Equipment Appraisal Blog | Understanding Machinery Appraisals

Is Equipment Really “Worth Only What Someone Will Pay For It?”

Posted by Equipment Appraisal Services on Mon, May 16, 2022 @ 07:30 AM

Machinery Equipment Appraisals Value Current Market

A lot of people have probably heard the title phrase spoken informally when discussing the value of their truck, car, or piece of equipment. Possibly when they are seeking financing for the sale of used machinery or negotiating with a potential buyer or seller.

Is there any truth or logic behind this statement? That depends on if you are an equipment dealer, an appraiser, or a casual used machinery investor.

I heard a professional speaking to a group the other day about selling equipment in a very “down” market, where the industry was being perceived as potentially dead or dying. The equipment associated with this industry was being sold for pennies on the dollar during this period, by those in desperate need of turning the assets into cash. The machinery was fully operational and had years of useful life remaining.

On the flip side, is a 15-year-old truck-tractor with 1,000,000 miles worth 90% of what a brand new one would cost today? If you look at trade journals in the current marketplace, you will see these inflated asking prices as sellers try and take advantage of an unprecedented world economy we are in the midst of today.

From this appraiser’s perspective, these types of sales should be considered outliers to any reasonable, common sense comparable sales approach to valuing similar assets. If a business owner or investor is not willing to take a broader look at the market or industry they are working in, through impatience or necessity, then how they react in these situations cannot measure the true value of their underlying machinery.

Even the most cyclical, volatile markets will reveal a historic pattern over time that will likely continue over decades to come, regardless of what the doom and gloom prognosticators will try to tell you. Yes, there will be assets bought and sold at the peak and nadir of these cycles, however, any and all of these should be adjusted to truly measure the realistic value of machinery & equipment.

The sales comparable approach can sometimes lead an appraiser down a misleading path when used exclusively, and without consideration for ignoring sales that fall well outside of a long developed pattern, and in consideration of very unusual market behavior. As a complement to this data, take a realistic look at how these assets have generally depreciated in the marketplace in years past, based on their age, useful life, maintenance, and selling cycles in an adjusted, normalized market.

I am not saying these cyclical conditions should be completely ignored, but instead considerably tempered when distinguishing what an asset is truly worth vs. what someone is willing to pay for it in unique circumstances. How the appraiser subjectively weighs all of this information to formulate their opinions of value will vary, however, those who take the time to look at multiple perspectives will be able to bring sense to an otherwise unusual scenario.

Tags: valuation, Machinery & Equipment Appraisals, current market, unusual economic conditions

Appraising Machinery & Equipment in Emerging and Expanding Markets

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

Machinery and Equipment Appraisals Expanding Changing Markets

When appraisers are tasked with valuing equipment in industries which are continuously evolving due to events such as technology improvement, law and regulation revisions, or new government initiatives, how do they adapt to the likelihood there will be limited market data and comparable resale information available to consider.

Some of these ever-growing markets include biotech, cannabis, solar energy, and electric-powered vehicles. There are businesses popping up all the time in support of these industries that need capital to withstand the early stages of growth and become successful. The assets of these companies will be limited to the property and equipment being acquired to operate, with many types of machinery having little to no resale history to research and estimate value for.

The fact is that appraisers come across these types of challenges quite often, even with long-established businesses that operate customized equipment with similar limitations in the secondary marketplace. So how do they adjust their approach knowing that comparable sales data will be virtually non-existent for these types of machinery?

Fortunately, an experienced, accredited appraiser understands there are two primary methodologies that are established and supportable, especially when used in tandem, to complete a reliable and defendable equipment valuation. Once it is determined that comparable equipment resale data will not be a factor to consider, the appraiser will look to contact the manufacturers and vendors involved with the specific build, as well as similar types of equipment in the market.

The focus of the discussions should revolve around opinions of replacement cost new, useful life, and reasonable levels of market depreciation expected over this period. They can also gather general research on the equipment and overall marketplace available from relevant third-party websites with experience in the industry, to better understand the ability to resell the equipment in the future.

Another important component will be obtaining and reviewing the actual investment for the equipment, including the purchase price and costs associated with the installation. This can be found in documents such as purchase orders, quotes, invoices, and capital asset accounting records.

Once the research is completed in these areas, the appraiser can reasonably estimate value for these more unique and specialized assets, that have little to no resale history associated with them. The ability to still consider market sources under this type of approach will balance the investment cost information provided by the business, resulting in a reliable appraisal.

These emerging and expanding markets will eventually have a history that an appraiser can rely on going forward, however, the ability to adapt and utilize the resources available in these early stages, is critical to meet the current challenges appraisers face today.

Tags: valuation, machinery & equipment appraisal, ASA accredited appraiser, emerging markets, expanding markets

How an Equipment Appraisal Will Facilitate Your Business Goals

Posted by Equipment Appraisal Services on Mon, Apr 19, 2021 @ 08:00 AM

Machinery and Equipment Appraisal Business Goals

Regardless of the industry you work in or the business you own, there will likely come a time when you need to obtain an updated equipment appraisal as you continue to transact in the marketplace. Whatever future plans you have for your business, it is very likely that an appraisal of your capital assets will be beneficial to the process, and possibly even a requirement.

Here a few of the most common reasons why an updated equipment appraisal will be a valuable resource for you:

Bank Financing & Leasing

The most common instance where an appraisal is beneficial and required by all the parties involved occurs when you look to raise capital to maintain and grow your business. The traditional process is working with banks, leasing companies, and similar financial institutions who will require a review of the company’s assets.

If your business requires machinery & equipment to effectively operate, as most manufacturers and service providers do, an updated appraisal will support the current value of your machinery as part of the loan approval process. These assets may end up being the primary collateral the finance company needs for you to successfully secure the loan you need.

Private Equity Investment

A secondary source your business may need to secure capital is in the form of private investment, in the form of equity, which will allow your business to expand its resources and promote growth.

These investors may want to acquire a stake in your business before laying out cash, which will need to be supported by a valuation of your company and the underlying capital assets. Machinery & equipment items generally support a long useful life which will translate to value retention over time and therefore, these assets will comprise a significant component to the overall business value.

Buying & Selling

If you’re considering buying or selling a business, or distinct machinery & equipment as part of a larger transaction, you will want to consider an appraisal to confirm your assumptions about the value of these assets. The time and tension involved in successfully negotiating a sale is significant enough to have a third-party experienced appraiser provide you with the assurance that your pricing strategies are supported and credible.

Tax, Accounting & Insurance Compliance

Tax, accounting and insurance requirements are numerous when it comes to maintaining compliance with all of these facets of your operation.

Tax assessments and regulations, accounting standards guidelines for capitalizing and depreciating your equipment, and adequate insurance coverage are just some of the boxes you need to check in these important areas. Routinely communicate with your accountants and agents to ensure you are up to date on these requirements and see if an equipment valuation might benefit the process, both long and short term.

In summary, your company’s revenue and income typically fluctuate over time depending on the markets and industries you operate in however, the value of your machinery & equipment will likely remain steady through these periods. Understanding the current value of your machinery & equipment by hiring an accredited, experienced appraiser will benefit your business across multiple fronts and provide you with peace of mind as you go forward into the future.

Tags: valuation, business planning, certified equipment appraiser, Machinery & Equipment Appraisals, business goals

Material Handling Equipment Valuations - Why Many Companies Need Them

Posted by Equipment Appraisal Services on Mon, Jan 11, 2021 @ 08:00 AM

Material Handling Appraisal

 

Virtually every business in the world that manufactures, transports, warehouses or otherwise supports any tangible product needs some type of material handling equipment to manage their inventory. It is important to understand the value of these types of assets when considering any financial transaction within your business so you can be sure to get the most benefit from the utilization and strength of these long lived machines.

What Types of Machinery are Considered Material Handing?

The first thing that comes to mind when discussing material handling for most businesses is forklift trucks. Forklifts are the most common type of equipment that falls into the material handling category, however, there is a considerably diverse amount of lift equipment that belongs as well.

Forklift Trucks

Forklift trucks alone have an immensely broad range of sizes, builds, and other specifications which can be overwhelming and fall into different categories of material handling. From the smallest manual pallet jacks to the largest type of container handler, there are hundreds of makes and models in between. From lifting a 500 lb. box to a 90,000 lb. shipping container, these types of assets are critical to effectively moving product from place to place.

The most common types of forklift trucks you see generally range from 3000-15,000 lb. capacities and are used in and around warehouses, loading docks and shipping centers. The lifts can be powered by rechargeable battery, propane gas, or diesel. Several domestic and international manufacturers compete in the industry, many with solid reputations for quality, producing long life durable machinery. Even if you have a 20+-year-old forklift, as long as it has been well maintained throughout its life, you can expect it to hold value over time.

What are Other Types of Material Handling Equipment?

The answer to this question may be a little subjective depending upon the industry or business you work in. I would consider these types of equipment to be included:

  • Order Pickers
  • Narrow Aisle Reach Trucks
  • Automated Pick & Place Retrieval Conveying Systems
  • Bulk Processing Equipment (Including Conveyors, Hoppers, Elevator Lifts & Augurs)
  • Pallet Racking, Shelving & Related Storage Equipment
  • Aerial Boom Lifts
  • Certain Types of Cranes

Similar to forklift trucks, these assets are typically long lived and hold their value well over time.

In summary, always consider material handling machinery & equipment as part of your asset listing when you need an updated appraisal. When deciding to engage a professional for this task, the best choice is an accredited ASA appraiser.

Tags: valuation, forklift appraisal, certified appraisal, material handling equipment

What Is Fair Value?

Posted by Equipment Appraisal Services on Tue, Dec 01, 2015 @ 11:00 AM

fair_value.jpg

When you're considering having a machinery and equipment appraisal performed on your business equipment, you'll hear a lot of different terms used in regards to how equipment value is calculated. One of the more common terms you'll hear used is fair value. But what is fair value, how concrete is it in term of equipment values and in what situations is it used? Let's take a look.

What Is Fair Value?

Though it seems as though the value of machinery should be the same no matter your purpose, that's not always the case. In divorce proceedings where one person is buying out the other person's interest in a business, one party wants a low appraisal and the other a high one. In donation appraisals, both parties may want a higher appraisal than is warranted, so that one party can get a higher tax write-off and the other can claim higher donations to their cause. Fair value falls in the middle of these equipment appraisals.

Fair value is determined by using a solid methodology that is unbiased and is based on rational processes of determining the value. It looks at the costs of acquisition, replacement costs, utility, market demand, the risk involved and similar properties. Fair value is not always the same as market value, depending on conditions at the time. 

Is Fair Value a Final Value?

Fair value is determined using a consensus basis. A group of auditors will typically include the services of a machinery valuator, then the team takes into account many different factors and determines the best methodology and rationale to calculate value. After that, the calculated value is reviewed and either approved or rejected based on information uncovered during the review process, including whether the scope and objectives of the appraisal were appropriate choices, whether the machine appraiser had a truly unbiased view of the appraised equipment and if the machine appraisal as a whole was done using correct methods and formulas..

Because the reviewer will want to know the methodology used and whether the methodology fit in with the applicable standards, it's typically much better to use an accredited equipment appraiser to ensure that the proper processes were followed during the equipment valuation. In its most essential form, fair value is a more subjective value than the usual objective values determined by accountants using specific processes. 

In What Situations Is Fair Value Used?

There are a wide variety where fair value is used. Many financial reporting standards require or allow the use of fair value to report their company's assets and liabilities in a standardized fashion. It is typically much closer to the actual selling price of an asset than the asking price that a company wants to receive for selling that same asset. It is commonly used in accounting situations where a current value needs to be determined instead of basing the value on outdated historical prices or other accounting methods that may present an inaccurate financial picture of the business' assets.

Though many different calculations are inaccurately labeled fair value, now that you know the difference it will be much easier to arrange to have a machine appraiser provide the exact information you need to determine fair value. If you're still trying to find the right equipment appraiser for your company, please contact us. Our Machinery & Technical Specialties appraisers are accredited through the American Society of Appraisers and provide the best possible machine appraisal of your company's machinery assets.

Tags: Equipment Appraisal, valuation, fair value