Equipment Appraisal Blog | Understanding Machinery Appraisals

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.

A fundamental valuation method used in equipment appraisal is the cost approach. It determines the value of equipment by considering the cost of replacing it with a similar item, adjusted for depreciation and obsolescence. There are several reasons why this approach is so important.

The cost approach offers a reasonable way to estimate value that can be relied upon by itself or as a complement to the sales comparison approach, depending on the level of market comps available to consider. It relies on tangible factors like replacement cost new, depreciation, useful life, effective age, and salvage value.

Look to establish these variables directly from the market based on available databases and third-party opinions, along with your own experience in developing and understanding the average annual loss in value from previous appraisal work. Avoid using a straight-line approach to depreciation, as it is not the way equipment actually loses value in the market or is determined in a potential resale scenario.

For businesses, knowing what it would cost to replace their used equipment with brand-new models is critical. The cost approach answers this question, providing a practical perspective for budgeting, insurance claims, and financial planning.

Many types of machinery, particularly those tailored for specific industries, lack an active secondary market. The cost approach ensures that even highly specialized equipment is valued accurately, considering its current utility along with the key variables that make up the cost approach.

While the sales comparison approach is often relied upon in equipment appraisal work, data in the external markets can often be inconsistent and misleading, with sales prices all over the place. The cost approach will assist in normalizing the data by focusing on the intrinsic value of the assets and creating a solid presentation of how machinery should resell over time as it continues to operate.

For companies with significant capital investments in equipment, utilizing the cost approach in this manner provides a reliable basis for assessing the worth of their assets. This is essential for decisions like mergers, acquisitions, investor buy-ins, and refinancing.

In summary, the cost approach offers a clear and grounded way to value equipment, ensuring that appraisals are accurate, fair, and reflective of an asset’s true worth. For businesses and appraisers alike, it’s a vital tool in navigating the complexities of equipment valuation.

Regardless of the type of property you need to be appraised, working with a certified or accredited valuation professional can make a huge difference in the reliability and thoroughness of the report. Several top organizations are well-recognized for setting the highest standards in education, ethical conduct, and ongoing professional development for appraisers. I have listed some of the most respected and widely recognized appraisal accreditation organizations below:

American Society of Appraisers (ASA)

The ASA is a multidisciplinary organization offering accreditation for appraisers specializing in a variety of assets, including real property, personal property, machinery & equipment, business valuation, fine art, and antiques. ASA’s designations, like Accredited Senior Appraiser (ASA) and Accredited Member (AM), are highly regarded for their stringent qualifications and ongoing education requirements. The organization’s broad focus makes it a great choice for companies and individual professionals who value diverse asset types.

National Association of Certified Valuators and Analysts (NACVA)

The National Association of Certified Valuators and Analysts (NACVA) is a professional organization that supports business valuation and financial forensics professionals. The NACVA offers certification, education, and resources to its members, aiming to advance expertise in business valuation, litigation support, and financial analysis.

Through its training programs, conferences, and a broad network of professionals, NACVA provides tools and standards that help members uphold high ethical and professional standards, assisting in critical areas of valuation such as M&amo;A, forensic accounting, divorce, buyout, and consulting services.

Appraisal Institute (AI)

The Appraisal Institute is one of the most prominent organizations in the real estate industry, offering the coveted MAI, SRA, AI-GRS, and AI-RRS designations. These certifications are recognized for excellence in real property appraisal, with requirements for rigorous education, experience, and adherence to the Uniform Standards of Professional Appraisal Practice (USPAP). AI-certified appraisers are known for their expertise in complex residential and commercial valuation work.

Royal Institution of Chartered Surveyors (RICS)

Although based in the UK, RICS has a global presence and provides accreditation through its chartered surveyor designation. RICS-certified appraisers are known for their proficiency in global property standards and are sought after for their specialized training in real estate, valuation, and land management. RICS is highly valued for international work and cross-border valuations.

International Society of Appraisers (ISA)

ISA specializes in personal property appraisals, making it ideal for those focusing on fine art, antiques, and collectibles. Its Certified Member (CAPP) and Accredited Member (AM) designations are recognized in this niche. ISA members are trained to appraise a wide range of valuables with accuracy and professionalism.

In summary, seek out a credentialed valuation professional when you or your firm needs an appraisal. This will ensure that the report you receive will be reliable and thorough and meet the standards of the organization from which the appraiser has received their certification or accreditation.