We are often approached by clients who, in addition to needing a valuation, request a condition or damage assessment along with a repair estimate for their machinery and equipment. Professional appraisers come from varying career backgrounds; however, the majority do not have the ability to independently assess condition beyond a broad general visual inspection. Therefore, it is typically assumed that the associated values reflect normal operating conditions, unless there are specific details, including remediation costs, from the equipment owner or a qualified third party stating otherwise.
When a visual inspection is part of the valuation effort, either through a site visit or a review of photographs, it may be determined, based on general appearance, that certain assets need repair work or are out of service. In these instances, the appraiser can apply a reasonable condition penalty to account for this; however, without support of the specific repair costs needed, the adjustment will be very broad in nature, such as an estimated percentage deduction from the normal condition value.
It is important for the appraiser to point out these issues to their clients at the beginning of the project so there is no misunderstanding that occurs after the engagement is signed and the valuation work begins. If repair estimates are a critical component of the project, the appraiser can suggest that the client hire a technician to work in tandem with them to provide this assessment and expand the valuation analysis to take this into consideration.
The appraiser should be made aware if the equipment has experienced irregular maintenance scheduling or a long-term lack of use, as these issues can lead to a shortened useful life and significant repair costs to restore the machinery to normal operating condition. From the owner’s perspective, if the equipment is placed out of service for an extended period, it is important to store it in a protected environment, keep it clean of debris, and run it once a week, if possible, to properly maintain it. Otherwise, when it comes time to operate them again or sell in the open market, there might be costly unforeseen issues that crop up along the way.
In summary, as a business owner, investor, or other party in need of an independent valuation assessment, it is important to identify the most critical issues you are facing before engaging with an equipment appraiser, technician, or mechanic. If you are confident the equipment is in good condition, it makes sense to proceed immediately to the appraisal process. If you know the machinery needs to be assessed for damage and repair estimates, consider working first with an in-house maintenance manager, an outside technician, or even an insurance adjuster familiar with the assets to address these issues before hiring an appraisal expert.