Equipment Appraisal Blog | Understanding Machinery Appraisals

Elements of Equipment Appraisals: Should the Income Approach Apply?

Posted by Equipment Appraisal Services on Mon, Aug 21, 2023 @ 07:30 AM

Applying Income Approach to M&E Equipment Appraisal

Even though other professional appraisers may disagree with me on this topic, I find it is relevant to raise the issue of whether the income approach should apply or even be a consideration when valuing most machinery and equipment (M&E). In my 40 years of working in the M&E asset management and valuation markets, involving machinery across virtually every known industry, I can count on one hand how many times I have even attempted to assess and place weight on this approach. The same goes for the number of times I have been asked by a client even to consider it.

In layman's terms, the Income Approach estimates the current value of the future economic benefits of owning a particular piece of equipment. Similar to using this approach to estimate the value of a complete business or real property (land, buildings, and related assets), which is relevant in many cases, it requires the ability to clearly separate and directly apply revenue and expenses to M&E.

A scenario where this might be possible is a business that owns a rental fleet of equipment such as trucks, trailers, or heavy machinery. Both short- and long-term rental history could be considered and potentially applied to estimate the value of this type of activity. There are concerns, however, as to the validity and reliance of the assessment.

First, it is common practice in the equipment rental industry to apply discounts to the eventual purchase price of these assets based on past rentals when their clients eventually want to buy them outright. Even with large assets such as aircraft, this is not unusual. The result is that a significant portion of rental income lessens the real market value of the equipment, causing it to get tangled up with the other approaches to value.

Second, assuming you can estimate value under the Income Approach, given the restrictions and requirements, how do you weigh the result in the context of the other approaches, namely Cost and Sales Comparison (Market)?

You cannot completely ignore the other two approaches, as they should be considered and applied to some degree in every equipment appraisal regardless of the purpose, especially if the income approach estimate is materially different from that of the cost and market methodologies. I have never completed an M&E valuation without placing weight on each of these two methods.

In summary, these are just two of several issues that create concerns about the appropriateness of utilizing the income approach to assess M&E value. Contact an accredited professional appraiser to learn more on the topic.

Tags: Equipment Appraisal, equipment appraisers, Income Approach, M&E

Is it Time to Consider Refinancing Your Capital Machinery & Equipment

Posted by Equipment Appraisal Services on Mon, Nov 29, 2021 @ 07:00 AM

Equipment Appraisal Appraiser Refinancing Tangible Assets

We have all seen or heard about the recent economic trends which have led to significant reductions to interest rates across broad spectrums of the consumer and business markets. The thought has likely crossed your mind to take advantage of these low rates when considering new equipment and personal property investments.

What about the existing capitalized assets you have owned for a few years and continue to work every day for your business? It might be time to look at refinancing options and take advantage of these low-interest rates before the markets start turning in the opposite direction.

Refinancing has several advantages to business owners who have considerable amounts of owned machinery & equipment. The two most significant are (a) the potential to lower your monthly debt payments where you have existing higher rate loans, and (b) the ability to access working capital based on the equity in your assets.

It is important to review your current debt structure and determine if existing loans can be restructured without a significant pre-payment penalty. Working with your present financial institutions should be a primary choice as they can often pre-approve your credit-based upon past transactions, and waive any penalties, provided you keep your business with them. Typically, pre-payment penalties expire after a couple of years, however, so be sure to read your loan contracts to better understand the terms and conditions.

The equity in your machinery &apm; equipment can be tapped if you have no or low debt obligations, and the cash can be used to inject working capital into your business, which then can be used for any number of new projects or growth plans. These assets have been capitalized and depreciated significantly on your books, however, their actual market value will likely be much higher.

To take advantage of this equity and support your assets’ current value, you should consider engaging an accredited, experienced machinery & equipment appraiser, who will complete a desktop or on-site valuation of your company’s tangible property. The appraiser will facilitate the process for you and suggest certain options that make the most sense in the context of your particular business and overall goals.

If you believe now is finally the time to start taking advantage of these favorable market conditions and low-interest rates, start taking these steps to make your financing plans a reality.

Tags: Equipment Appraisal, accredited appraisers, Machinery & Equipment Appraisals, refinance

Planning a Move? Consider a Tangible Personal Property Appraisal

Posted by Equipment Appraisal Services on Mon, Feb 22, 2021 @ 08:00 AM

tangible personal property appraisal before you move


Whether your business is moving up a floor, downtown, or to a newly renovated home office, your tangible business assets should be accounted for during the process. Personal property appraisals can protect your owned equipment from any loss, damage, or liability resulting from the relocation effort. Learn what these appraisals are and why you should have an accredited equipment appraiser perform a tangible personal property valuation before this important step.

What is Tangible Personal Property?

Originally a tax term, "tangible personal property" refers to any piece of property that can be picked up and moved. “FF&E” is a common catchall term to describe many types of personal property. This acronym stands for furniture, fixtures & equipment and includes office furniture, (filing cabinets, chairs, desks, credenzas), office business equipment (printers, scanners, copiers, computers, servers and related IT assets), and other related assets. The fixtures component pertains to cabinetry, shelving, HVAC equipment, and similar items which, although installed on the premises, might be removable and worth relocating to a new facility. Appraising tangible personal property can also assist your business with insurance, property tax, and internal capitalization for accounting purposes.

While there are several reasons for hiring an equipment appraiser, relocation is an often-overlooked reason to have your tangible business property values updated.

Potential Claims & Uses

If you are working with a moving company, they probably offer liability coverage to protect themselves if they damage or lose your items during the move. One of the mistakes you can potentially make is trusting that this coverage will be sufficient to protect your property. This type of insurance typically covers claims by weight or assessed value, which is vague at best and not for your benefit as much as the movers. They will usually pay only a fraction of the real value of these assets if the liability is on their end. You need to consider your own interests in this scenario. There is also the potential for physical loss liability claims if someone is injured during the move and disruption costs to your business. For these reasons, we recommend obtaining an appraisal of your FF&E personal property so there is a clear understanding of value before your move.

These valuations can be completed by machinery & equipment and personal property appraisers. Personal property is considered a sub-class of machinery & equipment and, therefore, many equipment appraisers have experience with these types of assets.

Once you have the appraisal report, reach out to your business insurance provider and discuss covering your property for the purpose of the move. You can also consider using the report for longer-term insurance needs and other reasons such as property tax and accounting purposes.

Before they can cover a claim, insurance companies typically ask for an independent opinion of value for your FF&E. Take the extra step to protect your business assets with a tangible personal property FF&E appraisal. Even if nothing goes wrong in the move, you will have peace of mind knowing that vital business assets have been appraised at fair market value.

Tags: Equipment Appraisal, machinery appraisal, accredited appraisers, tangible personal property

Making an Equipment Donation? Use an Accredited Equipment Appraiser!

Posted by Equipment Appraisal Services on Mon, Dec 14, 2020 @ 08:00 AM

Equipment Donation Appraisal

When you are considering donating equipment for tax purposes, no matter how much or how little you can afford to give, it usually goes toward a worthy cause and makes you feel good in the process. Many people donate cash while others choose to make a donation of property or equipment.

While giving is its own reward, the IRS also rewards those who make charitable contributions to qualified organizations. As long as you meet certain guidelines and follow basic rules, you will be able to take a deduction on your tax return for the fair market value of your donation.

Claiming a Deduction for Donated Equipment or Machinery

Individuals, partnerships, and corporations are all eligible to claim a tax deduction on their tax return for donated property such as machinery & equipment. If you donate these tangible assets, and believe the value will be in excess of $500, you are required to fill out IRS Form 8283 (Non-Cash Charitable Deductions). On donations above $500, but no more than $5,000, you need to fill out Section A of Form 8283 but likely will not need to provide an equipment appraisal supporting the value. For donations where the value exceeds $5,000, you are required to fill out Section B of Form 8283 and you will need to provide an appraisal.

The IRS does not necessarily think everyone will overstate the value of their donation so they can claim a bigger deduction, but they must be able to document larger transactions using a reasonable process of independently valuing the property. The IRS generally does not question donations under $500, but you should keep records/receipts of all charitable gifts just in case they do. An equipment and machinery appraisal is required on more highly-valued items because the potential to overstate can materially reduce the amount of revenue the agency receives. 

In most cases where you need an appraisal, you do not need to attach it to Form 8283 and submit it with your return. An exception would be if your claimed donation is over $500,000. Keep the appraisal in your records just in case the IRS questions the amount of the claimed deduction.

Who is a Qualified Appraiser?

Equipment value established by an accredited equipment appraiser is more likely to be accepted as accurate by the IRS. An accredited equipment appraiser has the experience, education, and ability to perform an equipment & machinery valuation by following generally accepted appraisal standards. Accredited equipment appraisers are so designated by the American Society of Appraisers (ASA) and are compliant with the Uniform Standards of Professional Appraisal Practice (USPAP).

In summary, do not try to save a few dollars by hiring the cheapest appraiser you can find. You should always look for an accredited equipment appraiser who has the credentials to complete a supportable assessment of your donated equipment values. Using an appraisal company that only hires accredited appraisers is the best way to assure you will receive the best bang for your buck and feel confident that you're receiving the most benefit from donation.

Tags: Equipment Appraisal, donation appraisal, equipment donations

5 Ways an Equipment Appraisal Helps in Getting Financing

Posted by Equipment Appraisal Services on Mon, Nov 30, 2020 @ 08:30 AM

Equipment Appraisal to Secure Financing


Whether you are acquiring a new business, expanding your capital asset requirements or restructuring debt, searching for available financing is a critical part of the process. In any of  these cases, if your operation includes machinery & equipment, obtaining a current asset valuation will be an important step. An equipment appraisal will help document your business' assets, adjust the depreciated values on your balance sheet to realistic market data and assist potential lenders in getting your credit approved.

Here are some other benefits of having a current machinery valuation completed for financial service providers and equity investors:

An equipment appraisal provides verification of your company s existing assets. If you have equipment with existing loans & liens associated with them, the lender/investor can use the information provided in the appraisal to determine how much equity you may or may not have accrued. The appraisal also estimates the current market value of the machinery instead of relying on an internal pre-determined depreciation schedule that likely will not show an accurate picture of your business' financial health.

The appraisal supports the value of the machinery you are purchasing or refinancing. When you are considering used equipment, it can be difficult to find an objective source to assist in understanding the marketplace and how it reflects back on your business . An equipment appraiser is an unbiased third  party, with no stake in the larger transaction, and therefore, is relied upon as a credible service provider by all lending institutions.

An equipment valuation can provide this same information to related third parties such as insurance agents and property tax assessors so that you're receiving adequate coverage and not overpaying your share of taxes. This also assists the lending institutions who want to be confident they are covered in the event of any casualty loss.

Financial institutions also work with government lenders such as the Small Business Administration, who have their own set of requirements for approving loans. If you qualify for these beneficial programs, it is important to ensure you can meet these requirements for a small business loan, whether you are just starting out, expanding your company or to help with a temporary cash flow situation.

By keeping these circumstances in mind, having a machinery and equipment appraisal performed by a qualified machinery appraiser will make your financing collateral review process go much more smoothly. Make sure the equipment appraiser is a member of the American Society of Appraisers and is current with the Uniform Standards of Professional Appraisal Practice (USPAP), which requires certified updates every two years.

Tags: Equipment Appraisal, bank loan, financing