Equipment Appraisal Blog | Understanding Machinery Appraisals

The marine industry has somewhat unique traits when it comes to the vessels operating within it. Like aircraft, both commercial and personal vessels have strict regulations regarding keeping them seaworthy and, in turn, marketable. Two distinct reports are often involved in this process: a certified marine survey and an accredited market valuation. While both involve evaluating a vessel, they serve different purposes and require distinct expertise.

Marine Surveys: A Deep Dive into Condition and Safety

A marine survey is a detailed inspection of a vessel’s specifications, condition, structure, and systems. A certified marine surveyor typically performs it and is an essential requirement for several reasons. The Coast Guard performs regular inspections and issues a Certificate of Inspection (COI) for working vessels. The minimum requirement is that a current survey be completed at least once every five years and, in many cases, more frequently.

If you are considering buying or selling a marine vessel, ask for the current survey and COI. A copy of the survey and COI is also required for securing property and liability insurance and obtaining bank financing.

In summary, surveyors inspect everything from the hull and electrical systems to the propulsion and safety equipment. The goal is to determine seaworthiness, identify necessary repairs, and ensure compliance with maritime regulations. The surveyor will generally not estimate value as part of the survey. If they are asked to provide an estimate, they should do so outside of the specific survey report, and their opinion of value may not be supportable for these purposes unless they are also accredited appraisers.

Marine Appraisals: Determining Market Value

A marine appraisal, on the other hand, is more focused on estimating a vessel’s monetary value. The valuation professional should have experience as an accredited or certified expert with credentials different from that of a surveyor. The American Society of Appraisers (ASA) is a reputable organization offering specialty training in marine valuation.

As part of the appraiser’s data requests, they will ask the owner for a current survey, which will assist them in better understanding the specifications and condition of the vessel. They will then complete their analysis relying on factors such as market demand, comparable sales, replacement cost new, chronological and effective age as well as average annual market depreciation.

Marine appraisals are commonly used for the same reasons as surveys, as well as for other purposes such as estate settlements, business disputes, divorce proceedings, tax, accounting, and financing decisions.

In short, get a survey if you need to know if a boat is safe and functional. If you need to determine its market worth, obtain an appraisal. Both services are crucial in their own right and can help vessel owners make informed decisions.

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Financial Benefits

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Tax Incentives

The federal government provides an Investment Tax Credit, commonly referred to as ITC, which allows commercial property owners to deduct a significant percentage of the cost of solar installations from their federal taxes. Currently, the ITC covers 30% of the installation costs for eligible projects, materially reducing the upfront cost.

Certain states and local governments may offer additional incentives, including property tax exemptions, grants, and low-interest financing. Combined with the federal ITC, these programs can make solar installations an incredibly attractive investment.

Enhanced Property Value

A solar-powered commercial property is more appealing to tenants and buyers alike. Lower operational costs and a focus on sustainability can make your property stand out in a competitive market. Solar installations also reflect positively on your business’s environmental commitment, which can resonate with eco-conscious tenants and customers.

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For an equipment appraiser, building a solid relationship with their clients is one of the most critical components to completing a valuation assignment. Appraisals are much more than a simple engagement between two parties. It is the beginning of a partnership based on trust, communication, experience, and expertise. Whether valuing machinery for a potential acquisition, financing/leasing arrangement, litigation support, donation, property tax appeal, insurance claim, or basic sale, a strong appraiser-client relationship is essential for achieving accurate, credible results.

Here are some of the key elements to establish in the relationship:

• Clear and Consistent Communication

  Transparency is critical. From the initial consultation, appraisers should clarify the scope of work, timelines, and any specific needs. Clients, in turn, should provide detailed information about the equipment and any supporting documentation. Regular follow-ups by the appraiser with progress updates are important to put in place from the start.

• Trust and Confidentiality

  Equipment appraisals and their associated transactions often involve sensitive financial or business details. A professional appraiser upholds confidentiality, ensuring the client’s data remains secure. Building trust through an ethical practice fosters a long-term partnership.

• Understanding the Larger Transactional Perspective and Client Goals

  Regardless of the purpose and need for an equipment valuation, appraisers should strive to fully understand the client’s objectives so they can better clarify and provide insights that align with the intended use of the report based on their experience with similar assignments.

• Ongoing Collaboration

  Client-appraiser relationships shouldn’t end with the delivery of the final report. Appraisers can provide ongoing support and consultation as the client’s situation or deal continues to develop. The comfort level an appraisal client gains over time will lead to future opportunities. They can benefit from having a trusted expert in their corner for years to come.

In summary, establishing and maintaining a relationship between an equipment appraiser and their client ensures smoother transactions, fewer misunderstandings, and more supportable results. Clients will gain lasting trust in their valuation experts, and appraisers, in turn, can count on their clients to disclose the information necessary to create relevant, reliable reports and future engagement opportunities. Taking the time to develop this type of professional partnership builds a foundation for success and becomes a win-win situation for both parties.

We are often approached by clients who are trying to settle an insurance claim involving machinery and equipment, most frequently in the trucking and construction industries. The determination of an accurate value is critical, especially if the asset is determined to be "totaled" by the insurance company and the need to replace the equipment is immediate and mandatory. This is where the expertise of equipment appraisers becomes invaluable. Their role ensures fairness, transparency, and efficiency in the settlement process.

Insurance companies typically employ adjusters who have some experience valuing machinery and personal property. However, there is often a dispute between their determination of value and what the owner believes is a fair price. An accredited equipment appraiser with significant experience can enter the situation and provide a supportable analysis and detailed report that can be used to facilitate the settlement. Whether it is construction equipment, semi-trucks, trailers, manufacturing equipment, or any other tangible productive asset, an accredited appraiser will develop an unbiased assessment supported by the market and cost approaches to value.

An appraiser assesses the equipment's specifications, replacement cost, age, and market trends to determine fair market value. This helps policyholders receive appropriate compensation and can also assist insurance companies who may believe they are overpaying on a claim. The appraisal reports will serve as additional evidence during the claim settlement process, streamlining negotiations between insurers and policyholders.

In cases of disagreement over the equipment's worth, appraisers act as neutral experts. Their evaluations are often used in mediation or arbitration, helping to resolve disputes quickly and fairly. Valuing equipment requires an understanding of both the sales comparison approach and the cost approach to value. For example, more custom-built machinery or highly specialized machinery might not have clear market comparisons. An experienced appraiser can navigate these complexities and provide accurate assessments relying on both of these approaches and weighing the data accordingly.

In summary, equipment appraisers can play a pivotal role in insurance claim settlements. Their impartial evaluations ensure that both policyholders and insurers can reach fair agreements, minimizing disputes and delays. Engaging a qualified appraiser early in the claims process can save time, reduce stress, and lead to a more satisfactory outcome for all parties involved.

By blending their experience, education, and knowledge of the methodologies available to consider during a valuation, accredited equipment appraisers can be essential in ensuring smooth and equitable claim settlements.

Valuing marine vessels has certain unique variables to consider that are unlike other types of machinery and equipment. That being said, the approaches and methodologies to rely upon remain consistent with other tangible assets. Therefore, whether it's a supply boat, barge, towboat, fishing vessel, yacht, or container ship, if you are a generalist M&E appraiser, there's no reason to shy away from valuing ocean-going or inland waterway vessels.

To begin, factor in the purpose of the appraisal, which will assist in guiding the necessary criteria. Are you looking to support a resale effort, an acquisition, a determination of insurable value, or an assessment of the vessel's worth for financing or leasing purposes? Each objective may require a slightly different approach.

Once engaged, collect all relevant paperwork, including:

• Registration and Ownership Documents: Verify the vessel's legal status.
• Maintenance Records: A well-maintained boat retains more value.
• Inspection and Survey Reports: Essential for a comprehensive condition assessment.
• Recent Modifications and Upgrades: These can increase the vessel's value.

Reviewing the most recent survey/inspection report, along with reinvestments involved with rebuilds and/or upgrades, can assist in making necessary adjustments to value. Most generalist appraisers are not mechanics or technicians and can only independently adjust for these factors if they have third-party reports and invoices to reasonably verify the condition and work completed.

Focus on comments regarding the hull and structural integrity, mechanical systems (engines, propulsion, electrical), and interior and fixtures (cabin, navigation, and safety).

Develop an effective age for the vessel based on its original build date, annual usage, and major component rebuilds.

Research the current market value of similar vessels by considering the make and model, current specifications, and recent sales of new and used comparable vessels, along with economic data impacting the marine industry. Rely on both the market and cost approaches to value in an effort to balance the two perspectives and weigh them based on the level of comps available to consider.

In summary, as with other types of equipment, once you have the data in hand, use your experience and common sense to develop an analysis that factors in all relevant components to arrive at a reasonable estimate of value. I think you'll find that valuing marine vessels is a challenging but very interesting area of machinery and equipment appraisal work.