Equipment Appraisal Blog | Understanding Machinery Appraisals

What is effective age and why does it matter for your business?

Posted by Equipment Appraisal Services on Tue, Jan 16, 2018 @ 10:56 AM

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Effective age is defined as the difference between the overall economic life and the remaining economic life of a piece of equipment, a structure or similar asset. Though that provides you with a basic overview of the concept, it can often seem much more complicated than that. How is it determined? How will it impact your company's bottom line? Do you really need to know this detail for your machinery? Here's a quick look at those questions and more.

What is effective age and why does it matter for your business?

Though the above definition of effective age seems rather dry, it does cover the basics. Imagine that you've purchased a cargo van for your company. Purchased new, the expected lifespan is about five years with your expected annual mileage. But what if you found a great deal on another vehicle after a couple years of ownership? By spreading the work between the two vehicles, you may then expect the cargo van to last longer, but exactly how long? That's where effective age comes into play.

If machinery is abused or used in a harsh environment, it may age at a rate faster than would otherwise be considered normal. Salt water, moisture, humidity, sand, grit, dirt, acids: all of these factors can make a piece of machinery age at a much faster rate than would normally be expected, often because they cause excessive wear and tear on the machine's components. If you were considering using machinery like this as collateral in a bank loan, you may find it isn't considered to be worth as much as you might expect.

In both of these cases, the machine itself can be expected to last a longer or shorter time period than may have been originally expected based on the appraiser's prior knowledge of the equipment. Because a machine appraiser spends all day looking at equipment, they have a good eye for when a machine is in exceptional condition and will last significantly longer than expected. For example, a well-maintained piece of equipment that is kept in an ideal environment and worked well below its top specifications can be expected to last much longer than a piece of machinery that is poorly maintained in a bad environment and regularly worked at the very top of its expected performance will. 

When you have a machinery appraisal performed on your equipment, you're able to discover about how much longer it can be expected to perform economically for your company. Having this information available makes it much easier to determine when you'll need to purchase replacement equipment. You'll have more time to shop around, learn about the best new features and decide exactly what type of machinery you need and what budget you can afford to spend on the right equipment. That's always a much better option than being forced to quickly replace failing equipment with machinery that won't meet your needs.

By knowing your machinery's effective age, you can better plan for your company's financial needs in the future. This allows you to spread any equipment purchases out over time without having to worry about your equipment failing before it's paid off. By knowing this figure, you can ensure that your company has the means in line to replace the equipment when the time comes without exposing the business to excessive risk.

Tags: Asset Depreciation, effective age

Understanding Effective Age and How it Affects Machinery Values

Posted by Equipment Appraisal Services on Tue, Mar 28, 2017 @ 12:28 AM

There are so many terms in the equipment appraisals process that you would need a dictionary to understand them all. As long as you know the key terms that could affect your machinery valuation, you can interpret the results of an equipment appraisal and buy or sell used equipment for a fair price. When it comes to buying and selling used equipment, one key term to understand is effective age

Understanding Effective Age 

Appearances can be deceiving. If you were buying a die-cut machine at auction, for example, you would want to know whether the machine was 2 years old or 20 years old. The age would affect the price you were willing to pay for the machinery. You might be prepared to purchase a die-cut sealer that was either 2 or 20 years old, but for a very different price tag. Likewise, if you were selling the machine you would have a different expectation of acceptable prices based on age. 

What if the die-cut sealer was actually 20 years old, but looked so good you would have sworn it was last year's model? This is where understanding effective age in the appraisal process comes into play. 

Every piece of equipment has a real age representing the time from the date of manufacture to the present. Effective age denotes the look and feel of the machine... in other words, how old it appears to be to observers. 

Whether you are buying or selling, effective age is important to know. It tells you something about the equipment values set at auction.

Effective age is subjective. Depending on how the machinery was cared for, the effective age can be less than or greater than the actual age. 

A machine that looks new but is years old could have been recently repaired and painted to appear close-to-new. When examining old equipment, consider whether the piece was cosmetically enhanced to look good or truly rehabilitated to be competitive with current models. 

Consider the example of a home for sale in your neighborhood that's 30 years old. Let's say the current owner remodeled the bathrooms with low-flow toilets and an energy-efficient shower, put in a new tile floor, and refreshed the paint. The updated bathroom looks brand new even though the home is 30 years old. Now, imagine the same home is on the market, but the bathroom has only been repainted and the sink faucet was replaced. The bathroom looks somewhat newer than the rest of the house, but isn't actually more efficient. The work was simply window dressing to trick the buyer into paying a good price. 

The same holds true for machinery valuation of used equipment. Rather than trust what you see, it's important to dig deeper and ask questions to find out if the equipment meets your needs and if the price is fair. 

An equipment appraiser can help you evaluate equipment you are considering buying from a third party or walk you through the equipment values and effective age of an item before you take it to auction. This can save you time and money if you're selling equipment. Why spend money to fix an item if its effective age will still look poor compared with similar pieces of equipment? 

 Whether you seek equipment appraisals before buying or selling, it's key to find an appraiser who understands the industry, equipment, and core considerations.

Tags: normal useful life, effective age, remaining useful life

Effective Age of an Asset in Machinery Valuation

Posted by Equipment Appraisal Services on Tue, Jan 05, 2016 @ 09:30 AM

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What are your company's equipment values? Though you could guess, a machinery and equipment appraisal can give you a better idea of the value of your company's machinery. But beyond making a quick guess based on what you've seen sell lately or where it is compared to new models of older machinery, the only way to make sure by having a quality machine appraisal performed, during which time the effective age of the machinery will come strongly into play. Let's take a look at what equipment appraisers concentrate on when determining equipment value.

Effective Age of an Asset in Machinery Valuation

Though you can try to determine the value of a piece of machinery, there are a few techniques that don't really work well. Using standardized depreciation formats instead of considering the long-term viability of the equipment means you may have completely depreciated the assets you are still using on a regular basis, which provides an inaccurate view of your business' financial outlook. At the same time, basing the value on local sale prices or dealership offerings may also wreak havoc on your financial outlook, as other machines being offered for sale may be of higher or lower quality and maintenance than the machinery you own and need to appraise.

When an equipment appraiser looks at your business' equipment, he or she is not just looking at the age, manufacturer and model. Because machinery can be kept in a wide range of conditions and levels of maintenance and repair, a much closer approach must be undertaken to determine what the effective age of a machine is as well as the expected remaining useful life from that machinery. But what kind of details are considered during equipment appraisals? Let's continue on for a look.

How Machinery Valuation Specialists Determine Effective Life

So how do machinery appraisers determine the effective useful life of your equipment? They take a good look at the machinery, to see whether it has had excessive wear and tear or other signs of abuse, such as dents, welded repairs or similar concerns. Other areas they'll consider is the working environment and how well the machine has been protected from the elements. They'll take a look at your maintenance and repair logs to ensure that the equipment has received proper care or whether there are outstanding issues that could lead to further problems down the road. They'll consider the hours meter and whether the degree of wear matches up to what they'd expect from machinery with that amount of use. Beyond the machines you own and hare having appraised, they'll also take into consideration similar machines they've appraised in the area and how long they tend to last, basing your machine's potential effective life on all these factors.

By knowing your company's equipment appraisals are accurate and based on solid methodology, you're able to make better decisions in the future that will benefit your company, such as determining when to plan for expected machinery changes as older assets reach end of life. By having a quality, certified machine appraiser take a good look at your machinery and determining its effective age and potential future lifespan, you have legal documentation of the condition of your machinery for financial or insurance purposes if needed. If you have any further questions on how effective life is determined or want to schedule an equipment appraisal, please contact us today. Our highly-trained, certified staff are always happy to help with your equipment appraisal needs.

Tags: Asset Depreciation, normal useful life, effective age, remaining useful life