Equipment Appraisal Blog | Understanding Machinery Appraisals

An accredited, reliable, and defensible equipment appraisal should include at least three components: a USPAP (Uniform Standards of Professional Appraisal Practice) and ASA (American Society of Appraisers) compliant narrative summary report discussing the valuation methodologies and conclusions; an appendix that itemizes the assets that include associated details; and photographs of the equipment.

The narrative report is structured fairly consistently throughout every valuation, with the appraiser focusing on the processes, methodologies, scope of work, assignment summary, definitions used, research, market and industry sources utilized, and the value conclusions.

The photographs are self-explanatory, and ideally include a couple of images of each item along with the machine ID tags, which verify the specifications of the equipment. There are exceptions when photographs cannot be obtained in certain cases, and the appraiser can usually make allowances for this without compromising the integrity of the valuation.

The most important component, in my opinion, is the itemized asset detail, typically listed as an appendix to the report. This document is the backbone of the appraisal and includes the data necessary to document the transaction for which the appraisal is to be used. Regardless of the number of assets involved, this detail is useful for the business owner’s internal accounting and tax records, as well as providing documentation for third parties, such as investors, banks, financial institutions, and tax authorities, when they secure or review their collateral interests.

This detailed appendix should include the following information for each line item asset being appraised:

Description/Equipment Type: (Ex: Hydraulic Excavator or Vertical Machining Center)

Make/Manufacturer (Ex: Caterpillar, Mitsubishi)

Model #

Serial #

Year Manufactured or Effective Age, if Unknown or Refurbished (Common for Older Assets to Extend Their Useful Life)

Additional Specifications and Comments Section (Ex: Condition if other than normal or good; Capacity, Hours/Mileage, Attachments)

Estimated Individual Values and Summary Totals

The report narrative summary will generally only reference the total value for all the assets appraised and refer to this appendix for the itemized detail.

It is not uncommon for clients to request this detail in a separate workable file, so they can better utilize the data as well as transfer it to their internal documents. This is generally acceptable to the appraiser, with the firm understanding that the data itself will not be altered. As long as the appraiser retains the original files, any potential disputes on this issue can be easily remedied.

In summary, when you are considering engaging an equipment appraiser, ensure that these component documents will be part of the overall valuation report and that you are working with an experienced accredited, ASA machinery appraiser.

When you are looking to find an equipment appraiser who can provide a high-quality level of service, how do you know who to select? These types of valuation firms provide tangible personal property and machinery & equipment appraisal services to businesses and individuals across a broad range of markets and industries. The best of these are experienced, reliable, and communicative, while able to support their methodologies and conclusions should the need arise in any business transaction or dispute.

Here's a look at how equipment appraisal firms operate and what is required to be considered a reliable and credible business:

How Equipment Appraisal Firms Operate

Though many companies and individuals purport to be qualified equipment appraisers, only those that have gone through the proper training and education while developing a high level of experience over time can properly call themselves one. Commonly called M&E (machinery and equipment) appraisers, these companies should be able to accurately value virtually any tangible piece of property that would not be considered real estate (land and buildings).

High-quality M&E appraisers have a strong understanding of the variety of situations where appraisal services are required, including litigation, finance and leasing, tax appeals, risk management, insurance, buy/sell, merger & acquisition (M&A), accounting, donations, and any other situation. When that understanding is combined with their accredited expertise you have found a firm well worth your consideration.

Independence and Lack of Bias

Why is hiring an M&E appraisal firm a better choice than engaging a company that performs appraisals as part of a dealership, auction company, or similar business where sales is also a component of the operation?

One of the biggest factors to take into consideration is complete independence of anything else that may be going on in the overall business transaction for which the appraisal is needed. An independent machinery & equipment valuation firm should perform appraisal work and nothing more. If the company you hire is also involved in buying and selling equipment or investing in businesses that do so, they will potentially have a secondary agenda that would create some bias and lack of independence in estimating value.

Proper Education, Experience, and Accreditation

Highly qualified appraisers go through a rigorous process of education and testing while being required to have a minimum level of experience before they can be called an accredited M&E appraiser. This ensures they will use the appropriate methodologies and techniques when appraising your machinery & equipment. The most highly recognized organization that provides this level of training is the American Society of Appraisers (ASA). Other, more specialized groups also have educational and training requirements that can provide some of this experience, however, the ASA accreditation is the most highly sought-after title for any true appraiser.

Should the need arise where the appraisal report may be reviewed or entered into court in support of a business dispute, this accreditation will be an important qualification as well as the overall experience of the appraiser.

In summary, Equipment Appraisal Services hires only ASA accredited valuers as part of our organization. We look forward to speaking with you further when the need arises to have an independent tangible personal property or M&E appraisal completed for your business.