Equipment Appraisal Blog | Understanding Machinery Appraisals

When an appraiser estimates value, they must do so under an assumed premise that relates to the type of transaction being undertaken and the potential outcomes of an impending sale. Premise of value is one of the most critical components of an equipment appraisal given the different assumptions each premise represents and their material differences.

Each value premise must be defined in the appraisal and can reasonably be tied to a typical market transaction, such as a user-to-user sale or an auction liquidation. The most commonly referred to premise is Fair Market Value, which is utilized in many standard business agreements when the need arises to assess value for any purpose. The American Society of Appraisers defines Fair Market Value as follows:

Fair Market Value is an opinion expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts, as of a specific date.

There are variations to the Fair Market Value premise, including assumptions for installation and continued use, which typically drive higher levels of value given the additional considerations involved. The important factor to understand with Fair Market Value is that it represents the most equitable transaction for both parties, where neither the buyer nor seller have an advantage. Each party is equally willing to transact and knowledgeable of all the facts.

In the open resale marketplace, this may not always be the case, therefore, other premises of value are considered, including Orderly and Forced Liquidation. These definitions add the factor of compulsion on behalf of the seller, with more limited time to sell a key factor. These premises are appropriate to consider with an inexperienced owner or if a company goes out of business. There may be a reduced level of control over the sale by utilizing a third party, such as an auctioneer, to liquidate the assets. This is the foundation for Forced Liquidation Value.

Liquidation premises of value are commonly reviewed by banks and other lenders who want to consider the possibility of having to step in and resell the equipment if their borrower defaults and they end up taking possession of the assets. They are not in the business of buying and selling machinery and may involve an equipment dealer or auction company to manage the logistics of a resale effort.

These liquidation premises will obviously drive a lower estimated value for the machinery & equipment. How much lower will depend on the type of equipment and the state of the resale market, among other factors. Consult with an appraiser to better understand these differences.

Many businesses rely on the use of heavy equipment to produce the products and services they sell, such as earthmoving, truck transportation, building construction, and all types of utilities, energy, and manufacturing companies.

In certain instances, the value of the machinery is the most significant component of the balance sheet, and can even be greater than the annual revenue of the business. If you own or are considering investing in a company with this type of profile, understanding the current market value of these underlying assets is as important as reviewing historic and forecasted financial statements.

To effectively measure the overall value of a business, one should consider breaking it down by the prominent asset types, both tangible and intangible, which translates to the need for an independent appraisal for each of these areas.

It would be careless to rely on the company's internal accounting records and policies to measure the value of their machinery & equipment, as they generally utilize accelerated depreciation rates to amortize the capitalized cost as quickly as possible.

If the company has a high content of expensive, long-lived machinery & equipment with an average age of over 5 years, there is every chance that the market value of these assets is much higher than the net book value recorded by their accountants. This variance can be monumental, even for small businesses with lesser sales volume.

For example, a company with $20,000,000 of capitalized machinery and equipment could effectively depreciate the entire cost over 5 years, realizing a net book value of $0 after 60 months. If these assets are used in manufacturing or construction, the likelihood is they will have a normal useful life range between 10-20 years, as long as they are well maintained.

Based on this generic scenario, it’s not unreasonable to estimate the market value of these assets to be $10,000,000 or higher, if the equipment is still relatively young, and in good operating condition. The appraised value of the company’s equipment would then be utilized as a part of the overall business valuation, instead of $0. One might say that is a difference worth determining!

Whether your targeted company is heavily reliant on tangible machinery equipment or not, it is always a prudent decision to obtain an updated Fair Market Value appraisal for these assets to effectively measure their true worth

Image source: Aqua Mechanical on Flickr license

I have heard and used this phrase many times over the years when people are discussing the topic of quality vs. price in both everyday life and business. It is a commonplace belief that the more you pay for something, the better the product or service will be. While there are always exceptions to this axiom, where services are concerned, the fact is that higher quality costs more since it requires experience, integrity, and expertise.

I have personally learned this to be true from my experiences working with sub-contractors, landscapers, tree care companies, accountants, attorneys, even my personal and pet groomers. From a consumer product perspective, it is more of a challenge to compare price vs. quality, given the broader competitive marketplace. There are many reliable, less expensive options out there, however, you should still consider paying a bit more to get the best quality for your hard-earned cash.

The bottom line is twofold:

Make the decision ahead of time that you want the best there is to offer and; research potential candidates to fully flesh out who can deliver as promised.

As machinery & equipment appraisers with decades of experience and the best accreditation the industry provides, we know the cost to engage with us will not be the least expensive option when you are in need of valuation services. We lose out on some opportunities every day because our cost structure will never compete on price with less experienced appraisers who lack the credentials and ability to provide a quality service and product which, ultimately, will be deemed unreliable to both you and any third parties involved in the transaction.

In all markets and industries, both personal and business, these high-to-low-end service options are available to everyone.

In the valuation industry, the “get what you pay for” difference revolves around working with a machinery & equipment appraisal firm that is extremely responsive from beginning to end, and becomes a partner who best understands your goals in the overarching problem being solved. From the scope of work discussion to engagement, to report delivery and consulting, these products and services are of unparalleled quality when compared with any other option out there.

Once you have determined this type of relationship is the one you want to be involved with, please reach out and let us know what we can do for you.

It may be an anomaly brought about, in part, by the pandemic, or it might just be a coincidence. The fact is that we are seeing a lot more divorce cases happening in 2021 than in previous years. As a result, requests for valuation services in this arena have been on the rise.

Equipment and business appraisers have been busy working with divorce attorneys and their clients, as the age-old dispute between separated spouses revolves around a fair separation of assets. When both parties are co-owners in a business, there is going to be a need for an independent appraisal from an experienced valuation firm, which can look to assist in facilitating a settlement. If the shared business includes significant tangible assets, such as construction and manufacturing machinery, trucks and trailers, or any type of personal property, the need for an accredited machinery and equipment appraisal will be important. A certified business appraiser will then consider these tangible values in their overall analysis.

Appraisers act as unbiased neutral parties, providing a fair market value for your equipment and associated business. The intention is to put to rest the concerns either party may have in regard to prior assumptions or discussions on their company’s worth.

In certain cases, both sides in the divorce will engage their own appraisers with the potential for arbitration or litigation to determine the most credible report or allow consideration to both valuations if they are not too far apart. Regardless of the circumstances, it is important to engage with an accredited or certified appraiser with the experience and credentials to effectively assist in the process.

If the business is still operating and in decent financial shape, the Fair Market Value of the assets would be the appropriate measurement level. If the company has been recently idle, or there are plans to close up shop in the very near future, a liquidation premise may need consideration. Ideally, both parties are on the same page with the overall process, however, if this is not the case, the party who engaged the experienced appraiser should have an advantage in the ongoing proceedings.

Understanding all that is involved during a divorce, including the need for an accredited or certified equipment appraisal can ensure you are receiving the best settlement possible.

When your medical practice is doing well, it can be tempting to upgrade your machinery or open a new location. But how do you know if that move will be a good investment or a bad risk? Medical equipment appraisal can provide you with the information you need about some of your practice's most expensive assets to help you make an educated decision on these types of issues. Here's more information on how it does this.

How Medical Equipment Appraisal Helps Support Your Bottom Line

How much is your medical equipment worth? You might be surprised just how far that number can vary. When you've got an equipment sales rep in the office, they may say that it's worth very little, especially compared to their latest model. On the other hand, they may say it's worth a great deal, especially when they're willing to accept it as a trade in on the same latest model. Neither number is necessarily an accurate assessment of the machinery's worth.

Looking at what similar models have sold for may not give you a good picture either. How well were those machines cared for? Was the industry in a strong or weak cycle when they were sold? Is there demand for that equipment in the industry because of new techniques or practices? There are a number of different factors that can impact your equipment's value. Working with someone who understands these different factors can make all the difference in determining your equipment's actual value.

Imagine if you had a piece of equipment that had been ill maintained over the years or had been damaged in a flood or fire. It still operates, but not as well as it should, or it's probably going to have a shorter useable lifespan than expected. What happens when you use a standard depreciation table in a tax document to depreciate value? The depreciated value will be stretched out over a longer period of time than the machinery will remain in usable condition. This means it remains on your books as an asset even when it actually has no reasonable value.

Another piece of equipment could be very well maintained. It's always had proper maintenance and has been used within its specified parameters, ensuring that it's in excellent conditions. It can deliver productive results for your practice years after it's been fully depreciated. That means it has no value in your balance sheet, but provides real value to your practice on a daily basis. The first machine creates false value, while the second isn't recognized for the value it delivers. This can create inaccuracies in your balance sheet and make it difficult to make smart financial decisions based on your practice's asset worth.

By getting a medical equipment appraisal, you can ensure that you have a much better idea of where your practice sits financially. With this information in hand, you can make smarter decisions on new investments, whether it's to open up a new location or upgrade your assets to allow for further services for your patients. However, if you're not working with a certified equipment appraiser, you may be getting bad information. Certified appraisers follow accepted practices to ensure they provide you with accurate values for your medical equipment.