When you work in construction, the value of your equipment often falls by the wayside compared to the income that is generated by that machinery. But when it's time to purchase new equipment, the value of that construction machinery is suddenly of paramount importance in terms of how it helps you finance your new machinery. The process involved in the appraisal of construction equipment may seem confusing, but it's actually fairly straightforward. Here's a quick look at the overall process to help you get a better grasp of how it works.

What's Involved in the Appraisal of Construction Equipment?

When used construction equipment is appraised, there are a few steps involved in the process:

• The appraiser gathers the initial information about the equipment. This includes the manufacturer, model, any additional kits or options that have been included and similar data which helps give the appraiser a baseline to determine the value of the equipment. This part of the process may also include a rough estimate of the machinery's condition by the individual securing the appraisal, but not as a final assessment.
• The equipment itself is appraised for condition and value. This includes taking a solid look at the entire piece of machinery, including the condition of the body, mechanical condition, performance and similar aspects which help the appraiser determine both the current condition of the machinery as well as the expected useful remaining lifespan of the equipment.
• The market may be considered. If the equipment is of a type that can only be used in construction, the market conditions can have a strong impact on the appraised value. For example, if the construction market is going strong, the machinery may have a much higher resale value based on that aspect of market demand than when the market is very weak and demand for machinery of this type is very low.
• The market may be of limited interest. If the machinery in question is, on the other hand, reasonably useful in a range of other industries, such as a forklift, the condition of the construction market may have a much lower impact on the final value of the equipment. For example, the previously mentioned forklift can be used in a range of other applications, such as shipping, warehouse and similar industries, which means that its value can be carried by these industries.
• The final value of the machinery is calculated. Once these different aspects are taken into account, the appraiser uses a calculation methodology to determine the final fair value of the equipment. As the different factors are taken into consideration, the formula used adds or subtracts value based on whether that aspect increases or decreases the equipment's overall value. This information is consolidated into a final report by professional appraisal firms, especially those that use certified equipment appraisers.

By having a solid grasp of what's involved in the appraisal of construction equipment, you can have a better appreciation for what happens behind the scenes when you're getting ready to trade or sell your used equipment and need to know what it's worth. Make sure that if you decide to have a professional appraisal performed that you work with a certified equipment appraiser to ensure that the valuation report has been developed using standardized methodologies that help protect your interests in your equipment.

When the economy is strong, you want to take advantage of that growth to make the best gains you can before things slow down again. But how do you know if you're using your equipment assets to their best advantage during this process? An equipment valuation can be a valuable tool to help you gain significant growth out of the good times to help you through the bad. Here's a quick look at some ways you can use a valuation report to your benefit during periods of strong economic growth.

How can an equipment valuation help you take advantage of economic growth?

• Finance: A strong economy is a common indicator that it's a good time to take out a loan to grow your business or consolidate your position. However, securing that financing for the best possible rates can be difficult, especially if your business struggled during the last recession and has a few stains on its credit report. When you know exactly what your equipment is worth, you can use it as collateral for your financing. Furthermore, an equipment appraisal report from a certified appraiser holds up to strong scrutiny, bypassing the need for having a secondary appraisal for the financial institution.
• Improved Production: Downtime is the enemy when production is running hot and you need every possible bit of outcome from your equipment. During an equipment appraisal, a qualified machinery valuation specialist may notice a number of different issues with your equipment. Because they deal with this type of equipment on a daily basis, it's much easier for them to notice when something seems a little off and may be able to provide advice with regards to potential upcoming failures. This allows you to make timely repairs before a major breakdown takes place.
• Improved Overhead Costs: As part of your overhead costs, knowing when to replace aging machinery is a vital part to ensure that you're putting out as little equity as needed when the time comes for replacement. When you know exactly what your machinery is worth at the time, it makes the replacement decision and the calculations involved much easier to determine. This allows you to make the right decision at the right time for the right cost, saving your business money in overhead costs for replacement machinery.
• Avoiding Poor Property Tax Assessments: As the economy recovers, every tax agency wants their piece of the pie. When your tax bill goes up, you end up having a lower amount of funds available for rolling into other parts of your business. This means that you need to make sure that your equipment is being accurately assessed by the tax office to ensure you're not paying too much in taxes. Because a certified appraisal holds up well to strong scrutiny, it's accepted as proof of value by many tax agencies.

By having an equipment valuation performed, you end up with the tools needed to take full advantage of the situation. But what kind of valuation should you have performed? Rather than taking the word of an appraiser who has an interest in the outcome of the valuation, such as an equipment sales representative, you'll get much better, more accurate and more actionable results from a certified equipment appraiser. Be sure to ask your appraisers whether they're certified and ask which organization they're certified with.

Tradesmen International's recent study of the economy and construction industry projects that the construction sector will be one of the fastest growing areas of the economy over the next few years. Where is your contracting firm positioned to take advantage of this growth? Using a machinery valuation as an asset to leverage your company's value may help you get the best growth from the current boom cycle before we hit the next downturn. Here's a quick look at several ways you can use an equipment valuation to improve your company's growth and solidify your position in the market.

Using Construction Machinery Valuation to Grow Your Company

• Does your equipment still have value, or is it just about shot? Because equipment appraisers spend all day looking at machinery, they have a pretty good idea of what regular wear and tear looks like compared to failing parts that may cause expensive repairs down the road. Use the information to decide whether to repair or replace your aging equipment instead of taking a wild guess at its longevity.
• Can you afford a lot of down time? By knowing what condition your equipment is in allows you to replace it when it makes sense, rather than waiting for it to break down and wreak havoc on your job site. Use the appraisal information to make planned replacements instead of having to make an emergency purchase at the wrong time. This allows you to make the purchase when you're ready.
• Do you really need that much insurance coverage or are you too low? It's hard to decide how much coverage you need on your equipment. When you have an equipment appraiser take a solid look at and value your machinery, it becomes much easier to know how much coverage to retain, especially since an appraisal report from a certified appraiser will hold up well under scrutiny by your insurance carrier.
• Are you ready to get that loan from the bank? The economy is still a little shaky, and financial institutions aren't as willing to put out loans as they were before the recession. Being able to document your equipment's value allows you to provide solid proof of your assets as well as providing a basis for collateral if it's needed for your business loan.
• Are your taxes in line with your equipment's real value? Property taxes are a pain, but if you've noticed a strong upswing in your taxes without a related asset purchase, you may need to fight the appraisal. By having the documentation you need, you can spend less time fighting your appraisal and more time investing the money saved in the process.
• What will that old equipment really sell for in the long run? When it's time to sell that old skid steer, backhoe or loader, are you just guessing what the market will bear or are you basing your asking price on real-world figures? Having an appraisal means you have a solid basis to back up your end of the negotiations.

By taking the time to have a machinery valuation performed on your construction equipment, you can leverage that information to get the best possible growth out of the current upswing. Consider each of these points carefully, then hire a certified equipment appraiser to get a high-quality report you can use for a wide range of purposes. 

The term "fair market value" often comes up when discussing machinery appraisals. Do you know what it really means and why it's important? Find out how an appraiser determines the fair market value of a piece of equipment and why this matters for your company's bottom line. 

Understanding Fair Market Value in Machinery Appraisal

Fair market value represents how much a neutral buyer (i.e. someone who isn't personally invested in your company and who might overpay for that item) would be willing to pay for your equipment, whether you're talking about a bakery oven or a set of bicycle repair tools. 

Fair market value reflects how much the buyer would pay assuming there were no extenuating circumstances. A caterer would pay a lot more for that bakery oven if their oven failed the day before a large wedding than they would pay if time was not pressing. This valuation also assumes that all parties have equal knowledge -- that the seller is not attempting to hide any flaws in the equipment. 

Fair market value may affect the price of machinery installation or transit, notably with large items that must be installed before use.

Why Fair Market Value Matters

Assets are always in a state of flux in businesses: A new piece of equipment comes in and something old goes out. 

Maybe you decide to donate the old equipment, so you can take the tax write-off for dropping off that bakery oven at a soup kitchen that needs an oven. While this is a fine impulse, there is no way that you can write off the equipment on your taxes accurately without knowing the accurate valuation. 

Perhaps you decide to get some return on your investment by selling the old piece of equipment. If you're in a generous mood, you might even get that oven cleaned and serviced, so you're selling something that is clean, ready to use, and reads temperature accurately. What if you found out that your old oven had a very low value and you would not recoup what you spent getting the oven serviced? 

Alternately, maybe you have a favorite tool -- like those bike tools that fit your hand really well. What if there was a break-in at your bike shop and those tools disappeared? Or a fire that destroyed all of your equipment? How could you make an insurance claim not knowing the value of what you lost? 

As these examples illustrate, you can only realize the value of an asset when you know what it's worth -- which is subject to change in time. Without an appraisal of fair market value, you can't realize your equipment's value whether you're looking to sell it, donate it, or replace it. 

You may believe that you can look up the price of equipment online or use the tax documents, which take depreciation into effect. While this is a valid impulse, you can't compare your used equipment to a depreciation table or to the cost to replace the item new. It all depends on how often (and how well) you use the machinery in your work. An oven that's taken care of and serviced annually has a higher value than one that is never cleaned and never serviced. 

If you haven't had your equipment appraised recently, now is the time to get your business's critical assets valued. Find a machinery appraiser that has experience valuing equipment commonly used in your industry, whether it's culinary, sporting goods, or anything else. 

When you're considering having a machinery valuation done, have you ever considered what makes a certified equipment appraiser qualified to determine the value of your equipment? It's a bit of a process, but we thought we'd share what our appraisers go through before they're considered ready to look at your machinery and come up with a solid value that will hold up under strong scrutiny. Here's what's involved in becoming a certified machinery appraiser.

What's involved in the process of becoming a certified equipment appraiser?

There are several different appraisal associations, each of which often has their own appraiser certification process. The ASA focuses on pure appraisal science and is the premier appraisal society in the US. The ASA accreditation is one that lenders and attorneys look for as the bar is high to obtain compared to some of the others.

Almost every certification process entails a combination of education and experience. To become certified, an appraiser needs to have a certain amount of time in training, whether in a curriculum of specific courses or a range of continuing education classes to make up their education. Methodologies need to be standardized based on historical performance to ensure that they hold up well to strong scrutiny, whether that's in a court of law, a tax agency, a financial institution or an insurance claim. 

Experience is typically developed under a senior appraiser who can show a new appraiser how to approach the valuation process and some of the variables they may encounter in the field. This experience typically lasts several years, providing the appraiser with the opportunity to pick up experience with a wide range of machinery, exposing them to a number of different aspects of the process. This will also give them the opportunity to see how valuation works in practice, depending on the specific need for the appraisal and why it's needed.

Once the candidate has acquired the necessary education and experience to complete their program's requirements, they'll need to pass an in-depth exam that provides the association with a solid idea of the candidate's abilities. This may include a range of question types, from basic multiple choice or answer-selection formats to requirements to explain in detail how to appraise a specific item and why the appraiser came up with that specific value in that particular situation. Once they've passed the test, they're able to receive their certification and begin practice as a certified equipment appraisal specialist.

Now that you know what's involved in the process of becoming a certified equipment appraiser, you'll have a better grasp of what your appraiser has gone through to be able to provide you or your business with a solid idea of what your equipment is currently worth. The methodologies used in developing a certified appraisal report provides you with a solid basis for value, whether you need the appraisal for a sale, insurance, legal purposes, taxes or financing for your company.