Equipment Appraisal Blog | Understanding Machinery Appraisals

What exactly is a USPAP compliant appraisal?

Posted by Equipment Appraisal Services on Tue, Oct 10, 2017 @ 03:02 PM

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When you're considering having an equipment valuation performed, one option that is available is having a USPAP compliant appraisal performed. But what exactly is USPAP and how are appraisals that are compliant to USPAP standards different than other types of appraisals? Here's a quick look at this type of appraisal and how it can benefit you.

What exactly is a USPAP compliant appraisal?

Standing for the Universal Standards of Professional Appraisal Practice, this represents a set of standards set and published by the Appraisal Standards Board, which in turn is authorized by the Appraisal Foundation. The Appraisal Foundation itself was authorized by Congress to be the source of appraiser qualifications and appraisal standards. Though USPAP appraisal practices were initially focused on real estate appraisal specifically, it has since grown to encompass virtually every possible item that can be appraised in business. 

But how can these standards benefit your equipment appraisal? Because of the high scrutiny under which USPAP has been developed and the number of different situations under which it has been applied, it has developed into a comprehensive standard that deals well with a wide range of situations. Over time, it has been tested in a wide range of legal, financial, insurance and tax agency circles. For this reason, it has become a trusted standard that provides business and equipment owners with many benefits.

When a business suffers a loss, whether due to a fire, natural disaster or theft, insurance companies must be dealt with. If the equipment has not been properly appraised, the business has no basis for claiming a value different than the one generated by the insurance company. But the insurance figure may be a generalized average across the industry, which does not recognize that the equipment has been maintained exceptionally well in a clean, dry environment. How do you fight that figure?

What about when a tax assessment is much too high on a piece of machinery that was purchased as a disposable asset, intended to be used hard for a short period of time? When a piece of equipment is purchased as a stop-gap until something different can be made to work, it often doesn't receive the best treatment. Receiving a high assessment on a machine that has a much lower value can be difficult to fight.

When you're getting ready to expand your business, do you need to secure financing using your equipment as collateral? How can you prove to the financial institution how much it is worth? A business loan can be difficult enough without having to deal with proving your equipment's value to the bank.

Fortunately, when a USPAP appraisal is performed, it provides documentation of the machinery's value, which will hold up to strong scrutiny in a wide range of situations. The standard has been tested in many situations, so it is trusted as an accurate measure of value for the machinery in question. An appraisal report prepared by a certified appraiser ensures that your interests are being protected during the process.

Though a USPAP compliant appraisal seems like a complex process, its many benefits help provide you with a wide range of benefits. Because a certified appraiser is already familiar with these standards, they're able to properly apply them to your equipment appraisal to ensure you get an accurate value. Working with a certified equipment appraiser provides you with a range of protections that may last well into the future.

Tags: USPAP appraisal, standards of value, certified appraisal

What you can learn from the appraisal work file

Posted by Equipment Appraisal Services on Tue, Jan 19, 2016 @ 09:00 AM

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An appraiser keeps a work file of all documents and information reviewed during an appraisal so that regulators or appraisal colleagues can review it if necessary. Learn more about what the typical appraisal work file contains and how you can understand its significance as a lay person.  

What is in the appraisal work file? 

According to USPAP, the Uniform Standards of Professional Appraisal Practice, appraisers must maintain a work file that includes all of the data, information, and documentation that supports the appraiser's conclusions about equipment values and opinions relevant to the machinery appraisal. 

Any document that the appraiser used in determining the machinery value must be included in the work file. For example, if the machinery appraiser reviewed a technical manual for a piece of equipment, then a physical copy of the manual must be included. If the appraiser photographed the item to research its value and show its condition at the time of the appraisal, these photos then become part of the records kept in the work file.

Copies of any equipment appraisals, and appendices included with the appraisals, must also be included in the work file. This is good to know in case your copy of the report becomes lost or you lose an appendix or chart included in the appraisal.

If the document cannot be included in the work file, then the appraiser must be able to access it quickly.

In some states, the appraiser must include their professional certifications in the work file.  This protects the appraiser and protects you, the owner of the equipment. After all, you will use your machinery valuation for equipment sales, machinery insurance, or another purpose. It is in your best interests to know that the appraiser who conducted your machine appraisal was knowledgeable, informed, and current with professional credentials. It provides peace of mind for you that your assets are protected and your appraisal represents the item's fair value. 

An appraiser should open the work file when they begin conducting the appraisal and add to the work file as they gather the information needed to develop the report. They cannot gather information after the appraisal report has been issued and put it in the file. 

What you can learn from the work file 

Typically, machine appraisers use dedicated formulas to calculate the value of an item. For example, appraisers will calculate the normal useful life of a piece of equipment to determine how much longer it will be of value to the business. Charts used to make this calculation will be in the work file. By reviewing this, a business owner can learn how valuable their item would be if they wished to sell it, plan for replacement before the machinery becomes obsolete, and make a decision on whether to repair or replace the item. Understanding the item's condition and history, and how those affect value, help you plan for sale or disposal of the item. 

A knowledgeable appraiser will be more than happy to discuss the appraisal work file with you, explain anything you do not understand, and answer questions you have about the machinery valuation. So don't be afraid to ask your equipment appraiser for an explanation if there is something in the file that confuses you. 

Tags: USPAP appraisal, appraisal work file

What Happens in a USPAP Compliant Appraisal?

Posted by Equipment Appraisal Services on Mon, Oct 12, 2015 @ 01:00 PM

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When you're looking at having a machinery and equipment appraisal completed on your equipment, you may hear the term USPAP thrown around or hear the machine appraiser refer to a USPAP compliant appraisal. But what does it mean and how does it affect your equipment values? Here is more information on USPAP, what it requires of equipment appraisers and how it affects your machine appraisal.

What is USPAP?

USPAP stands for Uniform Standards of Professional Appraisal Practice, a set of standards devised by the The Appraisal Foundation and, from there, The Appraisal Institute in the 1980's after the savings & loan crisis. The standard provides quality control, legal documentation and standardized values for equipment appraisals performed by a qualified machine appraiser. It is typically updated every two years, with an effective date on January 1 of every even year, such as January 1, 2014 or January 1, 2020. 

How is a USPAP compliant appraisal different?

Unlike appraisals performed by an unqualified appraiser, USPAP compliant appraisals can be used in legal and financial circles. If you need to pick up used equipment and require financing from your financial institution, your bank may require a USPAP compliant appraisal be performed to verify the machinery value. Because USPAP appraisers go through a qualification process, it's assumed that they will use the proper methods to complete the equipment appraisal and that those values will hold up if there are problems with the loan down the road.

What does it require of the equipment appraiser?

USPAP controls how the appraisal is completed, but not how the equipment appraiser goes about the process. As an example, it doesn't require the machine appraiser to use a specific methodology, because an equipment appraiser who is qualified to provide an appraisal to USPAP standards already has the knowledge of what type of method should be used in that particular situation. This falls under the "Scope of Work" rule that requires the machinery appraiser to list out specific data including the kind of project, the type of property being valuated, what kind of value basis is used, the interests that are appraised, assumptions or theoretical conditions, and when the valuation is effective. With this information, the appraiser can use peer-reviewed methods to complete the appraisal.

How does it affect my equipment value?

 

Having a qualified appraiser perform a machinery valuation for you has benefits beyond just knowing what the equipment is worth. If you need to expand your business, it can act as a proof of value for financing if you need to secure a loan using that equipment as collateral. It can be used as legal documentation to support an insurance claim when you've suffered a loss and your insurance company is fighting you for every penny. It helps you keep your accounting records accurate, allowing you to know at a moment's notice what your business' exact financial picture is, so you can move quickly to take advantage of new opportunities as they become available, giving you a competitive edge over your competition.

There's no doubt that having a USPAP compliant appraisal will provide a great basis for your business to succeed, and that using qualified machine appraisers helps you secure that success against future problems. Your company's success depends on the knowledge you'll gain from the process. Why not look at what it would take to have your equipment and machinery appraised to lock in these benefits?

Tags: Equipment Appraisal, USPAP appraisal, USPAP compliant appraisal