they should be applied to find the most appropriate value for your equipment. The process of becoming an ASA-certified appraiser involves an in-depth combination of acceptable classes or education and professional appraisal experience. This specific combination ensures that anyone who has received an ASA certified designation has both the knowledge as well as the real-world experience to reasonably put their training into practice.

By having your appraisal performed by an ASA-certified appraiser, you can ensure that your valuation report will hold up to strong scrutiny in a wide range of circumstances. Did you know that in a few particular circumstances, the law requires a specific type of valuation to be performed? Did you know that you can have machinery valued even after it has been damaged in a fire or donated to a charity? What about determining the value of a piece of machinery some amount of time in the past for a court case or similar back-dated valuation? Because of the experience and knowledge gained in the certification process, a certified appraiser knows exactly what type of appraisal needs to be performed, can easily deal with situations such as these and is still able to develop a high-quality appraisal report that will help support your machinery's value to a number of different parties.

Having an appraisal completed on your equipment by an appraiser who is certified by the American Society of Appraisers is an excellent way to get a quality valuation. A machinery appraisal provides you with documentation of your equipment values, but if it isn't performed properly, it won't hold up to strong scrutiny. At that point, you've thrown your money away on an appraisal that doesn't do you any good. To get the best value for your dollar, make sure that your appraiser is certified by the American Society of Appraisers or a similar appraisal certification organization.

When you have invested significantly into your machinery, you want to make sure that your investment is protected. Though many businesses will insure their equipment, proving the value of your machinery after a loss is important to making a successful claim. But what if you're not sure what the value of your machinery should be or are having problems proving that value? in these areas, a commercial appraisal is vital to help ensure your equipment remains an asset to your business. Here's a quick look at the benefits of such an appraisal on your machinery.

Why should you get a commercial appraisal on your equipment?

What is the equipment in your business actually worth? It's a common question, whether you're dealing with a tax assessment, securing a business loan or making an insurance claim. Unfortunately, the answer to that question can be difficult to prove. Whether you have purchased new machinery, purchased used machinery or need to document the value of machinery that has been in use for some period of time, documenting the machinery value is important for a wide range of situations. But how do you go about documenting that value to outside interests?

When you first acquire a piece of equipment, whether it's new or used, you'll need to enter that value into your books so that you can deal with accounting issues such as depreciation. But does that mean if you got a good deal on it that the machinery is tied to that specific value? Not necessarily. If it was and you suffered a loss, you may not be able to claim the machinery's full value to your insurance company. A valuation protects the machinery's actual value to your business rather than the cost to acquire it.

It also helps to document the value of the machinery for any number of reasons. A certified appraisal is completed using methodologies that have been tested in a wide range of circumstances over the decades, so such an appraisal can stand up well to strong scrutiny. It will allow you to use that value in financial, insurance, legal and tax agency circles to prove the machinery value.

If you have equipment that has been in use for years, it may have been completely depreciated and have a book value that is virtually nothing. However, the machinery may continue to provide strong service for years to come. How do you document that loss of production value when the equipment had no value on the books? Having a piece of older machinery appraised allows you to benefit when it has been lost instead of losing the production value of the machinery because you have no documentation of its value.

By taking the time to have a commercial appraisal performed on your equipment, you're able to better protect your investment. But not all appraisals are the same. Though it can be tempting to try to value your machinery based on market sales or the word of a sales rep, this type of valuation won't hold up well to the strong scrutiny that will come about in a wide range of circumstances. Fortunately, even if you've already suffered the loss of your equipment, a professional certified appraiser can still perform an appraisal to determine the value prior to the loss, making it easier for you to document your equipment's value.

When you're trying to help out a community organization or charity, a donation of equipment can be a great way to help fill their coffers or provide them with equipment that moves their mission forward. However, when it comes time to deal with finances and taxes, sometimes you need to have a bit more paperwork available than a receipt from the organization in question to document value. During those times, a donation appraisal is often the best way to verify value and provide documentation for tax agencies to back up that value. Here's a quick overview of how the donation valuation process works and in what situations it's most necessary.

How does a donation appraisal work and how can it benefit your finances?

With the changes that have happened recently in the tax code and new tax reform bill, many businesses are concerned about how their donations to charities will work out financially in the future. Fortunately, many of the issues surrounding donations are still somewhat similar to past years. However, if you're considering trying the new tactic of bunching your donation of a large value of equipment into a single year and then coasting through the next several years before your next donation, you'll need to make sure you're able to solidly document the value of your equipment.

But what about tax agencies? If the equipment you're donating is $5,000 or more in value, the IRS requires that you have an appropriate appraisal performed to document the value. What's considered an appropriate or qualified appraisal? Most tax agencies, not just the IRS, will happily accept an equipment appraisal that is performed by a certified appraiser. Why? Because this type of appraisal uses a set of standardized methodologies that have already been tested in a wide range of situations. This means that they've been perfected into methodologies that are accepted by tax agencies, financial institutions, legal circles and insurance companies.

What if you have already donated the equipment during this past year in anticipation of the new tax laws? If you didn't have the opportunity to have the machinery appraised at the time, it's not too late to have an appraisal performed. The methodologies that were mentioned earlier include developing calculations that work well for past values. These values have been used in a wide range of other situations, including insurance losses due to natural disasters, changing market conditions and similar situations. This allows a certified equipment appraiser to look back through time to the situation and conditions under which the donations took place as well as any mitigating circumstances such as cost of removing the equipment from your facility and who bore the burden of that expense.

If the machinery you're donating has a value anywhere near where the cutoffs for the tax agencies you're dealing with, a donation appraisal is a vital part of the process. Fortunately, when you're working with a certified equipment appraiser, you can even have the equipment you've already donated appraised as of the date of its donation, making it easier to deal with tax agency issues that you may have missed at the time of the donation. Working with a certified appraiser ensures that the methodology used in calculating value will be accepted by tax agencies and courts of law if necessary.

When you need to have your equipment valued, what do you need to look for in an equipment appraisal firm? If you're not sure, you're not alone. A lot of companies and individuals who want to have their equipment valued don't know what to look for in an appraisal firm. Here's a quick look at some of the traits you should look for before hiring a machinery appraisal firm to document your equipment values.

What should you look for in a high-quality equipment appraisal firm?

At first glance, it can seem as though you already have a wide number of resources available to determine the value of your equipment. You can find similar equipment for sale in a sales flier and base your equipment values off of that value. You could go down to your local equipment dealer and ask for an estimate on trade-in value for your machinery. You could go to a few auctions and see what similar equipment sells for to get a better idea of what the market will bear. These will give you values for your equipment.

However, they're not going to give you an accurate value for your machinery.

When you hire a company to appraise your equipment, you're not trying to get someone's pie-in-the-sky figure that they'll hope they can get for your equipment. Your equipment value shouldn't be based on whether your equipment dealer is trying to convince you that the equipment you have is worthless or if they're willing to give you more than your equipment is worth to push one more sale for the quarter. Your equipment isn't being sold as a last option to raise a little cash, unlike the machinery you'll see at auction.

When you're getting ready to have your equipment appraised, you'll want to look for a certified equipment appraiser who has experience in your industry. Why this particular combination? 

A certified equipment appraiser has gone through a lot of education and experience to become certified. They've learned a great deal, not only about the machinery that they are appraising, but also about the practice of appraisal. They are able to determine exactly which type of value needs to be calculated for your specific situation, whether you need to sell equipment quickly due to a death or disability of the equipment owner, wait for the right price from the right buyer or just record the equipment's value for insurance, donation, tax or other purposes.

An appraiser who has experience in your industry not only deals with equipment on a daily basis, but deals with equipment that is specifically like yours on a daily basis. This gives them a level of familiarity with what your machinery is, how it operates and what to look for in terms of performance, expected useful lifespan and wear. With this knowledge, they can make a solid calculation of your equipment's value.

By hiring a good equipment appraisal firm, you can be assured that the machinery values you're provided with are accurate. You'll know that value will hold up well against strong scrutiny in a wide range of situations. Those values will give you a solid background for your accounting books and a good place to negotiate from when selling that machinery. When you hire a quality valuation company, the benefits you receive will last for years to come.