Equipment Appraisal Blog | Understanding Machinery Appraisals

When you're considering the dissolution of partnership, a corporation or a marriage, you're often dealing with parties that have their own interests at heart rather than in the interest of the business. The person leaving the union wants to get the best possible price, while the individual that is remaining wants the lowest possible price so they can pay it off and continue to operate the business as best they can. How can both sides be dealt with fairly? One way to start down the right path is to use the proper valuation method for equipment values.

How a Machine Appraisal Helps During a Dissolution of Partnership

As part of the larger business appraisal process, a machinery appraisal provides you with a good idea of what equipment in your company is worth. If you base your business' value on the value of its assets, using tax records that depreciate machinery using a standardized table can give you an incorrect value. If your machinery is in particularly good condition, a standard depreciation can undervalue your equipment, giving the partner who is leaving less than the partner who remains. On the other hand, if the machinery must be used hard or in poor conditions, the standard depreciation may estimate too high a value, providing more money to the partner leaving and leaving the remaining partner without sufficient assets to keep the business in operation successfully. 

Methods of Appraisal During Dissolutions

Fair Market Value

When appraisals are performed for the sake of a dissolution, the most common method used to value equipment is based on fair market value. This is a value determined by a qualified valuation specialist based on the condition of the equipment and the market at the time of sale. It is often considered the most equitable way to determine value when a piece of equipment is to remain in production after the dissolution is completed.

Fair Market Removal Basis

But what if the parties want to sell off the machinery or assets? If there is at least some amount of time before the dissolution, there may be time to sell the equipment piece by piece. Fair market removal is the fair market value minus the cost of removing the equipment from the premises.

Liquidation Value Basis

When both parties want to dispose of all assets quickly and then divide the funds from that sale, liquidation value is used. This will provide the lowest possible value, the value raised during a fast liquidation where there may not be time to find an optimal buyer and the sellers will settle for the scrap value of the assets. 

Other Basis for Valuation

In some situations, such as a divorce, there may be legal requirements to the type of valuation basis used to determine equipment values. In these situations, having an equipment appraiser who is familiar with the law and who will provide the legally required valuation basis is important.

Dissolution of partnership is never an easy process, but having a qualified equipment appraiser provide you with a machinery valuation can help ensure that everyone gets a fair shake out of the deal.

When you have a shop full of prime lumber and fine equipment to turn it into a piece of fine craftsmanship, equipment values may be the furthest thing from your mind. But what about when you move from being a hobbyist to a professional and need to get a loan to open your business' doors or purchase more advanced equipment? How do you prove the value of your equipment if it needs to be used for collateral? Unlike vehicles, there's not a handy guide to valuing shop machinery. A woodworking equipment appraisal performed on your equipment is a great way to fill the gap. Here's how it helps you make the most of your assets:

How a Woodworking Equipment Appraisal Helps You Leverage Your Assets

Equipment appraisals provide a better picture of the value of your machinery. Though you may have seen a similar piece of equipment go for a particular amount at a local auction, that may not dictate the actual value. The auctioned equipment may have been of better or lower quality than your machine to begin with. It could have been neglected in maintenance and repairs, which would be reflected in a shorter expected useful lifespan or lower appraised value. The wrong buyers could have been at the auction, resulting in a lower than usual ending bid or a bidding war between a pair of bidders with a sentimental attachment to the machinery. There are many factors that come into play that can affect the value.

Are you basing the value on a tax depreciation table? If you haven't been using the equipment full time or if the machinery is expected to have a longer expected useful lifespan than the depreciation table accounts for, the machinery will often last for quite a while after its depreciated value has reached zero. If you then use the tax documents to verify value, the financial institution you want to work with may decide you don't have sufficient collateral to receive the loan, which can have a serious impact on your business' growth and future performance.

What about when you have an opportunity but aren't sure if the risk is worth it? If your machinery is being heavily used or goes without necessary maintenance or repairs, you may lose your business over the investment. Why? If you are basing the equipment off the value of a depreciation table or used sale price, the actual value may not provide a sufficient cushion from the investment risk. If you make the investment and then need a loan to cover expenses while the investment is being paid off, your financial institution may not agree with your value figures, preventing you from receiving much-needed cash and resulting in a cash flow issue. If your equipment becomes unusable and must be replaced before the investment has paid for itself, that additional expense could also sink your business. Having a quality valuation of your woodworking machinery helps ensure you're basing your decision on solid values.

When you have a solid idea of what your machinery is worth, it's much easier to use those assets to pursue your future plans. A woodworking equipment appraisal is a great tool in that planning.

When you deal in international trade of equipment, it's very easy to end up with questions about your import and export documentation. How do you back up the information in your documentation to ensure your machinery passes easily through customs. One method is using equipment appraisals to back up your paperwork, but how should you approach the valuation process? Here are some details on how an equipment appraisal from a certified equipment appraiser can help provide documentation that will make your customs experience go more smoothly:

Papers Please: How Machinery Valuation Supports Import and Export Documentation

Avoid Customs Hassles

Going through the customs process can be a very complicated process. Some businesses choose to simply avoid dealing with international business. But the benefits of purchasing or selling often outweigh the drawbacks of dealing with customs. Because a certified equipment appraiser's report follows certain protocols as it is drawn up, customs officials give more weight to the report's value and are less likely to scrutinize or impound the machinery while working through the process.

Legal Documentation

Import and export paperwork, if not completed properly, can lead to legal troubles with customs. If you've had the value of a piece of machinery questioned at customs, having a machine appraisal on hand to prove the documentation of the machine's value goes a long way towards resolving the situation without additional hassles. Because an appraisal report from a certified equipment appraiser follows standardized methodologies, it's accepted in many legal situations where a rough estimate will not be accepted.

Certification Matters

Why is a certified appraiser's report better able to stand up to scrutiny than, for example, an advertised price for a similar piece of equipment or the estimated value from an equipment company's sales representative? The certification process teaches the machinery appraiser what to look for in equipment to determine value. It teaches which type of value can or must be used in certain circumstances and what the differences are between the various types of appraisal values. It teaches specific methodologies that have been standardized across the board to provide a fair value for the equipment that is being appraised. Working with an uncertified appraiser means the money you're paying may not give you a report that will stand up to scrutiny in customs.

Standardized Methodology

The certification process includes instruction in standardized appraisal methodology, so any certified appraiser can come up with a similar result when faced with the same situation. It teaches the best kind of appraisal approach to use in different situations.  For example, if you're selling the equipment because of a divorce, you may be required to meet fair market value or other type of valuation process as determined by the court overseeing the divorce. Same goes for importing and exporting.  Having a standardized methodology means the valuation that is being performed will be uniform across the industry.

When your business deals with machinery on the international market, having a certified equipment appraiser's machine appraisal support your import and export documentation can make the process much easier. The standardized methodology used by a qualified equipment valuation specialist bears up against scrutiny.

If you have heavy construction equipment that you no longer need, selling that equipment at auction makes a lot of sense. Because auctions attract a lot of buyers, they are quick places to sell your equipment, compared to trying to sell something like a crane on your own. Finally since the auctioneer mediates the process, selling your equipment at auction can be less stressful for you. To prepare your heavy equipment for auction, it can be essential to have equipment appraisals done. Learn more. 

Why Have a Crane Appraisal Before Auction 

To understand the benefits of heavy equipment appraisals before auction, think about it from the buyer's perspective. A buyer is visiting an auction in hopes of getting needed equipment at a great price. They may be shopping on a budget, but still want to get a good piece of equipment. 

Appraisals can also help shoppers compare like items. If your crane is more powerful than others on auction, the appraisal can indicate this. If you really want to move your construction equipment, an appraisal is one additional piece that can make your piece stand out. 

Some buyers may be new to the auction scene. These buyers in particular may be hesitant about purchasing used equipment at auction due to not knowing what the market brings for the typoe of equipment. When they can view an appraisal, and see an independent valuation of that crane by an expert, it can provide them with useful knowledge. This can help them bid with confidence. 

While a crane appraisal benefits the buyer, it also benefits you. If you are ready to sell a crane at auction, you probably need the money for other purposes. In this case, it's better to sell the item quickly, even if you get a little less than you hope, than to hang onto that crane for months. Time you spend trying to sell the crane yourself takes time away from needed tasks. 

An auction allows you to sell your crane quickly so you can move on to other things. Getting that appraisal done can increase the likelihood that you sell the crane at auction because you will have an idea of what it may sell for.

How to Find Heavy Equipment Appraisers

When you are preparing to have a piece of machinery appraised, it is critical that you find a certified appraiser. If the appraiser you hire is not certified, the report may not meet the Uniform Standards of Professional Appraisal Practice (USPAP). Appraisers that follow USPAP provide unbiased opinions of value.

Look for an appraiser who is certified and has performed construction appraisals in the past. This person will be familiar with the best ways to take the value of heavy equipment like cranes.

The construction business is a significant contributor to the global economy. According to Statista, the global construction equipment market was estimated to be $145.5 billion in 2015, with the North American market holding a position as the second largest market worldwide for construction equipment. Companies engaged in construction projects know the impact of crawlers, dozers, backhoes, excavators, loaders, earthmoving equipment, cranes, drilling equipment and more on their ability to perform effectively and sustain their profitability, but they don’t always know the current equipment values for the assets they have in their inventory.

Construction equipment often takes a beating, given the arduous conditions under which it is usually called to perform, but it can still have a value to the company for its useful remaining life and also as a potentially saleable asset. A professional machinery valuation can give managers the edge they need in the decision-making process, and can also serve as a protective factor in the case of untoward events. Here are the top ten reasons construction companies should keep in mind when considering whether or not to have a construction equipment appraisal:

1. Tax Purposes: An accurate and updated record of equipment values is helpful in supporting depreciation claims when filing income tax returns.  
2. Business Analysis Purposes: Business decisions are made every day which require accurate input and data. A manager needs to rely upon solid equipment valuations when deciding whether to expand, purchase additional equipment, seek additional funding, or bid on new projects.
3. Sale of Business: A prospective buyer will want to know precise equipment values in order to ascertain a fair purchase price and initiate asset record-keeping.
4. Bankruptcy: If the business does fail, it will be necessary to have an accurate machine appraisal for all equipment in order to place a value on the company’s assets for creditors.
5. Dissolution: Whether a business is dissolved completely, or one partner buys out the other, a valuation is required to ensure an equitable division of assets or acceptable purchase price.
6. Divorce: Business assets will be treated similarly to personal assets when dividing up property during a divorce.
7. Insurance: Construction companies need to be as prepared as possible for the unexpected, so a sufficient amount of insurance coverage is required. If equipment is lost, damaged, or destroyed, current appraisal records will be required in order to negotiate a reasonable settlement amount with the insurance company.
8. Loans: Existing equipment is often used as collateral when securing bank financing for operating purposes, expansions, upgrades, or purchase of additional equipment. Loan officers will want to see sufficient data to justify any loan amounts being considered.
9. Donation: A business may decide to donate some of its older or outmoded equipment to a charitable organization in order to receive a tax consideration. Any donation listed as being over $5,000 on the 8283-tax form will require an equipment appraisal for IRS purposes.
10. Estate Considerations: The executor of an estate must be able to reasonably demonstrate equipment values to all the heirs and the government to ensure an equitable distribution of assets.

When a business needs a construction equipment appraisal for any reason, it is best if the report is assembled and reviewed only by an accredited appraiser. These professionals are well-trained and experienced in providing accurate equipment appraisals. If the appraisal report does not meet the Uniform Standards of Professional Appraisal Practice (USPAP) guidelines, it is not considered a “qualified appraisal,” and will not pass intense scrutiny from buyers, attorneys, bankers, the IRS, or the courts.