Equipment Appraisal Blog | Understanding Machinery Appraisals

Why Professional Equipment Asset Appraisal Helps With Bias

Posted by Equipment Appraisal Services on Wed, Jul 22, 2015 @ 10:30 AM

asset_appraisal

There are a number of reasons why you may be considering selling your industrial or specialized equipment. Regardless of whether you're upgrading your work floor, getting estimates for a new insurance policy or loan collateral, or moving towards an equipment auction or liquidation, accurate machinery valuation and asset appraisal is vital. Machinery and equipment appraisal isn't a simple matter of looking up a similar product the way one might a rare baseball card, there are a lot of questions that even a seasoned operator can't answer with clarity:

  • How much has wear-and-tear affected the value?
  • What is the market demand for similar pieces?
  • How much are similar used machinery pieces selling for?

Simply put, those that use machinery know how it operates, what parts it uses, and perhaps even how to maintain or repair it - but pinpointing equipment values that will hold up as collateral or that will pique interest in the open market is another matter altogether.

A Quick Sale at the Right Price

You know that your equipment value incorporates these facets, but "taking a guess" or estimating when you're ready to sell can either leave your machinery languishing on the market with an unrealistic price tag or sold with a huge cost to your company in missed profits. Working with professional equipment appraisers mean that you'll receive documented equipment appraisals that can be referred to in sales listings and prevent a your negotiated prices from dropping below where they should. While your own estimations may be honest and well-meaning, an equipment appraiser is a professional, neutral third party and thus lends the negotiated starting point more credence.  

Peace of Mind, In Writing

Business can be fickle, and loan applicants are forced to jump through more and more hoops to secure funding for new ventures. A professional machine appraisal helps support your efforts by providing trustworthy proof of current assets for overall company valuation or specific loan collateral. Rather than a basic list of ultra-specialized machinery that may go over a loan officer's head, he or she receives the derived worth numbers they need to make the decision more quickly.

In addition to loans, insurance reimbursements due to loss become infinitely easier when armed with the same asset appraisal documents. In a catastrophic event, having a professional estimation on hand means less downtime waiting for an insurance representative to determine value from wreckage, rather than the actual worth of the previously-functioning machinery. Working with an equipment appraisal service also offers an additional point of reference that may end up being priceless if your files are damaged in the same catastrophic event.

Comparative Advantage in Action

Face the facts: you run your business with expertise; you are not a machine appraiser by trade. Rather than struggling through the appraisal process internally, taking time away from your job duties and ending up with a likely under-or-overvalued result, working with machinery and equipment appraisal professionals allows you to return your focus back to where it belongs: with your workflow and your staff. While there may be a few questions you'll need to answer about your specific equipment, on the whole you'll be free to move your business forward without trying to learn appraisal methods on the fly. You wouldn't mop the floors if you have a janitorial staff in place, nor do your own payroll if you have a service working on it - leave your asset appraisal in the capable hands of a professional team and you'll instantly knock a particularly difficult item off of your to-do list.

Tags: Equipment Appraisal, Reasons for Appraisals

Equipment Appraisal For Donation Purposes

Posted by Equipment Appraisal Services on Mon, Sep 30, 2013 @ 09:51 AM

equipment appraisal IRS 8283

There are several reasons one may come to an equipment appraiser to get a reported value. However, one of the most overlooked reasons to get a certified appraisal done is an equipment appraisal for donation purposes.  When filing an 8283-tax form for a donation, any donation over $5,000 will be in need of an equipment appraisal. We know the IRS has stringent requirements, and should be followed closely to avoid any possible confrontation when tax time comes around.

Since we now know the reason you need an equipment appraisal for donation purposes, we will look into why it is important to select a certified appraiser. A certified appraiser is an experienced professional in giving an unbiased opinion of value. There are others out there acting as appraisers that do not have the credentials that will hold up under scrutiny. A certified appraisal report will be able to withstand any amount of examination it is put under. The peace of mind that a certified equipment appraisal will bring to your tax return will make it a worthy investment. On the other hand, an appraisal done by a non-certified appraiser may not hold up to the strict IRS standards. The little bit you may save by choosing a non-certified individual will not be worth the possibility of losing thousands if their report will not hold up in an audit.

The IRS 8283 tax form requires that the appraiser declares with signature that:

  1. They perform appraisals on a regular basis
  2. Because of their qualifications are qualified to make appraisals of the type  of property being valued
  3. They certify that the appraisal fees were not based on a percentage of the appraised property value
  4. They understand that a false or fraudulent overstatement of the property value may subject them to the penalty (aiding and abetting the understatement of tax liability)
  5. They understand that they may be subject to a penalty if they know or should know that the appraisal is to be used for a refund in a misstated way
  6. They affirm that they have not been barred from presenting evidence or testimony by the Office of Professional Responsibility.

As you can see, appraisal cost should not be the driving factor in selecting the equipment appraiser.

Tags: Equipment Appraisal, Reasons for Appraisals

SBA Loans and the Need for Equipment Appraisals

Posted by Equipment Appraisal Services on Wed, Mar 13, 2013 @ 05:13 PM

sba equipment appraisalThe U.S. Small Business Association (SBA) exists to assist in the creation, sustainment, and expansion of small business in the United States. One of the major services provided by the SBA to small businesses is financing, for which adequate collateral is required to qualify for a loan. In order to satisfy SBA collateral requirements, a certified equipment appraisal report conducted by a qualified appraiser is often necessary.

Compared to traditional financing, small companies have a much better chance in gaining an SBA loan. Whether it’s for the expansion of the business, or to cover payroll until revenues hit the books, a certified equipment appraisal report conducted by a qualified appraiser is important. The ability to secure funding is oftentimes the deciding factor in whether businesses stay open or close, expand or become acquired.  Having an equipment appraisal will not only satisfy the bank, but it will help aid in making important business decisions such as asset replacement and accounting depreciation.

There are many SBA loan programs, including funds for short and long term financing as well as debt financing programs. Although the SBA does not directly finance such small business loans, its strict set of guidelines for parties interested in financing for their small business, creates an environment where lenders are easily connected with potential borrowers. Pre-screening of borrowers by the SBA also results in the increased probability of receiving financing.   Lenders want to know that in a worst-case scenario, they are able to recapture some of the loss through liquidating assets. 

It is important to note that not all equipment appraisals are acceptable.  Though there are dealers and auctioneers that specialize in selling equipment, they don’t necessarily have the accreditations that are required to appraise equipment.  The Uniform Standards of Professional Appraisal Practice (USPAP) are guidelines that have been established to create a uniform valuation approach and methodology.  In addition, it outlines ethical and reporting requirements.  A non-USPAP compliant report could be biased as well as not provide necessary information for the company and lender - which ultimately could lead to legal issues if a company defaults on the loan.

Though an appraisal by an accredited appraiser through professional organizations such as the American Society of Appraisers may be more expensive than an appraisal by an uncertified party or one that moonlights as an appraiser, having the piece of mind that the equipment is valued by an experienced, credentialed professional is priceless.

Tags: Equipment Appraisal, Reasons for Appraisals

Benefits of an Equipment Appraisal When Selling a Business

Posted by Equipment Appraisal Services on Wed, Apr 06, 2011 @ 05:18 PM

equipment appraisalAs an owner selling a business, you might want to consider the benefits of receiving an equipment appraisal prior to selling.  A certified machinery and equipment appraisal will become a “selling tool” when working with potential buyer prospects.  Like a business valuation, it will show that you are prepared to sell your business and have taken the proper steps to assist in the process.

There are several uses for an equipment appraisal during a business sale and acquisition.  First, the appraisal of the machinery could be used to help justify the asking price of the business.  Second, if a buyer is looking to get a business acquisition loan from the bank, the lender will want an appraisal of the machines for collateral purposes.  In addition, once a price is negotiated between a buyer and a seller, part of the negotiation is the allocation of purchase price.  Since the purchase price normally consists of the buyer acquiring the tangible (furniture, fixtures, and equipment) and intangible (goodwill) of the company, both the buyer and seller will have to report the same allocations when they submit their tax documents to the IRS.  A forth benefit of an equipment appraisal is that the buyer will then be able to use the details to set up their asset list and depreciation schedule.  Though a machine might have a book value of zero dollars on the selling company’s balance sheet since it has been written off one hundred percent, the buyer of the company will be able to depreciate the asset all over again starting with its current fair market value.  The appraisal provides documentation on what new value should be placed on each piece of equipment.

Not all equipment appraisals are the same.  You want to make sure that you receive a certified machinery and equipment appraisal that is USPAP (Uniform Standards of Professional Appraisal Practice) compliant. All three methods of valuation will be considered and proper research and analysis will be completed to arrive at values.  Proper documentation to support the equipment value is necessary if you would ever be audited by the IRS.

Written by: Kipp A. Krukowski, MBA, ASA, CBI and Owner of Equipment Appraisal Services (www.EquipmentAppraisal.com)

Tags: Equipment Appraisal, Reasons for Appraisals

Machinery and Equipment Appraisals for Lenders

Posted by Equipment Appraisal Services on Mon, Jul 12, 2010 @ 01:09 PM

machinery and equipment appraisalsMachinery and equipment appraisals are becoming a common request from banks and lenders that are currently lending in today’s environment.  Having been burnt by the bubble of real estate assets and the loss of value that have caused the worth on their books to shrink, lenders have started to see the benefit of getting a certified USPAP (Uniform Standards of Professional Appraisal Practice) compliant machinery and equipment appraisal for their business loans.  Historically, lenders would rely on book value or uneducated opinions to place values on these assets.  These values do not withstand scrutiny with bank examiners, U.S. Small Business Administration, IRS, attorneys, CPAs, courts and others. In addition, with the possibility of the loans going bad, lenders need to have an accurate estimate on what the machinery and equipment may produce when sold off in a loan-gone-bad situation.  Typically, lenders will order Fair Market Value estimates on the equipment and then apply their internal discount percentage to decide what amount to count as collateral for a loan they are considering to issue to the borrower.  Lenders often never see the assets that are being used for the loan collateral due to their busy schedules since banks have downsized leaving the remaining commercial loan officers more to do with less time and resources.  Using a third-party, certified machinery and equipment appraiser can go onsite to make sure the collateral exists while providing a estimate of value.

Tags: Equipment Appraisal, Reasons for Appraisals