Equipment Appraisal Blog | Understanding Machinery Appraisals

What is the American Society of Appraisers and how will it impact your appraisal?

Posted by Equipment Appraisal Services on Tue, Apr 10, 2018 @ 02:12 PM

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.

Tags: American Society of Appraisers, ASA, ASA accredited appraiser

What does economic obsolescence mean?

Posted by Equipment Appraisal Services on Thu, Oct 22, 2015 @ 08:30 AM

economic_obsolescence

You may have a piece of equipment that is in good working order, yet be shocked to hear that a machine appraiser tells you the equipment is obsolete in economic terms. To understand and act upon a machinery appraisal, you must have working knowledge of the concept of economic obsolescence. Let us explain it for you. 

What is Economic Obsolescence? 

The American Society of Appraisers notesthat economic obsolescence is a difficult factor to explain. It refers to a situation where a piece of equipment loses either its usefulness or its value for factors unrelated to the object itself. 

For example, a typewriter was highly useful until computers came along. The typewriter became obsolete once computers displaced typewriters in the majority of offices.

Odds are, if you are a niche retailer, you have specialized equipment in your business that is or will become obsolete. 

A machinery valuation can help you determine whether to repair or replace outmoded equipment, help you conserve business profits, and show you where you should invest additional capital.  

An appraiser performing a machinery valuation will examine the item, determine whether economic obsolescence is occurring, and identify the factor or factors that are causing it. Finally, an appraiser will provide research materials to support their appraisal and go through the results of the valuation with you. 

You will have a good understanding of your equipment value at the end of the process. As a result, you can make informed decisions about business growth.

Factors Affecting Economic Obsolescence

An equipment appraiser will review a broad range of factors when appraising a piece of machinery. During the equipment appraisal, the appraiser may notice one or more factors that could suggest obsolescence. These include: 

  • Increased cost in materials and supplies related to usage of the equipment
  • Reduced demand for products made utilizing the machinery
  • Changing governmental or environmental regulations that affect the use of the equipment
  • Over supply of product in the marketplace 

Any these factors reduce the profitability of the product and viability of the equipment. When the equipment is no longer cost effective, or the market does not require the products made with the equipment, it can become obsolete. 

If there is a better opportunity to invest staff time or money, the conditions may be right for economic obsolescence. 

While appraisers agree on the circumstances that might suggest obsolescence, they disagree on when the condition is actually present. The concept is highly subjective, so one appraiser may see decreased demand as a blip in the market while another may perceive it as the new reality going forward.  Machine appraisers can use several methods to quantify the degrees of obsolescence, including gross margin analysis, inutility, supply and demand analysis, industry return on capital or equity, market-derived approach, and income or earnings shortfall examination. 

The subjective nature of the concept can make it difficult for business owners to accept a machinery valuation or take the appraiser's word that equipment may in fact be obsolete. 

Before winging it, take the time to talk with the appraiser and make sure they have the necessary knowledge. When you select a professional who knows your business model, you will feel more comfortable with their judgment and all equipment valuations.

Tags: Asset Depreciation, economic obsolescence, American Society of Appraisers