Equipment Appraisal Blog | Understanding Machinery Appraisals

When your business involves industry, it can be difficult to operate without excessive risk. A change in your electricity rates, a supplier goes out of business, an employee gets hurt on the job and you have to cover OSHA fees: all these issues can cause a drastic change in your overhead expenses. One area that is often overlooked is your equipment. How do you know exactly what your equipment values are? If you don't know, how can you make intelligent decisions about your business that won't expose it to risk? One tool many business owners use is an industrial equipment appraisal.

How an industrial equipment appraisal helps reduce business risk

Did you know that your industrial machinery can have more than one value? How do you know which one is the right one? Some business owners go with depreciated value on the tax records, but that doesn't provide an accurate value for the 20-year-old pump in your factory that was fully depreciated ten years ago but still continues to function day in and day out. It could be that you have equipment that has not been fully depreciated yet but had to be used hard during a crisis and is in imminent danger of failing prematurely. Using tax accounting records to determine machine value can make it impossible to operate your business effectively.

If your equipment is overvalued, you may offer it as collateral for a loan so you can take advantage of a fabulous new business opportunity. But what happens when the opportunity falls through and you're on the hook for more than your equipment is worth? If it is undervalued, you may be reluctant to take advantage of an opportunity that would lead to significant growth for your company. How do you know which way to go at that point?

Many entrepreneurs use a machine appraisal to get a better idea of what their assets are worth in the real world. Quality equipment appraisals deal with issues such as expected remaining useful life, giving you an idea of how long the equipment may last before it needs to be replaced. It looks at market conditions, and whether your equipment is in demand or if there are already too many pieces of similar used equipment on the market that are driving the prices down. It will consider whether the equipment can keep up with rising trends, such as integrated sensors and reporting that is quickly becoming the norm for new products. 

What about your equipment's location? If it took some serious work to get it in place, it will take serious work to remove it if it is sold. A good machinery appraiser will take that into account when calculating the equipment's value. What are the circumstances for the appraisal? The court may require a particular type of appraisal methodology in divorces or hostile partnership breakups. All these aspects are taken into account when  you work with a good machinery valuation specialist.

By having an industrial equipment appraisal performed, you can avoid much of the risk prevalent in many industrial businesses. But before you hire just any appraiser, it's important that you find an equipment appraiser who is certified to ensure the machinery valuation report they produce will stand up to scrutiny.

When you're in business, you need to have a good idea what your bottom line is. This can be for many reasons, whether it's getting financing from the bank, correcting your books to reflect actual assets and equity or the potential sale of equipment. You need to know exactly what your equipment is worth to ensure you're getting a fair shake no matter the circumstances. But equipment appraisals can be especially helpful when you're getting ready to sell a used piece of equipment. Here's why:

Using an Equipment Appraisal when Preparing for Potential Sale of Equipment

When many businesses get ready to sell a piece of equipment, it can be for a number of reasons. It could be that the equipment is not right for the business. Maybe it's just too much or too little to work well for your operation. Another reason is that it has zeroed out in depreciation by tax accounting records. But that doesn't mean that the machinery has no serious value. When you're dealing with having to sell equipment to buy out a partner or finance a new investment, you may not know which equipment will get the job done with the least impact on your business. In all these situations, having a quality equipment appraisal performed helps ensure you get what your equipment is worth.

If you purchased a metal lathe that just isn't able to keep up with production, it's easy to undervalue it when you're selling. You may do the opposite when trying to sell a piece of equipment that is overwhelming your operation. A good equipment appraiser isn't looking at the problems this equipment is causing in your business, he or she is seeing the potential it has in other businesses. That lathe may be too small for your operation, but it's perfect for a company that does small, precision-machined components. The too-big excavator may overwhelm your construction site, but is perfect for a quarry that needs to improve production. The equipment appraiser will base the value on what's happening with that equipment across industry and help you find a fair price.

Depreciation is typically based on a pre-determined schedule laid out by the tax agency you're responding to. If you have quality equipment that has been lightly used and is in good condition, it will often have a value much higher than its depreciated value. Standardized tables and schedules don't work well if your equipment is either well cared for or poorly maintained.

When you need to sell to keep your business afloat, a quality equipment appraiser can look at your entire operation and determine which pieces of equipment should be sold to meet your obligations. Instead of having an emotional attachment to the original equipment you ordered when you opened doors, they can see that the same equipment is creating production bottlenecks or isn't able to provide the results you really need anymore. Knowing which pieces will make the difference is often all the difference between succeeding in a liquidation and closing the doors forever.

By knowing the machinery valuation, you can make sure you get a fair price for the potential sale of equipment.

When you run a farm, efficiency and economy go hand in fist with profitability and capability, especially with the weekly changes in market prices. By knowing exactly where you stand with one of your most significant investments, your tractor, you can make better business decisions, including knowing the point where you should buy or sell equipment, whether you have a case for a property tax appeal or similar areas of concern to today's farmer. But how do you know where those points are in terms of value? Getting a solid tractor appraisal can be a great first step towards keeping your farm afloat in an uncertain market.

How to keep your farm afloat with a tractor appraisal

• Know the exact value of your operation: Sure, you could loosely calculate profitability when soybeans go sky-high, but what about when you need to grow a crop that may have a narrower profit margin by the end of the season? Knowing your operation's exact value helps you make better decisions, and your tractor is a big part of that value.
• Determine the best buying or selling points for equipment: Should you sell that older grain drill now to get a newer piece of machinery or does it make more sense to wait a few months? What about that new combine? Getting a machine appraisal on your tractor helps you determine how much equity you have in your farm in a more accurate fashion, allowing you to buy or sell equipment with less risk to your operation.
• Deal with income taxes more precisely: There's a problem with the standard depreciation tables used by the Internal Revenue Service - they're based on average lifespans for equipment. What if you take exceptional care of your machinery or have to run it more roughly due to soil conditions in your area? In both these situations, a standardized table will provide you with the wrong value for your tractor. Equipment appraisals take a solid look at the wear and tear your tractor takes as well as an estimate of how long it can reasonably remain in service. This allows you to report the correct level of depreciation on your taxes, which is an important picture of your farm's profitability and access to financing for expansion or improvements in your operation.
• Fight a high property tax assessment: Because a certified equipment appraiser uses standardized methodology to calculate your farm equipment's value, it holds up against very strong scrutiny. Appraisal reports generated using this type of approach work well for insurance issues, legal matters and at tax agencies, making it much easier to prove that your tractor is worth a different amount than the amount calculated by your local or county property tax assessor. Many property tax appeals have been won through the simple inclusion of a quality tractor appraisal.

By knowing what your tractor equipment values are, you can make more informed business decisions that will help keep you and your family on the farm and operating in the black. If you haven't had the opportunity to get a quality tractor appraisal performed by a certified equipment appraiser, it's time to look into it.

The concept of condemnation is one that comes up in a special situation for companies: Eminent domain. If your commercial property is facing eminent domain, your equipment values will be taken as part of the process. Learn what you can expect when this happens. 

What Does Condemnation Mean? 

When the government has evoked eminent domain for a piece of commercial property, the government assumes the responsibility to pay the private property owner for their property, which has been taken over for public usage. Eminent domain is often invoked for infrastructure improvements.

In cases of eminent domain, both the physical real estate itself and the property located onsite must be purchased from the private owner. To determine the purchase price for any equipment, the government will hire an appraiser to set machinery values. Condemnation refers to this particular process - appraising a piece of machinery for sale to the government in cases of eminent domain. 

For example, assume that a state government wants to expand the railroad and add a new station. Assume that several shops are located on a given street that lies directly where the government wants to put the railroad. The state may exercise eminent domain and purchase these properties from their owners, and all real and tangible property must be appraised so that fair market value can be determined. 

Why Does Condemnation Matter? 

Condemnation allows the government to assess the value of a piece of equipment and pay the property's owner a fair price for the item. The owner can then take funds received and relocate their business, start a new business, or retire. 

Without having a machine appraisal done, it would be difficult for the government to purchase property from the owner. A business owner, aggrieved over having to close or move their business, may fight the process of eminent domain or outright refuse to sell. This could derail the municipal project, cause expensive delays for local government while the issue is resolved legally, and also harm the business owner who may not really have the time or money to fight the issue. 

The appraiser acts as a neutral third party who is only present to do a job that is in everyone's interest: Determine the value of equipment used onsite. Having an independent person who understands the value of equipment and real property can take some of the stress out of the issue, while bringing the situation to a successful and swift resolution for all parties.  

Working With a Machinery Valuation Appraiser in Condemnation 

Whether you are hiring an equipment appraiser in a case of eminent domain or you are selling your business and machinery, the same considerations remain. It is important to work with an appraiser who understands your industry, is familiar with the equipment used, and can articulate the reasons for valuing a piece of equipment in a given manner.

An appraiser should possess relevant certifications and deep knowledge of the particular industry, be it auto manufacturing or food service. The appraiser should use some form of fair market value to determine the value of all equipment on site. Fair market value, as we have discussed, refers to the acceptable "going rate" that a neutral third party would pay for a comparable piece of equipment on the open market. Finally, the appraiser should be able to discuss the appraisal results with government representatives and with business owners to resolve any lingering questions or concerns.

When you work in academia, you often have a lot of older laboratory and testing equipment taking up space in your facility while having to scrimp and save for that great updated equipment that your department really needs. How do you free up space while raising the money for upgrades without leaving money on the table because you're not sure of your equipment's value? The answer: a testing equipment appraisal.

How a testing equipment appraisal helps when handling department upgrades

• It tells you the current value of the equipment. Sure, that spectrometer was a serious investment in the 1970s, but does it still have any real value? Our equipment appraisers know what your equipment is worth now, so you can make smart decisions about what equipment should remain in use and which pieces should be retired. A piece of equipment that still provides significant use to your department that has retained a higher resale value would be a better option to hold onto than piece of equipment that has been dormant and has very little resale value, which can be sold without fear of having made a poor decision.
• It helps you set a fair price for the testing equipment you need to sell. Without a good equipment appraisal, it can be very difficult to determine exactly what value fits the equipment you're considering selling. Are you asking for too high or too low of a price? If you let this interested buyer walk away because you think they may be offering too little? When you're in negotiations on a piece of equipment, being able to pull out a machine appraisal that backs up your asking price helps ensure you're on solid ground for the negotiating phase of the sale and that the interested buyer is more likely to come around to your figure.
• It can help you determine when lab machinery needs to be replaced. One area of an equipment appraiser's report that is commonly overlooked is the estimated remaining lifespan. Because a well-qualified appraiser who specializes in machinery and equipment works with those types of machines on a regular basis, they can often make a good general estimate of remaining useful life on your lab testing equipment based on history of very similar machinery, wear and tear, signs of abuse, the conditions it's being kept in and many more factors that come into play. This is especially important as it allows you to plan ahead for estimated replacement dates. Though the dates are not set in stone, they can act as a handy reference point to plan around, especially for expensive equipment.
• It provides solid proof of equipment values beyond simple conjecture by people in your department. When you need to justify getting rid of older equipment, having equipment appraisals that hold up to strong scrutiny in legal, insurance and financial sectors can mean the difference between a simple piece of paperwork and an academic department politics falling out of epic proportions with long-lasting repercussions long into the future.

By having a quality testing equipment appraisal performed on your older equipment, you can best use your department's funds where it's most needed.