Equipment Appraisal Blog | Understanding Machinery Appraisals

Did you know that over one-third of businesses that go through a disaster or property loss never open their doors again? This is primarily due to insufficient insurance or the inability to prove the value of equipment and other assets lost in the event. How do you protect your business against this kind of unexpected problem? An accredited equipment appraisal with a signed certification can go a long way towards ensuring you have adequate insurance to protect against a loss and to support equipment values during an insurance loss settlement.

Involved in an Insurance Loss Claim for Machinery & Equipment? Accredited Appraisals Will Assist in the Process.

Determining Insurance Coverage

When you are buying business insurance, you want to make sure all your assets, including machinery & equipment, are being covered for their current market or replacement cost value. Many people rely on tax return depreciation as a quick guide to appraising it, but the actual value may be much different than what standard accounting depreciation allows.

If the machinery & equipment is overvalued, you may be paying too much for premiums and will not recover the full amount you have estimated during a loss claim. If the assets are undervalued, the insurance company may have concerns that you did not pay for sufficient coverage and not be willing to pay you a fair value for casualty claims. An accredited machinery & equipment appraisal can go a long way to providing proof of value for your assets and assist in determining how much coverage you need.

Dealing with a Loss

When your business suffers an actual casualty loss, during this stressful time, you will want to reach a fair settlement as quickly as possible, to avoid business interruption. Can you prove what your equipment was actually worth? Having support documentation completed by an accredited machinery & equipment appraiser with signed certification helps to prove the real market value and can be utilized in an insurance settlement. The valuation is an objective, unbiased, defendable report that you can present to the insurance company during the claim process.

Even if you have not had a report completed before the loss, appraisers can retrospectively value the machinery & equipment as of the casualty loss date. An accredited equipment appraiser will sign a certification attesting to the value as of the prior loss date. They have the experience and expertise to research the market and make the appropriate adjustments to reflect market value as of the effective date. Make sure the firm employs accredited valuation experts who are members of the American Society of Appraisers (ASA). This ensures they follow the protocols of providing objective, supportable reports that will hold up in any settlement negotiation.

If you're thinking about having equipment appraised, you may have heard any number of appraisal types tossed around. One type of calculation that is commonly used is actual cash value. But what is this appraisal type, how is it performed and in what situations is it the best option to consider? Here's a quick look at these questions and how they apply to your machinery assets.

How is actual cash value determined by a certified equipment appraiser?

When it comes to determining actual cash value, many people are a bit confused over how this figure is calculated. It doesn't help that over the years, the court system has defined it in several different manners. Some people think it's the same as fair market value. Others think that it's replacement cost minus depreciation. Others think it's a hybrid of the two.

But what's the difference between these two approaches? Replacement cost minus depreciation can work in some situations, but not in others. A piece of machinery is lost in a fire, and the cost to replace it is $50,000. Depreciation on the original equipment would have been $5,000, so the equipment is valued at $45,000. Using fair market value, the same equipment may be older and fully depreciated. Using replacement cost minus depreciation may only provide a value of $5,000, but if the equipment was well maintained, it may still deliver years of reliable service. At this point, the value of $5,000 may be unrealistic for replacement in a loss.

Obviously, calculating actual cash value is a difficult process, with contradictory precedents depending on the state where the equipment or company is located and where you're going through legal or insurance issues. Despite the vague definition of actual cash value, many legal, financial, tax and insurance organizations still use it, leading to potential disputes between the customer and the company. Hiring a certified equipment appraiser to provide you with an appraisal report on the actual cash value of your equipment can help your side of the debate. 

In a number of court cases, the report or testimony of a certified equipment appraiser has made all the difference between a poor value and a fair value for equipment. A certified appraiser goes through an extensive educational process that includes learning which appraisal methods are applicable to which situations. Because they are taught proven methodologies that have been tested in legal, financial, insurance and tax circles, the reports they generate hold up well to scrutiny and are considered more reliable and accurate than a number of other sources you may be tempted to use in your situation.

A certified appraiser has the knowledge, experience and ability to help you fight a poor estimate of actual cash value. They've been trained to know in what situations different rules must be applied to determine a fair value for your equipment. When you work with a certified appraiser, you'll realize significant benefits for your machine values.

When you have actual cash value calculated on your equipment, you're gaining good insight into what your machinery is worth. However, if your appraisal isn't performed by a certified equipment appraiser, you may not be getting accurate information or an appraisal report that will hold up in financial, insurance, tax and legal circles. Make sure the appraiser you use is certified to ensure that your documentation will stand up to strong scrutiny in the future.

When we've been discussing equipment appraisals in the past, we've discussed a number of ways in which machinery may be appraised. But one type of appraisal we haven't gone into depth with is replacement cost new. Because it's only used in certain circumstances, it's a type of appraisal that many people are still unaware of. Here's a quick rundown of how it's different and a situation where it's commonly used.

How is replacement cost new different than other appraisals?

When you purchase insurance on your machinery, it's important to know what type of insurance you have in place. Replacement cost is a commonly used variety, but will only cover the replacement of the machinery with similar machinery. This can backfire for many equipment owners, especially when the equipment has been customized to their operation, such as an extruder that has been customized to their exact needs. An insurance adjustor may not understand the find differences between the types of equipment, dragging your claim out.

For that reason, many people will insure their equipment for replacement cost new. When a technical company in North Carolina had an office flood, they lost a significant portion of the equipment in their computer lab. The insurance company didn't understand that the equipment had been bought over time from a number of sources to ensure the company could work with the wide range of systems their clients were using. Because they had replacement cost insurance, they had to fight with the insurance company for many months to reach a settlement, as the insurance company didn't understand the current value of those machines to the business.

In another example, a company had a break in where several key pieces of equipment were stolen. Because they had replacement cost new coverage on the equipment, they were able to get compensation that allowed them to replace the stolen machinery with equivalent new machinery. This made it much easier for the shop to get back into working condition without too much lost production. Some of the machinery was much older, so finding the same equipment used would have been very difficult and very time consuming for the business. Because of the coverage they had on the equipment, they could find machinery that met a minimum set of specifications and be reimbursed for the purchase of that machinery by the insurance company. For example, an old bandsaw used in the shop provided resawing capability at 3 HP could have been replaced with a new resawing 3 HP bandsaw.

The difference between these two businesses is fairly clear. Both lost older machinery that was difficult to replace. However, one spent months trying to prove the value of the machinery in their business while the other merely had to shop for new equipment that met the same needs in the business. This had a huge impact on the productivity of the business and the amount of time the company's owners had to spend on growing the business versus chasing the insurance adjuster's latest numbers.

When you need to make an insurance claim or otherwise need to know the replacement cost new of your equipment, it's important to work with a certified machine appraiser who has experience in your industry. Why? It's important that they know why particular features and capabilities are vital to keeping your operation moving. They also have the knowledge of how to calculate this machine value accurately, which is important to your claim or need when you've had an equipment loss.

Working in metal fabrication can be a tough enough job, with times of plenty and need, difficult work and exacting specifications to meet. But when disaster strikes, it can become even harder to keep your head above water. Whether it's a shop fire, a natural disaster or a theft from your business, it can seem as though you've only gone through one disaster just to deal with another one: insurance company demands for value documentation. Here's some information on how a metalworking equipment appraisal can help you through the process.

Disaster Recovery: How a metalworking equipment appraisal helps you get through

When you have a disaster in your shop, proving the value of the equipment that has been affected can just add to your burdens during a difficult time. Having an equipment appraisal on hand provides you with a wide range of benefits, not the least of which is being able to immediately document the value of said machinery to your insurance company or a court of law, depending on the situation. 

But what if you haven't had the opportunity to get an appraisal performed prior to the loss? You're not necessarily just stuck with whatever the insurance company or court decides to grant you. Certified equipment appraisers are trained to develop equipment valuations in a wide range of circumstances, even when the equipment has already suffered significant damage or has been stolen. By going back to the date of the loss and studying the documentation you have available, an equipment appraiser can provide you with an appraisal report that can document the estimated value of the machinery, which is especially helpful if your insurance company or the other party in a lawsuit is trying to lowball the value of your metalworking machinery.

How does this work? The equipment appraiser will look at your original purchase documents, photos, records of maintenance, repairs and updates made to the machinery and uses that documentation to develop an estimated value for the equipment.

But how is this more accurate than your insurance adjuster's final figure? Equipment appraisers spend all day appraising equipment, often specializing in a particular type of equipment. An insurance adjuster, on the other hand, must determine values for a wide range of items, from houses and medical claims to liability and structures. They don't know metalworking equipment nearly as well as a certified equipment appraiser does.

Though you can wait on getting a metalworking equipment appraisal until after you've had a disaster, having one on hand ahead of time can help speed the process along with your insurance company or court case. But make sure you're working with a certified equipment appraiser who has experience in the metalworking industry. By doing so, your appraisal report will be prepared using standardized methodologies that have been proven to hold up in legal and insurance circles.

Did you know that 25% of businesses that go through a disaster or loss never open their doors again? This is primarily due to insufficient insurance or not being able to prove the value of equipment and other items that were lost. How do you protect your business against this kind of unexpected problem? An equipment appraisal can go a long way towards ensuring you have sufficient insurance to protect against a loss or proving equipment value for an insurance loss settlement. Here's how:

Need an Insurance Loss Settlement? Equipment Appraisals Get You There

Determining Insurance Coverage

When you're buying business insurance, you want to make sure your equipment is being covered for its actual value. Why? Many people rely on tax return depreciation as a quick guide to machine value, but the actual machinery value may be much higher or lower than what the standardized depreciation value allows.

If it's overvalued, you may be paying too much for premiums while not receiving the full amount you've paid for during a loss. If it's undervalued, the insurance company may balk at paying you the full value during a loss because you didn't pay for sufficient coverage. A machine appraisal can go a long way to provide proof of value for your equipment and help you decide how much coverage you need to cover business losses during a fire, flood or other disaster.

Dealing with a Loss

But what about when your business suffers a loss? During that stressful time, you want to reach a settlement as quickly as possible so that you can get new equipment and get back into the swing of things. When you do have a loss, can you prove what your equipment was actually worth? Having proper documentation complete by a certified machinery appraiser available for your insurance company helps to prove the equipment's value and goes a long way in an insurance settlement. It ensures that you'll receive a settlement that is both accurate to your loss as well as speeding up the process. Why? Because a certified appraiser's report uses a specific methodology and approach to determine equipment value. 

But what if you haven't had a machine appraisal performed before the loss? Fortunately, appraisers are often able to go back in after a loss and determine equipment values at the time of the loss by taking a solid look at the condition of the machinery, the market at the time of the loss, any repair and maintenance logs that are still available and similar information. Because this type of valuation is difficult, you'll want to make sure the appraiser you're working with is certified, has experience in equipment appraisal and specifically has experience in post-loss machinery valuation. 

By having a machinery valuation performed before you have a business loss, you can make the insurance loss settlement process go much more quickly and smoothly. But when determining your equipment values, make sure you're using a certified equipment appraiser who has a certification in or significant experience in machinery valuation. Why? Because documentation from a certified appraiser holds legal weight and will hold up in court if your insurance company is reluctant to pay out.