Equipment Appraisal Blog | Understanding Machinery Appraisals

When it comes to expert valuation assignments, a combination of objective independence and subjective opinion must occur to fully analyze the data compiled during analysis to determine a realistic conclusion. This is especially true with machinery & equipment appraisals, as multiple sources are typically utilized, the sum of which provide varying degrees of information.

There is no question that experienced appraisers with certifications and accreditations to their name must be 100% objective in providing their work with no bias or influence from any third parties. This is the fundamental foundation of the valuation industry and cannot be argued against.

That being said, an appraisal is an estimated opinion of value, and opinions are inherently subjective, regardless of the number of sources and documented information the opinion is based on. This is where the experience of the appraiser becomes critical to the reliability of the value assessment itself.

Taking this a step further, the source material an appraiser researches, reviews, and relies upon will likely have potential gaps, flaws, or opinions tied to the data, which the appraiser must make sense of and determine how best to correlate the information into a final conclusion.

In the machinery & equipment markets, data will be available in the form of listings, databases, and third-party opinions from those that manufacture, buy and sell in the industry. Depending on the commonality of the equipment, this will either be in abundance or in a more limited capacity and in either case, should be considered and weighed. Industry benchmarks and trends, such as those published in the Bureau of Labor statistics, news articles, and related sources, are other points of reference.

All of this data cannot be taken at face value for any number of reasons. Are the available listings consistent and reasonable? Are the database sources full of gaps from a lack of prior sales data? Are the opinions from third parties biased in their own right? Do industry trends focus directly on the equipment being valued?

It is eventually the appraiser’s role to sift through all this information and arrive at a common sense conclusion using their own experience and ability to put the pieces together, many of which may not be a perfect fit. This process is what separates the established valuation experts from the rest of the pack. Subjectivity will always be a component of an appraisal, regardless of the number of sources you rely upon. Being able to establish confidence and credibility with your opinions, thus making them valid and supportable, is one of the most important roles of a professional appraiser.

Those unfamiliar with the methodologies and approaches equipment appraisers utilize in their work, commonly believe we are very similar to accountants, who analyze data and perform calculations to arrive at a factual conclusion. While there is certainly some mathematical analysis involved in an equipment appraisal, the ultimate conclusions opined on have a degree of subjectivity given the incongruities often found in the available information uncovered.

Even an asset as straightforward as a truck or trailer can have any number of differing market opinions and comparables to review and consider, before ultimately determining a reasonable value.

A more appropriate example would be that of a jigsaw puzzle, where several of the pieces don’t quite fit. The pieces come from three typical buckets of historical and current information, including (1) secondary market comparable sales and listings; (2) estimated replacement cost new, opinions on useful life and average market-derived depreciation; and (3) specifics on the actual machinery being appraised, such as historical costs, specifications, usage, hours/miles, and maintenance.

All of these three areas should be researched and considered as part of the build-out of the puzzle. However, given the potentially large amount of information compiled from these buckets, there will always be pieces that need to be adjusted in order to make sense of the overall picture. I have found it is rare when it all fits together perfectly and, therefore, the final conclusions of value require some subjective decision-making on the part of the appraiser.

This is where experience, common sense, and practicality all make a difference in the final steps of the analysis. A+B+C will not always equal D and is not just a straight-line calculation. Quite frankly, this is a primary reason experienced appraisers are utilized in business transactions and is what separates a really good appraiser from an average one.

The ability to take a step back and make sense of all the information to ultimately conclude on value is a nuanced effort that should be supported by reasonable logic. When you place the last pieces and see the complete puzzle, there may be a few gaps and some bent edges, but the overall picture is clear enough to make sense of it all.

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.