Equipment Appraisal Blog | Understanding Machinery Appraisals

Starting your own equipment appraisal company can be a rewarding and profitable venture. Becoming an independent business owner allows you to control your career while offering a valuable service to businesses and individuals. Here are some things to consider if you’re thinking about owning and developing your own appraisal business.

Equipment appraisers estimate the value of machinery, vehicles, and many other tangible asset types, with the main exclusion being real estate. The primary purposes for engaging with an equipment appraiser include buy/sell, accounting/tax, leasing/financing, donation, insurance, and litigation support. Clients will include banks, insurance companies, business owners, CPAs, and attorneys.

Obtaining a certification or accreditation from a reputable organization such as the American Society of Appraisers (ASA) or the International Society of Appraisers (ISA) is a critical step to gaining the experience and credibility required to attract clients.

The equipment appraisal industry is broad, covering virtually any type of tangible machinery. Specializing in a particular sector might help you stand out and attract certain clients; however, gaining experience across multiple industries will create more opportunities for business.

Consider having a minimum of 15-20 years of experience applying your skills within a larger organization before venturing out on your own. When you think you are ready, decide on a legal structure for your business, whether it be a sole proprietorship, LLC, or corporation. Formally register the company and complete all the necessary documentation.

Building a strong online presence through a professional website and social media can help attract clients. Networking with financial institutions, law firms, and business brokers can also lead to valuable referrals.

Have an understanding of reasonable fee structures and create boiler agreements and reports that will apply to any appraisal engagement. Stay updated on industry trends and take continuing education courses. Consider joining relevant associations and attending networking events to connect with potential clients.

Litigation support and consulting work, including expert witness services, can be a lucrative area if you have the right amount of experience. Research the right online sources to list your bio with.

Developing and owning an equipment appraisal business is a challenging venture. However, if successful, it will offer many rewards, including complete latitude, flexibility, and future financial independence. You can establish a thriving business by developing expertise, building a strong network, and leveraging technology. With dedication and strategic planning, you’ll be well on your way to becoming a trusted expert in the field of equipment appraisal.

We are often approached by clients who are trying to settle an insurance claim involving machinery and equipment, most frequently in the trucking and construction industries. The determination of an accurate value is critical, especially if the asset is determined to be "totaled" by the insurance company and the need to replace the equipment is immediate and mandatory. This is where the expertise of equipment appraisers becomes invaluable. Their role ensures fairness, transparency, and efficiency in the settlement process.

Insurance companies typically employ adjusters who have some experience valuing machinery and personal property. However, there is often a dispute between their determination of value and what the owner believes is a fair price. An accredited equipment appraiser with significant experience can enter the situation and provide a supportable analysis and detailed report that can be used to facilitate the settlement. Whether it is construction equipment, semi-trucks, trailers, manufacturing equipment, or any other tangible productive asset, an accredited appraiser will develop an unbiased assessment supported by the market and cost approaches to value.

An appraiser assesses the equipment's specifications, replacement cost, age, and market trends to determine fair market value. This helps policyholders receive appropriate compensation and can also assist insurance companies who may believe they are overpaying on a claim. The appraisal reports will serve as additional evidence during the claim settlement process, streamlining negotiations between insurers and policyholders.

In cases of disagreement over the equipment's worth, appraisers act as neutral experts. Their evaluations are often used in mediation or arbitration, helping to resolve disputes quickly and fairly. Valuing equipment requires an understanding of both the sales comparison approach and the cost approach to value. For example, more custom-built machinery or highly specialized machinery might not have clear market comparisons. An experienced appraiser can navigate these complexities and provide accurate assessments relying on both of these approaches and weighing the data accordingly.

In summary, equipment appraisers can play a pivotal role in insurance claim settlements. Their impartial evaluations ensure that both policyholders and insurers can reach fair agreements, minimizing disputes and delays. Engaging a qualified appraiser early in the claims process can save time, reduce stress, and lead to a more satisfactory outcome for all parties involved.

By blending their experience, education, and knowledge of the methodologies available to consider during a valuation, accredited equipment appraisers can be essential in ensuring smooth and equitable claim settlements.

If you run an appraisal practice and don’t have enough employees to handle all of the responsibilities, or if you simply want to cut back on your workload, hiring a subcontractor might be an affordable and effective option. Consider them as an alternative to expanding fixed overhead that might be only a temporary need or a more permanent way to bridge a gap in staffing. Subcontractors can save you time and excess costs, in comparison to other options.

If you run a national practice, one of the areas where hiring subcontractors might be a good choice is field work or site visits. Some inspection companies have local contacts across the country in every state and major city that you can hire to gather photographs and additional asset information during the appraisal process. As long as you work closely coordinating scheduling and ensuring the inspection directives are clear, this may end up saving you time and money in comparison to driving for hours or flying out to the facility yourself.

Another area where subcontractors might assist you in your valuation is with industry experts who can provide supporting research and reliable opinions of value to bolster your report. If you’re working on a project where the equipment has a limited secondary market or data is hard to come by, it might be worth it for an expert in the field who buys and sells the machinery to provide you with a written summary opinion that contains the details necessary to solidify your value estimates.

Before you commit to engaging with a subcontractor, take a long look at the overall scope of work and the larger transaction involved with the appraisal. With fieldwork, ensure you are advising your client that you will remain the primary contact throughout the process and that the valuation analysis will be your work product. Advise them the inspector does not have valuation experience but is qualified to work with them to gather photos and complete a basic inventory validation with the asset listing provided.

There will be projects where you feel the only way to accomplish the fieldwork properly is to visit the site yourself or to send one of your employees, so pick and choose the projects as you see fit.

Industry expert subcontractors may come in particularly handy if you are working on a legal case where you could end up providing your report to the courts in an effort to facilitate a dispute. Judges will tend to rely more on valuations that are supported by multiple sources, and having one or two written supplemental opinions will bolster your work product.

In summary, subcontractors, if vetted properly and chosen for the right projects, can be a useful tool for equipment appraisal professionals.

After almost 40 years of working in the machinery and equipment markets, I find it fascinating how so much has changed but many things remain the same. Whether it involves financing and leasing, asset management, buying and selling, or independent valuation, the methodologies and mechanics of these industry sectors working together to be successful have been consistent for decades.

From an appraisal perspective, you don’t need to be an expert in any one type of market or industry to estimate value effectively. The principles and methodologies learned and practiced within the M&E appraisal profession do not change as the asset types vary. Gaining experience and developing a sound and supportable technique for appraising is the key to becoming a well-regarded appraiser.

Here are a couple of topics to think about that might help you along the way as you continue to develop your valuation skills and expertise:

Initial Information Gathering:

Obtaining the details behind the equipment you are appraising is a critical first step in providing a credible appraisal. Variables such as the year, make, model, serial number/VIN, hours/mileage, original cost, and any relevant specifications and documentation are all important to obtain. Communicate with the current owner to gain a basic understanding of the history of the machinery and gather any detailed itemized listings and support data that might be available.

Gather a Broad List of Sources

During the research process, try not to put too much weight on any one source when it comes to estimating value. Multiple perspectives from varied market sources can provide you with a balanced amount of information that you can review to ultimately form your own opinion. Remember that this is your appraisal, not simply a parroted version of someone else’s.

Don’t Rely on One Approach

From my experience, it is beneficial to consider and weigh the appraisal from both the Cost Approach and Sales Comparison Approach. Regardless of how much resale data might be available for any piece of equipment, it is also beneficial to understand the new replacement cost, useful life, and typical market levels of depreciation and obsolescence that occur with machinery and equipment. Combining the elements of both approaches can create a check and balance type system for your analysis and provide a sanity check to all the data gathered.

Like anything else in life, experience is gained by doing, and each year you can continue to hone your skills to become a better equipment appraiser.

Many experienced and credentialed appraisers augment their services as expert witnesses in litigation matters such as prolonged business disputes and personal divorce cases. Working with clients and their attorneys leading up to a possible trial is common practice for valuation firms; however, these cases are often settled before testimony is required.

If the litigation does reach trial or arbitration, there is the likelihood that testimony will occur either during the trial or before, in a deposition format. As an expert witness, before the pandemic, it was generally a requirement to attend these hearings in person, which involved additional time and costs for travel and sitting in court waiting to testify.

Over the last 2+ years, there has been an abundance of “catch-up” work by the courts and attorneys given the delays in advancing cases during the pandemic. As a result, a high number of valuation assignments associated with these cases have moved to deposition or trial, creating an increased level of requests for expert witness testimony.

Fortunately, the opportunity to testify remotely online has allowed appraisers to avoid spending inordinate amounts of time traveling around the country to attend these in person and then having to sit idly waiting for their turn to appear as a witness.

One of the few silver linings associated with the pandemic was the widespread acceptance of a remote work model, which includes a significant amount of communication handled through an online format, such as Zoom or Microsoft Teams. This has now become commonplace for expert witness testimony and, as a result, has allowed appraisers to provide this service more affordably to their clients.

Based on my own recent experience, this process has by and large been successful, and the likelihood of creating a more permanent change to include remote testimony options at trial and deposition will continue to develop in the long term.

Like many other industries, technological advances over the last 15-20 years have played a significant role in creating efficiencies for appraisers to manage their workload and grow their businesses to new levels without spending a lot of additional time and expense to accomplish this. The opportunity created by remote expert witness testimony is one of these critical areas of advancement, and appraisers should take advantage of this as much as possible.