Equipment Appraisal Blog | Understanding Machinery Appraisals

Intended Users and Specific Purposes For Valuation Assignments

Posted by Equipment Appraisal Services on Mon, Mar 21, 2022 @ 07:00 AM

Machinery and Equipment Appraisal Report Used In Future Litigation

Accredited and certified appraisers are responsible for certain hours of continuing education to maintain their credentials. As part of this perpetual training and learning experience, there are numerous requirements we adhere to that pertain to each valuation assignment and scope of work effort. Two of these important prerequisites dictate that every report must have a specific use or uses, as well as defined intended users. If the client uses the report for another reason or discloses it to parties unnamed, this is a violation of the engagement terms.

Here is a great example of why this is important to an appraisal assignment.

Potential Future Business Disputes and Litigation Unrelated to the Prior Valuation

Let me preface this by saying there are many instances where an experienced appraiser will be engaged to value businesses, machinery & equipment, personal or real property, as an independent expert, in support of an existing dispute or ongoing litigation. This is one of the primary reasons to engage with an appraiser, to facilitate a settlement, or in support of a trial or arbitration.

There are times when, months or even years later, the client who originally engaged the appraiser for a completely different purpose, such as a sale, purchase, or refinancing, is involved with a future dispute that leads to litigation. Somehow, the old appraisal gets drawn into the case, likely, because the value of certain assets has become a factor in the dispute. Lo and behold, the report is now being thrown around the courts between opposing sides of the case. The appraiser is ultimately dragged into the conflict, unwittingly, and is being asked to present confidential data, and potentially be subpoenaed or testify at a later date.

As long as there are clear statements in the engagement agreement and report regarding the intended purpose and users for the valuation, in addition to a clause addressing client confidentiality, the appraiser is protected from involuntarily being dragged into the proceedings.

The prior client and appraiser need time to directly discuss the case and the reason why the original valuation report might be used. During this discussion, it should be determined who may be involved in engaging the appraiser for what is now considered a new consulting and updated valuation assignment. I’m highlighting this phrase so it is clearly understood, there needs to be a professional discussion between the prior client, attorneys and courts involved, so the appraiser can be comfortable that:

  1. There are no potential disclosure issues involved.
  2. They are the ones allowing (or disallowing) the prior report to become part of the case.
  3. They are entering into a new engagement with the appropriate parties to present any data related to the prior work, begin a new consulting assignment, and/or update the report.

This is the appraiser’s work product, and there are obligations and privileges which need to be recognized by any and all parties now involved with the litigation dispute. Any future work requested should be compensated by the new clients, based on the current rates of the appraiser.

In summary, documentation requirements required by the governing appraisal bodies, such as intended users and report purposes, are important for the appraiser and their clients to understand so any future developments are handled professionally and sensibly.

Tags: Litigation, appraisal report, Machinery & Equipment Appraisals, best practice

Dealing with Divorce: How an Equipment Appraisal Can Help

Posted by Equipment Appraisal Services on Tue, Mar 29, 2016 @ 10:00 AM


Divorce is almost virtually never a simple process. When people who shared their lives decide to leave a marriage, it's natural for each party to want what's best for them. When it comes to dealing with equipment values, having a professional equipment appraiser provide a machinery valuation helps ensure everyone gets a fair share of the business. Here's why.

Dealing with Divorce: How an Equipment Appraisal Can Help

  • Equipment values are different that that of home, auto or cash item values. While it's much easier to identify the value of common, everyday items, machinery values can have a range. This range can be manipulated by one party to ensure they're getting a better deal than the other party is receiving. This often plays out that the leaving partner wants a higher amount of the business than the remaining partner is willing to sacrifice out of concerns for whether the business is able to remain solvent. Which ever side of the divorce you're on, having an equipment valuation performed by a certified machinery appraiser means the value will be determined in a way that is fair to everyone.
  • You need to meet legal requirements. Though there are a wide range of appraisal methods that can be used on business equipment, the court system often limits the methodologies that can be used to determine equipment value when dealing with the dissolution of marriage. The most common methodology is determining fair market value, which takes a wide range of changing factors into account, to determine a value that is fair to both sides of the dissolution if the business is to remain in operation.
  • But what if there's a push for one partner to get out of the business? In cases like this or when the equipment needs to be sold quickly so that both parties can receive their appropriate profits, fair market removal may be used.
  • If a situation is in place where both parties want out of the business and need the money quickly to start their lives over, they may be willing to settle for liquidation value, which provides a significantly lower value for the machinery, but tends to produce a solid cash value for the equipment which would then be split equitably among the parties. Though this is a rarely used technique, it is still in place in many no-content divorces and similar situations where neither party is remaining vested in the company's interests.
  • Certified machinery appraisers can work from a variety of positions. They can be hired by one spouse, the other spouse or by council. They can also work for both spouses, helping both parties reach an equitable distribution of the business value. Because divorces often demand a certain amount of testimony, make sure your appraiser has experience working in that type of situation.

Divorce can be a messy process, but equipment appraisals helps make sure everyone's interests are addressed during the process. If you haven't had the chance to speak with a certified equipment appraiser, we're here to help.

Tags: Equipment Appraisal, Litigation, divorce appraisal

Reasons for Retrospective Appraisals

Posted by Equipment Appraisal Services on Tue, Feb 23, 2016 @ 10:00 AM


Oops! When you've made a donation, are involved in litigation or have had an insurance loss, there's nothing quite as concerning as realizing that you needed to have equipment appraisals performed after the fact. How do you fix this problem? In this article, we'll discuss retrospective appraisals and how they can help you get the documentation you need to fix these troublesome problems. Here's how:

Documenting Donations

One of the most common areas where retrospective appraisals are used is in donations to non-profit or not-for-profit organizations that were not properly documented at the time. Especially when you're looking at taking a tax break for the donation, you need to have documentation to take the deduction. If the documentation was not prepared at the time of the donation by an equipment appraiser, it can be really difficult to otherwise prove the value of the equipment you donated. But at the end of your business year, your accountant informs you that they need you to provide supporting documentation for your donation. If you're stuck in this bind, you can still save the deduction by having a retrospective equipment valuation performed by a qualified machinery appraiser.

Proving Litigation

Another area where retrospective valuation can come into play is in litigation. One example of this is when going through a divorce where you need to buy out your spouse's interest in the business or prove that you're not hiding assets. Your spouse  may claim that you're undervaluing equipment that you've sold to keep things solvent while the transition is underway, because they want to get everything they can out of the buy out. A retrospective equipment valuation helps prove that your equipment was worth a particular amount prior to being sold, documenting that you were not hiding or undervaluing business assets.

Insurance Loss

When you've suffered a loss that sets your business back, it's upsetting when you realize you don't have documentation of your equipment values. Whether you're dealing with the fallout of a storm, a fire or a theft, documenting the value of your equipment is a vital part of the claim process. If you didn't have a machinery valuation performed ahead of time, you may be having a difficult time proving what the equipment was actually worth, especially when the equipment was customized or has unusual features that your insurance adjustor isn't familiar with. A retrospective machine appraisal helps prove the exact value of the machinery when the loss took place.

Tax Issues

What about when you're dealing with a tax agency? Equipment can lose value quickly at times, especially if it is in a struggling industry or when technology quickly changes. When a tax appraiser doesn't have a solid grip on the value of the machinery you own and just uses accounting depreciation, it's difficult to prove your side of the appeal without documentation. A retrospective valuation helps prove that the machinery was worth looking at market conditions, the condition of the equipment and similar elements that affect your machinery's final value.

If you find yourself needing to do the time warp to prove equipment values, a retrospective equipment appraisal can help document past value. At Equipment Appraisal Services, our job is helping you document equipment values, even after the fact. Please contact us today for help with your retrospective machine appraisal.

Tags: Litigation, Insurance Loss, donation appraisal, retrospective appraisals

Understanding Insurance Property Loss Equipment Appraisals

Posted by Equipment Appraisal Services on Fri, Jul 25, 2014 @ 04:59 PM

equipment appraiser resized 600

As accredited machinery and equipment appraisers, we are often contacted by insured companies/individuals and insurance companies when property losses have occurred.

To make sure you understand the two parties and how they relate, the insured is the person or business entity that owns an asset that is covered by an insurance policy. The insurer is the insurance company that pays to the insured for a covered loss.

First, there are a number of reasons that a loss may occur that may trigger an insurance event. While there are numerous reasons, the most common are fire, theft or weather damage. These losses often are not the result of something that the insured had done in negligence.

Second, there are various types of policies and coverage that individuals and businesses can obtain. The two most common types of coverage would be that the insured receives the Actual Cash Value (ACV) of an asset or the Replacement Cost Value (RCV) of the asset.

It is extremely important to understand that these two types of value are not the same.

For example, let’s assume that a manufacturing company purchased a new CNC Horizontal Milling Machine that cost the company $550,000 in 2012. Let’s also assume that due to the current market, inflation, etc., that the cost of the equivalent replacement machine in new condition would be $600,000 in 2014.

Now let’s also assume that the company had a fire in part of their manufacturing facility at the beginning of the summer of 2014. If the insured had a policy that paid at time of loss the equivalent of the Replacement Cost Value, the insured would receive a check for $600,000 so that they could go out and purchase a new machine to replace the one that just went up in flames.

However, if the insured had a policy that paid the Actual Cash Value (ACV) of an asset, then the insured is likely to get a check that is much less.

As appraisers, this is where we are typically pulled into the fold for a machinery and equipment appraisal. Our job as an appraiser is to provide an unbiased opinion of value based on our research of what the subject machine would have been worth minutes before the fire. This means that we would be valuing the CNC machine as a two-year-old machine in used condition. There would be research completed to try to understand the condition and usage on the machine prior to the fire. Since claims often take time to process and sometimes are in dispute for months (or even years), we have to research what the values were at the time of the loss, making them retroactive appraisals.

We all have heard the saying that once you drive the new car off the lot, it depreciates instantly. This often happens to other machines as well. From an appraisal perspective, the insured is only going to get a percentage of what a replacement machine would cost since the machine is in used condition. For illustration purposes only, let’s assume that this specific machine lost 20% of what the insured paid for the machine new in the first year, and then another 10% off of that amount in year two. Doing the math, the machine would have been worth $550,000 x 80% = $440,000 after year one and then $440,000 x 90% = $396,000 after year two. The insured in this example would receive a check for $396,000. Unfortunately, this company would have to go out and buy a new replacement machine at $600,000 to continue operations.

From this illustration, you can see that it is important for a business owner to have a good understanding of their insurance coverage. Though the insured likely paid higher premiums to receive coverage at the Replacement Cost Value level versus the Actual Cash Value level, a company that may have been financially solid at the initial machine purchase could have difficulty receiving credit to purchase a machine two years later when they need to come up with the difference between the amount received from Actual Cash Value and the new Replacement Cost Value.

As individuals or business owners, we often painfully write these checks to insurance companies for our coverage. However, understanding your coverage options and selecting the one that is right for you, might be the difference of your company’s survival.

By: Kipp A. Krukowski, Managing Director, Equipment Appraisal Services

Tags: Equipment Appraisal, Litigation, Expert Witness, Insurance Loss

Equipment Appraisals for Divorce Litigation Purposes

Posted by Equipment Appraisal Services on Sun, Jan 05, 2014 @ 07:18 PM

equipment appraisal divorce litigation resized 600Business assets are treated much the same way as personal assets when going through a divorce.  An equipment appraisal will be necessary to determine the fair market value of the equipment.  When dividing assets there needs to be a method for determining what value you are dividing with your spouse. The court accepted method is to have an appraisal of the business assets completed by a certified appraiser, which will establish what value will be used when distributing the assets. An equipment appraisal will be a means of proving the true value of the tangible assets and provide a solution to conflicts that may arise.
An appraiser will gather information about the equipment at the business in much the same manner real-estate appraisers record information to be used in determining the value of your home.   The appraiser will go to the business location(s) and record make, model, serial numbers, as well as condition of all items to be appraised.  This information along with a series of pictures taken of the equipment will be used to research and determine a current fair market value.  At times, the appraiser will also need to determine orderly liquidation and/or forced liquidation value.
All relevant parties can mutually agree to use a single equipment appraiser or work with separate appraisal companies.
Parties need to be careful on the appraiser that they select for the valuation.  If the appraiser is not a certified appraiser conducting the research and report under the Uniform Standards of Professional Appraisal Practice (USPAP), there may be a number of flaws in the courts eyes.  If the appraiser is a dealer with the ethical requirements of reporting unbiased opinions of value, then the opposing attorney will have a field day during cross examination.  Also, if the appraiser does not have experience in testifying in court, then there is the possibility that they will not maintain their cool or provide thorough responses to questions about their work.  Though experienced and credentialed equipment appraisers who provide expert witness services will often be more expensive than others, their fee is typically a fraction of the overall value of the business assets.  As the saying goes, you typically get what you pay for.

Tags: Equipment Appraisal, Divorce, Litigation, Expert Witness