Equipment Appraisal Blog | Understanding Machinery Appraisals

How is actual cash value determined by a certified equipment appraiser?

Posted by Equipment Appraisal Services on Tue, Oct 03, 2017 @ 11:36 AM

appraising medical equipment

If you're thinking about having equipment appraised, you may have heard any number of appraisal types tossed around. One type of calculation that is commonly used is actual cash value. But what is this appraisal type, how is it performed and in what situations is it the best option to consider? Here's a quick look at these questions and how they apply to your machinery assets.

How is actual cash value determined by a certified equipment appraiser?

When it comes to determining actual cash value, many people are a bit confused over how this figure is calculated. It doesn't help that over the years, the court system has defined it in several different manners. Some people think it's the same as fair market value. Others think that it's replacement cost minus depreciation. Others think it's a hybrid of the two.

But what's the difference between these two approaches? Replacement cost minus depreciation can work in some situations, but not in others. A piece of machinery is lost in a fire, and the cost to replace it is $50,000. Depreciation on the original equipment would have been $5,000, so the equipment is valued at $45,000. Using fair market value, the same equipment may be older and fully depreciated. Using replacement cost minus depreciation may only provide a value of $5,000, but if the equipment was well maintained, it may still deliver years of reliable service. At this point, the value of $5,000 may be unrealistic for replacement in a loss.

Obviously, calculating actual cash value is a difficult process, with contradictory precedents depending on the state where the equipment or company is located and where you're going through legal or insurance issues. Despite the vague definition of actual cash value, many legal, financial, tax and insurance organizations still use it, leading to potential disputes between the customer and the company. Hiring a certified equipment appraiser to provide you with an appraisal report on the actual cash value of your equipment can help your side of the debate. 

In a number of court cases, the report or testimony of a certified equipment appraiser has made all the difference between a poor value and a fair value for equipment. A certified appraiser goes through an extensive educational process that includes learning which appraisal methods are applicable to which situations. Because they are taught proven methodologies that have been tested in legal, financial, insurance and tax circles, the reports they generate hold up well to scrutiny and are considered more reliable and accurate than a number of other sources you may be tempted to use in your situation.

A certified appraiser has the knowledge, experience and ability to help you fight a poor estimate of actual cash value. They've been trained to know in what situations different rules must be applied to determine a fair value for your equipment. When you work with a certified appraiser, you'll realize significant benefits for your machine values.

When you have actual cash value calculated on your equipment, you're gaining good insight into what your machinery is worth. However, if your appraisal isn't performed by a certified equipment appraiser, you may not be getting accurate information or an appraisal report that will hold up in financial, insurance, tax and legal circles. Make sure the appraiser you use is certified to ensure that your documentation will stand up to strong scrutiny in the future.

Tags: Insurance Loss, actual cash value, fair market value

Actual Cash Value, Stated Amount, Replacement Value: The Differences

Posted by Equipment Appraisal Services on Thu, Oct 08, 2015 @ 09:00 AM

actual_cash_value

When you're working with financial terms, it can seem like a maze of confusing and often contradictory terminology is employed to keep you in the dark. One of the issues many business owners run into is determining the difference between stated amount, replacement value and actual cash value, and how having one type of value in a machinery and equipment appraisal can prevent you from collecting after a loss. Though a machine appraiser is almost always happy to help explain the differences, here are the basics to help keep you informed and your equipment appraiser getting the job done.

Stated Amount

Using the stated amount means simply that instead of basing your insurance policy premiums on the actual value the equipment appraisers determine, the policy owner is responsible for reporting the equipment's value. After you specify the value, the insurance company adjusts your premium according to your valuation. Though this works well if you have equipment that changes hands frequently, it can also cause problems if there is a loss and you've undervalued the machinery. Once the loss has occurred, the claims adjustor figures out the equipment's value when the loss happened, and if the insurance company finds the equipment has been covered using a much lower machinery valuation than the market will bear, certain clauses may come into effect that will reduce the insurance payment significantly, leaving you in a bind.

Replacement Value

Replacement value refers to how much it would cost to replace the equipment. It doesn't take depreciation into account with equipment values, but instead looks at what it would cost to replace the machine's capability. Though that sounds great, you'll pay a higher premium for replacement value in insurance situations. Why? When equipment appraisals are performed, the insurance company knows what the equipment value itself is and wants to pursue a claim based on that machinery valuation. But if you take good care of your machinery, it can be difficult to find similar equipment. Therefore, the insurance company wants a higher premium, because you're replacing a piece of equipment with a lower machine appraisal with one that would have a higher machinery valuation.

Actual Cash Value 

Actual cash value can save you a lot of money on insurance premiums, especially if your equipment is fairly average, easy to come by and won't be hard to replace by purchasing additional used equipment. Because actual cash value deducts depreciation, your insurance company isn't as worried about paying out more than the original equipment valuation, so they can offer a lower premium. Though a few courts have translated actual cash value to represent fair market value, the most common legal interpretation is replacement value minus depreciation. If you're not expecting to take a loss and think it will be relatively easy to replace your equipment, having actual cash value will help you with that process.

To get the best possible result from your machine valuation, it's important to work with a reputable appraisal service specializing in machinery and equipment appraisal that can provide you with highly trained equipment appraisers. By finding out the proper value of your machinery, you don't need to worry about problems with the insurance company, because a valuation performed using the Uniform Standards of Professional Appraisal Practice by a machine appraiser certified through the American Society of Appraisers provides legal documentation to your claim for the value of the machinery or equipment that has been lost.

Tags: Equipment Appraisal, Insurance Loss, actual cash value