10 Jan What to Expect During a Heavy Equipment Appraisal
Regardless of the industry your production plant might be operating within, there will come a time that you’ll need to appraise the value of your heavy equipment. The Association of Machinery and Equipment Appraisers provides professional certification to organizations such as The Equipment Hub, allowing our appraisers to provide our professional services to our clients in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP). Let’s explore the six types of heavy equipment appraisals in use across multiple industrial sectors and what equipment owners can expect during the appraisal process.
Types of Heavy Equipment Appraisals
What to expect during the appraisal process largely depends upon the intended purpose of the appraisal. There are six primary forms of appraisal that The Equipment Hub’s team of AMEA certified equipment appraisers perform in accordance with USPAP. These various appraisals are designed to aid in the sale of businesses, the planning of estate taxes, the establishment of insurance coverage, and in support of bankruptcy proceedings or litigation.
- Fair Market Value
This machinery appraisal type focuses on how much your piece of equipment would be worth to a neutral buyer, assuming no extenuating circumstances affecting the buyer’s purchasing behavior. Fair market value appraisal methodology also assumes all parties are equally informed and have access to the same data. This method helps with tax write offs, as well as determining if equipment should be serviced before a sale, and valuation in the event of destruction of property.
- Forced Liquidation Value
This form of equipment appraisal determines what a piece of equipment’s value would be if the company were forced to sell off all assets at public auction immediately, and is considered a worst-case circumstance valuation. This method takes into consideration equipment condition as-is, and takes into consideration the costs that will be incurred due to having to transport the equipment once sold at auction. This method is a way of determining liquidity.
- Fair Market Value in Place Value
Machinery pricing assessed by this form of appraisal is based on the appraiser’s opinion of the most probable cash-based price that can be achieved under current market conditions where neither the seller or buyer are compelled to sell. The assumption of “in place value” is that the assets are to remain in the warehouse or facility where they are already installed, making this assessment necessary in the event that one company is looking to sell off a manufacturing operation and the equipment already in place rather than equipment piece by piece. .
- Replacement Value
Primarily for purposes of insurance coverage, replacement value assessments are intended to determine how much you would have to pay to replace an asset at its current worth, were it to be damaged irreparably.
- Orderly Liquidation Value
Similar to Forced Liquidation Value, Orderly Liquidation is used to determine the cash value of a piece of equipment if compelled to sell. However, unlike the forced public auction with little time to properly sell the item, Orderly Liquidation allows the seller a reasonable amount of time to coordinate with buyers. It still requires that the item be sold as-is, where-is by the pre-established deadline.
- New Cost of Comparable Asset
The cost of comparable asset approach to asset valuation relies on the concept of substitution, which means the buyer will not pay more for an asset then the price they themselves can pay to acquire a substitute asset that performs the same function. This appraisal can include direct and indirect costs.
Five Steps to a Proper USPAP Heavy Equipment Appraisal
The USPAP appraisal guidelines are fairly complex and complicated. We’ve taken the time to focus on the process itself and to present it in accessible terminology, so that it can be easier for equipment owners to understand what to expect during the appraisal process.
Define the Scope of the Heavy Equipment Appraisal
During the initial stages of the assessment process, the appraiser will identify all parties and hammer out the salient points that need to be covered in the appraisal process. This includes the purpose of the appraisal, how the information will be used, the defined values being sought out by the client, which equipment is being appraised, and what reports the involved parties will receive upon completion.
Based on the outline created at the scope meetings between the client and appraisal team that lays out the purpose of the appraisal and what equipment is under review, the appraiser begins the process of gathering data that both identifies the assets under review and reveals operational performance metrics that will be used to perform the appraisal down the line. With modern machinery, much of this data can be easily pulled from a centralized database in the manufacturing facility, and includes information like productivity, repair and maintenance records, and any other pertinent performance-related data.
Apply the Proper Equipment Property Valuation
USPAP requires appraisers to consider any or all approaches to value that might apply to the assets in question. There are three approaches to value appraisers must consider.
- Sales Comparison Approach to Value compares the asset to similar equipment for sale on the market, adjusting for market conditions and the condition of the asset under review.
- Cost Approach to Value is as defined above, where the assessor sets out to estimate an asset’s value by comparing the value of it to the cost of a comparable piece of equipment on the market.
- Income Approach to Value calculates asset value off of the potential revenue the item can generate in the course of normal operation.
Draw Conclusions Based on Valuation Method
Once the appraiser has applied the appropriate mix of valuation methods, the resulting market data is integrated with the data collected in the second step, and the appraiser works towards an opinion of true asset market value in line with the scope of the appraisal.
The appraisal report is structured in accordance with Standard 8 of USPAP, and once complete, will include all salient information, including descriptions of the equipment being appraised, the client, and the type of assessment being performed. The completed report is presented to the parties identified in the planning meeting as stakeholders.
Find a Trusted Partner for Your Heavy Equipment Appraisal
The Equipment Hub’s team of appraisers serves our clients’ appraisal needs across all industries where heavy industrial machinery plays an integral role in the day-to-day business operations. Fill out the form on our appraisal page to schedule one of our AMEA certified equipment appraisers for an in-person assessment, and get the benefit of our team’s deep understanding of the scope of USPAP requirements and extensive experience applying that knowledge to the assessment process for every valuation method you might need.