Equipment Appraisal Blog | Understanding Machinery Appraisals

When you work in construction, your machinery is a big part of your company's assets. But part of being a responsible business owner involves knowing the value of your assets. How do you determine how much your equipment is worth once it's gone into service? Here's a quick look at what happens when appraising construction equipment.

What happens when appraising construction equipment?

There are a number of different areas that an equipment appraiser considers when appraising your equipment, some of them not what you may consider when setting up an appointment to have your machinery appraised. 

• How old is the equipment? Though age isn't a solid indicator of performance, it can create a lower overall value as newer machinery has features that have become standard because they are very handy and help improve your rate of production. As an example, a miter saw with a laser cut indicator helps speed up cutting time, allowing your crew to get back to work on the project instead of lining up careful cuts one at a time.
• What is that model's performance history? Some models are known to have specific issues that can impact performance, lifespan or functionality. If there has been a remedy provided by the manufacturer to deal with a specific problem that has not been installed on your machinery, it can negatively impact your machinery's value.
• What features are available for that specific model? If you have a pickup to help haul materials and tools, does it have four wheel drive or a towing package that will improve its functionality on the job and improve its overall retail value? Added features and kits that improve functionality often improves overall equipment value.
• What condition is the equipment in? If it's in good shape and has been well maintained, your equipment may value much higher than you may expect. If, however, it is nearing the end of its expected useful lifespan, the value may be much lower than you'd expect. A good equipment appraiser will take a solid look at the equipment's workings to determine its condition.
• Are there signs that the equipment has been abused or neglected? If it's obvious that there are problems with the equipment, most people can pick up on it and would offer a lower value. But what if the equipment you're considering buying has had panels replaced or fluids changed to hide abuse or neglect? A good appraiser will catch issues like this.
• Are there receipts or maintenance logs available? Being able to prove the machinery has been well maintained proves it has not been abused or neglected, as above, and may help build value through the documentation. It also helps the appraiser determine what has been done on the machinery, whether it has been well maintained from the beginning or if it has had to be rehabilitated at some point.
• What is the industry or market like for reselling machinery? When the housing bubble burst and helped crash the economy, construction equipment wouldn't resell for very much, especially compared to a few years prior when the industry was booming and finding equipment was virtually impossible.

Appraising construction equipment can seem like a confusing process, but by understanding how that process works, you can have a better appreciation for how equipment values are determined. By knowing how the appraisal process works, you can leverage this information to your company's best interests.

When you're considering having your equipment values determined, you may hear the term USPAP Appraisal Standards tossed around. But what are these standards, how can they impact your valuation and why should you work with an equipment appraiser who is familiar with these standards? Here's a quick overview of the standard and how it impacts your machinery values.

What are USPAP Appraisal Standards and how can they impact your valuation?

When it comes to appraising real estate, property, intangible assets and business values, the Universal Standards of Professional Appraisal Practice provide a type of quality control to the process. It was established prior to the Savings & Loan Crisis in the late 80s and was then taken over by The Appraisal Foundation following the crisis. TAF is overseen by the Appraisal Subcommittee in Congress to ensure that artificial inflation of a valuation can't grow out of control again.

Since 2006, the standard has been updated every other year. This allows it to remain current with changes in the industry and new regulations. Though it's mainly used in the US, it's been adopted either in whole or partially by a large number of professional appraisal organizations in foreign countries. Though it controls the standard of how appraisals are performed, including requiring that the appraiser be familiar with and use the appropriate methodologies, it does not, in fact, require particular methodologies to be used.

There are a wide range of different certifications available that address the USPAP standards, dealing with a number of specialties. There are some that cover different aspects of real property, while others focus on federal government property appraisals. The Personal Property Appraiser certification is the specialty that deals most closely with machinery valuations. To meet the qualifications for this certification, the appraiser is required to remain in compliance with USPAP, have successfully completed 30 hours of college-level work from an accredited educational institution, have passed the 15-Hour Personal Property USPAP Course or a 45+ hour course and exam dealing with valuation practice, additional hours of coursework and many other qualifications. 

But how do you benefit when you choose to have an equipment appraiser use USPAP standards to appraiser your machinery? You'll know that the appraiser is well-educated and experienced in the appraisal process and can be counted on to provide you with a calculated appraisal report that is accurate and will be accepted in virtually all circles, including legal, insurance, financial and tax agency situations. You'll know that the appraiser has dedicated significant amounts of time to studying the standard to ensure that they remain in compliance with the USPAP and will be knowledgeable about any questions you may have about their practices and methodologies. You'll also know that you can count on their calculations to provide a solid figure for negotiations when you're planning on buying, selling or trading a piece of equipment, which in turn can help keep you from being taken advantage of.

By understanding the USPAP Appraisal Standards and how they impact your equipment valuation, you can gain a better understanding of how machinery is valued and what aspects can impact those values. When you're having your equipment appraised, using a certified appraiser who is familiar with the machinery in your industry and the appropriate USPAP standards is the best way to ensure your appraisal is as accurate as possible.

When you own a business, your equipment can be a large part of your overall assets. Unfortunately, many business owners fail to get a commercial property valuation before it's needed, making the process much more complicated when working with a tax agency over a prior year's donation, an insurance company after a fire or with an interested buyer who wants a serious bargain. An equipment valuation can help protect your interests in a wide range of situations. Here's a quick look at the benefits you'll receive when you get one:

What benefits can you get from a commercial property valuation?

Determining what your machinery is worth can be an open-ended question. To a machinery dealer, it's worth whatever it needs to be valued at to make the sale happen. If you need to be convinced that the machinery is worthless to get you to upgrade, they may undervalue the machinery. If they think you need a solid trade-in value to justify the investment in new machinery, they may overvalue the equipment to make the sale. Because they have a solid interest in your equipment and the actions you take with it, the value they provide for your machinery isn't necessarily accurate.

What about the values you see in used equipment being sold online or in classified ads? Unfortunately, that's not necessarily an accurate value either. The owner may be waiting for the perfect buyer and have their machinery priced higher than it would otherwise sell for, or they may be looking for a fast sale and have lowballed the selling price. If the equipment is in poor condition, it may sell for a lower amount, or if it's in great condition, it may have a higher price.

But there's more than just a simple value for your equipment when you have a valuation performed. A certified equipment appraiser's job is looking at machinery. They spend all day looking at the machinery that they're evaluating, so they can often tell you a great deal about the equipment's condition. When they specialize in a specific industry's equipment, they can know the failure points for many pieces of machinery. They can tell when a piece of equipment has been well maintained and when the machinery has been neglected or abused.

Unlike tax assessors, who look at a wide range of property, a valuation specialist can quickly and accurately determine the differences in value between a diesel and gasoline engine in the same work truck, a bandsaw mill that has a wide range of potential accessories or attachments or the difference in the size of a metal press. They can help ensure that the value you receive is accurate to your exact machinery. Because they are an independent third party, the value that they calculate will not be influenced by any outside factors.

By getting a commercial property valuation on your business equipment, your company can benefit from that appraisal in many ways. However, it's important to remember that the valuation is only as good as the appraiser who performs it. If you use a simple equipment to estimate your equipment values, there's a good chance that appraisal will not hold up to strong scrutiny. Make a solid investment in your equipment values by making sure that your equipment valuation specialist is certified with a national appraisal organization.

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.