Equipment Appraisal Blog | Understanding Machinery Appraisals

Your oilfield machinery is a primary driver behind the success of your business. You haven’t considered how much your assets are worth in quite some time, however, you now need to update your insurance coverage, obtain refinancing, buy or sell some equipment or even purchase a new company to keep up with growth requirements. Understanding the current market value of your oil and gas equipment is critical for all these possibilities. Obtaining an independent valuation from an experienced accredited appraiser is equally important to you and the other parties involved in the transaction.

Factors Considered in a Fair Market Value of Oil and Gas Equipment

• Physical Deterioration: An appraiser will review the equipment, taking note of its physical condition. The old adage about never judging a book by its cover applies well to machinery appraisals for oilfield equipment. Even if an oil rig looks old and shows visible wear and tear, it is not necessarily an indication of low value. Appraisers will review the history of the equipment with you before making a value determination. Machinery that has been well maintained, with components replaced as needed, regardless of age, will likely still have significant value.
• Replacement Cost: An appraiser will estimate how much it would cost to purchase, for example, an equivalent rig, mud pump, or service truck new, and then deduct from this cost-based typical levels of market depreciation over time.
• Useful life: The appraiser may estimate the useful life of the machinery by reviewing the age, physical condition, and depreciation of equipment. Effective age is typically weighed more than chronological age if the equipment has been well maintained over its life.
• Market Data: The marketplace is where all relevant information is found during the appraisal process. We will look at recent sales and listings while gathering opinions of value from third parties who buy and sell new and used equipment every day.

Appraisers will factor all of these variables into the analysis and subjectively estimate value based on their opinion of the reliability of the data. The appraisal report will summarize this process, explain the criteria under which fair market value was determined, and provide the sources relied upon to support these conclusions.

If you are considering any business plans in the immediate or longer-term future where the value of your oilfield assets is a factor in the decision making, it is well worth the time and expense to engage an independent appraisal company to complete the task. It is important to hire an appraiser who is unbiased and experienced in the valuation of these types of assets. When your business is on the line, never settle for an appraiser who doesn’t have the right credentials or may have an interest beyond appraising your machinery. Equipment Appraisal Services is the perfect place to begin your search.

Whether your business is moving up a floor, downtown, or to a newly renovated home office, your tangible business assets should be accounted for during the process. Personal property appraisals can protect your owned equipment from any loss, damage, or liability resulting from the relocation effort. Learn what these appraisals are and why you should have an accredited equipment appraiser perform a tangible personal property valuation before this important step.

What is Tangible Personal Property?

Originally a tax term, "tangible personal property" refers to any piece of property that can be picked up and moved. “FF&E” is a common catchall term to describe many types of personal property. This acronym stands for furniture, fixtures & equipment and includes office furniture, (filing cabinets, chairs, desks, credenzas), office business equipment (printers, scanners, copiers, computers, servers and related IT assets), and other related assets. The fixtures component pertains to cabinetry, shelving, HVAC equipment, and similar items which, although installed on the premises, might be removable and worth relocating to a new facility. Appraising tangible personal property can also assist your business with insurance, property tax, and internal capitalization for accounting purposes.

While there are several reasons for hiring an equipment appraiser, relocation is an often-overlooked reason to have your tangible business property values updated.

Potential Claims & Uses

If you are working with a moving company, they probably offer liability coverage to protect themselves if they damage or lose your items during the move. One of the mistakes you can potentially make is trusting that this coverage will be sufficient to protect your property. This type of insurance typically covers claims by weight or assessed value, which is vague at best and not for your benefit as much as the movers. They will usually pay only a fraction of the real value of these assets if the liability is on their end. You need to consider your own interests in this scenario. There is also the potential for physical loss liability claims if someone is injured during the move and disruption costs to your business. For these reasons, we recommend obtaining an appraisal of your FF&E personal property so there is a clear understanding of value before your move.

These valuations can be completed by machinery & equipment and personal property appraisers. Personal property is considered a sub-class of machinery & equipment and, therefore, many equipment appraisers have experience with these types of assets.

Once you have the appraisal report, reach out to your business insurance provider and discuss covering your property for the purpose of the move. You can also consider using the report for longer-term insurance needs and other reasons such as property tax and accounting purposes.

Before they can cover a claim, insurance companies typically ask for an independent opinion of value for your FF&E. Take the extra step to protect your business assets with a tangible personal property FF&E appraisal. Even if nothing goes wrong in the move, you will have peace of mind knowing that vital business assets have been appraised at fair market value.

You have spent years building up your business, invested wisely, accounted for risk, and sacrificed a lot to build your company into what it is today. You have groomed the next generation of your family and employees to one day take over the legacy you have created.

If you own a significant amount of machinery & equipment as part of your business, have you accounted for gift or estate taxes in your planning? With the potential liability of these taxes, failing to plan for them can leave your legacy open to unnecessary costs. You can avoid this pitfall by obtaining an accredited machinery & equipment appraisal with signed certification that attests to an objective, fair opinion of value.

Whether you are planning on handing down the business or just need to update the current value of your tangible machinery assets for internal or external purposes, a documented appraisal report will satisfy several needs. It can assist in limiting any disputes in value by those taking over the business, where one family member, partner, or vested employee thinks they are getting more or less than another. If your estate and it’s associated company is being divided up between several people, an accredited equipment appraisal will help determine how all the assets can be equally divided. If you are planning on using a living trust, it also has the advantage of keeping your loved ones out of probate and will keep your accounting and wealth private.

Making Arrangements for Estate and Gift Taxes

When you have a supportable, independent equipment appraisal report in hand, you can then estimate how much these burdensome taxes may be and make allowances for them either through life insurance, business insurance, or by leaving a certain amount of equity available to cover these estate costs.

If you are thinking of estimating these values internally by simply looking for similar equipment online or finding a broker, auctioneer, or other unaccredited third parties to estimate value, you risk not having an objective, reliable report. This may cause concern by those auditing your business for estate tax purposes.

Make sure you employ 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 business situation.

Dealing in the international trade business, you may have a need to carefully document the current value of used machinery & equipment, especially if the bill of sale is not available. How do you support this value to ensure your assets pass through customs. One option is to obtain an equipment appraisal to back up your transaction, however, it is important the appraiser has the accreditation and experience necessary to complete the valuation.

Here are some details on how an equipment appraisal from an accredited or certified equipment appraiser can help provide documentation that will make your customs experience go more smoothly:

To avoid potential delays and troubles with the import & export customs process involving machinery & equipment, considering an appraisal that supports the current value of your assets can go a long way to alleviating this. The appraisal report follows certain methodologies and procedures that are universally recognized, giving custom’s officials a higher comfort level, leading to less scrutiny and avoiding potential delays in clearing the machinery for transit.

The legal paperwork can be overwhelming during the Import and export process, and if not completed properly, can lead to all kinds of delays and additional expenses with customs. With an equipment valuation in hand, completed by an experienced accredited appraiser, supporting the current value, you can resolve many of these situations in a timely fashion.

An accredited or certified appraisal report is better able to stand up to scrutiny than as it is clearly independent and unbiased. Working with a less experienced appraiser could lead to a higher level of scrutiny as the report will not hold up to the accepted standards used in the valuation field. The accreditation and certification process includes instruction in standardized appraisal methodology, and the appraiser signs a certification letter as part of every valuation performed.

When your business deals with machinery in the international marketplace, consider the engagement of an experienced equipment appraiser to assist you in the documentation process. At equipmentappraisal.com, we would be happy to work with you in this endeavor.

The term "fair market value" often comes up when discussing machinery appraisals. Do you know what it really means and why it's important? Find out how an appraiser determines the fair market value of a piece of equipment and why this matters for your company's bottom line. 

Understanding Fair Market Value in Machinery Appraisal

Fair market value represents how much a neutral buyer (i.e. someone who isn't personally invested in your company and who might overpay for that item) would be willing to pay for your equipment, whether you're talking about a bakery oven or a set of bicycle repair tools. 

Fair market value reflects how much the buyer would pay assuming there were no extenuating circumstances. A caterer would pay a lot more for that bakery oven if their oven failed the day before a large wedding than they would pay if time was not pressing. This valuation also assumes that all parties have equal knowledge -- that the seller is not attempting to hide any flaws in the equipment. 

Fair market value may affect the price of machinery installation or transit, notably with large items that must be installed before use.

Why Fair Market Value Matters

Assets are always in a state of flux in businesses: A new piece of equipment comes in and something old goes out. 

Maybe you decide to donate the old equipment, so you can take the tax write-off for dropping off that bakery oven at a soup kitchen that needs an oven. While this is a fine impulse, there is no way that you can write off the equipment on your taxes accurately without knowing the accurate valuation. 

Perhaps you decide to get some return on your investment by selling the old piece of equipment. If you're in a generous mood, you might even get that oven cleaned and serviced, so you're selling something that is clean, ready to use, and reads temperature accurately. What if you found out that your old oven had a very low value and you would not recoup what you spent getting the oven serviced? 

Alternately, maybe you have a favorite tool -- like those bike tools that fit your hand really well. What if there was a break-in at your bike shop and those tools disappeared? Or a fire that destroyed all of your equipment? How could you make an insurance claim not knowing the value of what you lost? 

As these examples illustrate, you can only realize the value of an asset when you know what it's worth -- which is subject to change in time. Without an appraisal of fair market value, you can't realize your equipment's value whether you're looking to sell it, donate it, or replace it. 

You may believe that you can look up the price of equipment online or use the tax documents, which take depreciation into effect. While this is a valid impulse, you can't compare your used equipment to a depreciation table or to the cost to replace the item new. It all depends on how often (and how well) you use the machinery in your work. An oven that's taken care of and serviced annually has a higher value than one that is never cleaned and never serviced. 

If you haven't had your equipment appraised recently, now is the time to get your business's critical assets valued. Find a machinery appraiser that has experience valuing equipment commonly used in your industry, whether it's culinary, sporting goods, or anything else.