Equipment Appraisal Blog | Understanding Machinery Appraisals

One of the most common misconceptions in the world of machinery and equipment (M&E) valuation is that desktop appraisals are not as reliable as those that include an on-site field visit. There is no difference in the credibility or supportability between the two, as long as the steps taken to obtain sufficient detailed asset data are completed properly.

The fact is that the vast majority of M&E appraisals are conducted as desktops. From my own experience, 75-85% of projects do not include a personal visual inspection of the equipment. I would bet those statistics are fairly consistent across the industry with my competitors.

There are a number of reasons why this occurs. Here are the most common:

• Cost to the Client: On-site appraisals require additional time and expense for the appraiser to complete, which naturally dictates higher fee quotes. In some cases, it can be twice as much or more than a desktop option. Ability to Obtain Sufficient Detailed Data from the Client: Using today’s advanced technology, along with effective communications, it is much more efficient to obtain the needed information without putting undue burden on the client.
• Low Transaction Size and/or Number of Assets Involved: It may simply not make economic sense relative to the size of a deal or if only a handful of items are involved.
• Condition Assumptions: Appraisers typically assume normal operating conditions and wear and tear when completing appraisals unless specifically told otherwise. The majority of accredited valuation professionals are not mechanics or technicians, and can only carry out a general visual verification of the equipment when in the field.
• Timing Constraints: Many appraisal projects are conducted over a short timeline where the client needs the work completed in a tight window. The majority of the appraiser’s focus should be on research, analysis, and report writing to meet deadlines.

Of course, there are times when a personal on-site visual inspection is necessary as part of the overall valuation effort. For example, the Small Business Administration (SBA) requires inspections to be completed when underwriting equipment financing transactions that are over a certain minimum threshold. In other cases, conducting the fieldwork may be the only option for obtaining the necessary asset detail required to complete the appraisal. It may also simply be the client’s preference that the appraiser come out and conduct the work personally.

To learn more about your best options when needing an M&E appraisal, reach out to an experienced, accredited professional who can take the time to discuss this topic further.

Every equipment appraisal can be classified as either a desktop or an on-site. A desktop is one in which the equipment is not physically viewed by the appraiser, who instead relies on the client to provide the necessary data required to properly describe, identify and value the property. The on-site option includes the appraiser personally inspecting the assets during the initial phase of the project to obtain all this information directly.

There are pros and cons to each option, and given the circumstances of each project, one may clearly be more preferred, while in other cases, it will come down to a decision based on cost, efficiency, and/or logistics. If the appraiser you’re working with is highly experienced, they can often suggest the better option based on their understanding of the overall scope of work and the asset mix. Either way, both options are reliable, defensible, and supportable, as long as the appraiser obtains the necessary data to get the job done.

Here are a few of the important factors that go into the determination of engaging in a desktop vs. an on-site equipment appraisal:

Quality of the Data Available: Depending on the level of detail provided by the client, and their ability to obtain the necessary specifications and photographs for the equipment, an on-site valuation may be the most effective option.

Number of Assets and Overall Value: Generally speaking, the larger the transaction and the greater the number of assets, the more likely an on-site appraisal would be preferred. There are typically adjustments, such as new assets purchased and older machinery being retired, that don’t show up on the available listings and can be verified on-site. In addition, the higher appraisal fees associated with personal inspections can be better justified in relation to the overall project.

Cost: The travel and expenses of the appraiser getting to the site(s) and spending the necessary time to inspect, take photographs, meet and interview key company personnel needs to be weighed against the benefits. Locality: The ease, or lack thereof, of traveling to the facility. If the business is close to a major city or way out in a very rural environment, may factor into the decision. Spending an inordinate amount of time getting to and from the sites can oftentimes create a cost inefficiency.

Timing: If there is a very tight timeline to complete the valuation, the desktop option may be the only reasonable approach to meet the delivery deadline. Scheduling and executing the on-site work can take anywhere from a few days to a couple of weeks.

Transactional Hurdles: Depending on the client and scope of work, it may be a requirement to include an on-site personal inspection by the appraiser as part of the process. This may come into play with financial institutions, the SBA, litigation cases, business disputes, and tax authorities.

As an appraiser, completing the site work independently results in a better understanding of the specific business application of the assets and allows for greater control over the data gathering process, while providing a hands-on personal experience. However, as long as the information available to the appraiser is of reasonable quality, the desktop option will be more than adequate. In all cases, the machinery & equipment appraiser should be able to guide you through the scope of work process which will ultimately determine the best options for you.

When you think of machinery appraisals, you probably imagine a qualified equipment appraiser coming out to your facility, examining your equipment in person, and delivering a machinery valuation based on the in-person visit. You know that online machinery valuations are an option, but can't help worrying whether they are a good substitute for the in-person visit when accurate equipment values are needed. We at Equipment Appraisal Services offer online appraisals along with in-person appraisals. We have put together our thoughts on online appraisals to inform you what to expect when getting equipment appraised online and help you make the right decision for your needs. 

What to Expect With an Online Appraisal 

The online appraisal process is similar to the in-person appraisal process. In a typical online equipment appraisal, the appraiser will ask for the make, model, and serial number of the equipment. Since the appraisal cannot examine the equipment in person, he or she will request pictures or video that show the equipment's condition in detail. This is something many equipment appraisers do in person anyway, since they finish the appraisal offsite. The client will provide some additional information regarding condition, repairs, or rebuilds.  Mileage and hours will also be requested.

You may be expected to provide the appraiser with maintenance reports, service logs, upgrades, or any other written material you have that would help the appraiser determine the appropriate equipment values, just as you would in an onsite equipment appraisal. The appraiser will tell you what paperwork they need to see in advance of the appraisal, so you can gather and send all the relevant documentation. 

The appraiser will then review the information that you provided and perform their own research to determine machinery value. Finally, the appraiser will write up a report (which notes the appraisal was performed as a desktop appraisal) that sets out all findings. 

Knowing what happens during an online appraisal can set your mind at ease if there are no local machinery appraisal experts near you. It can also help you make the right choice for your appraisal needs. When you need an appraisal done quickly, an online machinery valuation firm may be your best bet if local appraisers are unable to fit you in.

Ultimately, both in-person and online equipment appraisals can work well. The key here is selecting an appraisal specialist who is properly qualified and will deliver an appraisal report that is consistent with the Uniform Standards of Professional Appraisal Practice (USPAP). If the report you receive is not USPAP compliant, it will not hold up in court or under IRS scrutiny. 

We at Equipment Appraisal Services perform desktop appraisals of equipment and machinery als well as on-site appraisals. Each of our appraisals is prepared by a qualified machine appraiser, then assembled and reviewed by one of our accredited appraisers in Machinery & Technical Specialties. All of our online appraisals are USPAP compliant and therefore guaranteed to hold up to IRS, legal, or financial review. 

Whether you decide to hire an in-person appraiser or an online equipment valuation firm, the appraiser should be able to discuss the valuation process with you beforehand. He or she should answer any questions you have, and set your expectations for the time frame, process, and appraisal report. 

We would be happy to discuss your online equipment appraisal needs, and give you a quote for the appraisal, in a phone call. To learn more, call us at (888) 343-9335.