HEAVY Equipment Appraisal
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Equipment Appraisal 101
5 Steps to Machinery & Equipment Valuation
We created this infographic to simplify the who, what, when, where, and why complexity into a fun and easy-to-understand flow-chart:
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The Appraisal Standards Board describes personal property appraisal development in Standard 7: Personal Property Appraisal Development of the USPAP publication as:
In developing a personal property appraisal, an appraiser must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete research and analyses necessary to produce a credible appraisal.
Unfortunately, the rest of USPAP isn’t as easy to follow, so we cut through the legalese and came up with this simple infographic flowchart that will give you an idea of the machinery and equipment valuation steps.
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The infographic above concludes the simplified version of the machinery and equipment valuation process. 🙁 We are now going to delve a bit deeper into the infographic as it relates to the finer points of the USPAP publication:
We will quote heavily from the Appraisal Foundation (and refer to them interchangeably as “Appraisal Standards Board” [ASB] and “USPAP”) throughout, as they are recognized by Congress as the source of appraisal standards.
Step 1: Identify the Problem to be Solved
No equipment appraisal “problem” is a simple one. Like most real-world problems we face, there are many questions that must be answered to fully identify the appraisal problem. Fortunately, we’ve compiled a checklist of questions that need to be answered to ultimately identify the problem to be solved:
✔ Identify the Client and All Other Intended Users
This is one of the more straight forward identifications, once the “client” and “intended user” definitions are understood.
USPAP defines the client as “the party or parties who engage, by employment or contract, an appraiser in a specific assignment.” USPAP further clarifies that “The client may be an individual, group, or entity, and may engage and communicate with the appraiser directly or through an agent.”
In addition to the client, who engages the appraisal assignment, we must also identify all other intended users.
According to USPAP, an intended user is defined as “the client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser on the basis of communication with the client at the time of the assignment.”.
The client and all intended users should be clearly identified in the appraisal report.
It seems like we serve a new business sector every day, but the most common are:
- Bankers & other Lenders
- Business Consultants
- Business Owners (e.g., Construction, Farming)
- Certified Public Accountants (CPA)
- Corporations (Mining, Oil Field)
- Financial Institutions
- Government Officials
- Individuals (e.g., inheriting a machine)
- Law Firms & Attorneys
- Merger & Acquisition Professionals
- Turnaround Management Specialists
✔ Identify the Intended Use of the Equipment Appraiser’s Opinions & Conclusions
Why did the client engage an appraiser?
That is the next question we need to answer. We know what an intended user is, but what about the intended use of an appraisal?
The Appraisal Standards Board defines Intended Use as “the use or uses of an appraiser’s reported appraisal or appraisal review assignment opinions and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment.”.
✔ Identify the Type and Definition of Value
Value is defined by the ASB as:
The monetary relationship between properties and those who buy, sell, or use those properties.
The ASB further states that value must always be qualified with a specific definition of value, such as Market Value, Liquidation Value, or Investment Value.
✔ Identify the Effective Date of the Appraiser’s Opinions and Conclusions
The appraisal effective date sets the (time) frame of reference for which the appraiser arrived at his or her valuation conclusions.
Appraisal effective date is a very important identification because machinery and equipment markets vary with the times, as does most any market. For example, a 2006 effective date of a home appraisal (Real Estate or Real Property) would (most likely) be appraised much higher than that same home with a 2009 effective date, due to the housing market collapse.
Though valuing Real Estate is a different practice than the valuation of equipment (and other personal property), it makes sense here to borrow an example from the recent Real Estate market to illustrate the importance of effective date.
✔ Identify the Characteristics of the Equipment Property
We feel this is one of the most important steps in delivering a credible appraisal report, so we gave it its own step. We cover this in detail in Step #2: Collect.
✔ Identify any Extraordinary Assumptions or Hypothetical Conditions
Extraordinary assumptions are things that are believed to be true. It is important to identify these prior to starting an appraisal assignment because if one of those assumptions is subsequently found to be false, it could affect the equipment appraiser’s conclusions or opinions of value.
Hypothetical conditions are things that are currently known to be false, but we create a hypothetical condition of expected, future outcome. Note these, because your appraisal findings are based on these conditions, and your opinions could change if the expected outcome doesn’t come to fruition.
Extraordinary assumptions and hypothetical conditions help to protect the equipment appraiser. Let’s look at a few examples:
Desktop appraisasl are a great example of extraordinary assumptions:
We don’t physically inspect the equipment in a desktop appraisal, so we base our opinions on things we believe to be true, based on information provided by the client, the equipment owner, phone calls to mechanics, photos, etc.
A hypothetical condition example as it relates to machinery valuation might be a front loader that is in the process of an engine rebuild. Most any machine without an engine is worth less on the open market than a fully functional one. As such, we base our value conclusion on the expectation that the engine is rebuilt or replaced with a new one.
Determine Scope of Work
Once the above are identified, the equipment appraiser has completed the first step in the process:
Identify the problem to be solved.
With the problem detailed, the appraiser has sufficient information to determine the scope of work necessary to produce credible assignment results. USPAP defines scope of work at a high level as
The type and extent of research and analyses in an appraisal assignment.
And at a more specific level:
The extent to which the property is identified
This will be discussed more in Step #2: Collect, but the basic scope of work question is:
Does the appraiser plan to identify only the major components of a process (an aggregate plant, for example)? Or does the appraiser plan to identify the individual characteristics of the equipment (make, model, year, etc.)?
The extent to which tangible property is inspected
This is an important scope of work question to answer, as it is not always possible to physically inspect each and every equipment item.
For example, when performing an on-site appraisal for an excavation contractor, it might not be feasible to travel to see one excavator that is located at a job site 2 states away.
The type and extent of data researched
Will the appraiser research comparable sales at a local level? National? Global?
Will the appraiser seek out reproduction or replacement costs for the equipment property?
The type and extent of analyses applied to arrive at opinions or conclusions
As per The Appraisal Standards Board, the appraiser must consider all 3 valuation approaches (covered in Step #3: Consider below).
The last two scope of work considerations take aim at answering the question of how much digging is necessary to provide credible appraisal results.
Enough with identifications, let’s get our eyeballs (and hopefully hands) on the equipment property.
Now it’s time to roll up our sleeves, put our hard hat on, and dig in.
We already determined what level of detail we plan to identify the equipment in the scope of work section above. This determination depends largely on the property being valuated.
For example, let’s say the assignment is an aggregate plant. Our machinery and equipment appraisers will take the following 3 step systematic (macro) approach to identifying the plant’s characteristics:
#1 Collect facts and data relating to the full life cycle of the plant
First identify the product and byproducts that the plant produces. In our example, the final product is concrete.
#2 Determine how the finished product is produced
Identify the major components in the aggregate plant.
In our example, we might have a quarry, a crushing plant, a washing plant, and a batching plant that all play an integral role in producing the final product. Often, a plant diagram or flowchart is the most efficient way to answer this question.
#3 Identify the output capacity of the plant
This is an important identification, especially if we choose to value the plant using the income valuation approach (more on the income approach in Step #3: Consider below).
If the assignment isn’t a plant, but equipment valuation for a fleet of rolling stock (trucks, construction equipment, trailers, etc.), we take a different approach to identifying characteristics. In this scenario, we are more interested in capturing and recording equipment characteristics on a micro level, such as year, make (Caterpillar, John Deere, etc.), model, serial number or VIN, and hours/miles.
The method(s) by which you collect, identify, classify, and describe the equipment characteristics depends on the scope of work decision “the extent to which tangible property is inspected” we made above.
Regardless of the method by which we identify the equipment’s characteristics, the equipment owner should be able to quickly provide the machinery and equipment appraiser with the most complete, up-to-date facts and data on the equipment property.
After all, the owner purchased the equipment, oversees the servicing, and thus, should know it better than anyone, right?
If the owner isn’t able to furnish this information, the machinery appraiser should identify that, realize that it will take extra time to collect this information, and account for this in the scope of work.
With the complete equipment list at our fingertips, we need to carefully consider all 3 equipment valuation approaches:
- Sales Comparison
After careful consideration, the appraiser chooses one* approach that he/she feels is necessary to produce the best credible assignment results.
* Note that an appraisal report can utilize more than 1 valuation approach. For example, an appraisal assignment might include 1 very common machine and 1 very uncommon machine. The appraiser might have an easy time finding sales comps for the very common machine, but a difficult time finding sales comps for the uncommon machine. As such, it is OK for the appraiser to valuate the common machine using the sales comparison approach and the cost or income approach for the uncommon machine.
Sales Comparison Equipment Valuation Approach
The sales comparison approach is very common in equipment valuation.
If you’ve ever heard your Realtor talk about “comps” when buying or selling a home, then you are familiar with sales comparison approach.
The logic here is that an educated buyer would expect to pay a similar price for similarly sold items. This is true in any market, whether it be a bulldozer or a house.
The tricky part for an equipment appraiser, however, is that heavy equipment sales aren’t a matter of public record, like home sales are (in most states).
This means that comparable sales for equipment aren’t as easy to come by as home sale prices. So the next time you are evaluating machinery and equipment appraisers for an assignment, ask each about their sales comparison methodology.
The sales comparison equipment valuation approach is best applied when there exist many sales of the same, or very similar machines.
One thing that sets Heavy Equipment Appraisal apart from the competition is our background in equipment and the strategic alliances we maintain with independent equipment dealers.
This means that we have strong network connections to those who buy and sell equipment locally and globally every day, giving us the inside track to those hard-to-come-by equipment sales comps!
Cost Equipment Valuation Approach
The cost approach to equipment valuation is a deep topic, but can most efficiently be explained by this calculation:
Cost Approach = Current Cost – Depreciation
Let’s break this equation down by talking a bit more about current cost and depreciation:
Specifically, we’re looking at current cost of the machine, as if it were new. Clearly, a machine is never new after leaving the factory and we often appraise equipment that isn’t new in this decade. So how do we arrive at the current cost of that?! To do so, we first consider the Replacement Cost New approach, then move onto the Reproduction Cost New approach, if necessary.
Replacement Cost New
What is the cost of replacing the subject machine with the current-day-equivalent? That is replacement cost.
Reproduction Cost New
If it is more economical (cheaper) to reproduce the same exact item (or the same exact item is still being manufactured), we will use the reproduction cost approach.
Appraisal depreciation is different than the accountancy term “depreciation” and consists of functional and economic obsolescence and physical deterioration.
Now that you know a bit about current cost and depreciation, as they relate to appraisals, we could really de-simplify the equation above to be:
Cost Approach = (Replacement Cost or Reproduction Cost) – (Physical Deterioration + Functional Obsolescence + Economic Obsolescence)
The cost equipment valuation approach is best applied when dealing with unique property and there don’t exist many sales of the same subject property (thus, unable to apply the sales comparison approach).
Income Equipment Valuation Approach
The income approach is another accepted machinery and equipment valuation technique. This approach attempts to forecast future earnings generated by the equipment being appraised.
The income technique to equipment valuation includes many steps and variables, requires making assumptions, and necessitates complex mathematical calculations. Even with the amount of work required for the income approach, the end result is still only speculative, and thus, isn’t utilized as often as the preceding approaches to machinery valuation.
Still, there are scenarios where the income approach fits perfectly. A good time to use the income technique might be for a plant and machinery valuation assignment – like the aggregate plant example discussed in step 2 above.
Step 4: Equipment Valuation
Now that we’ve identified all items necessary to produce credible results, collected all equipment characteristics, and chosen a valuation approach, it’s time to apply our value opinions and conclusion to the equipment or machinery.
Truthfully, we’ve already accomplished most of this step by way of the previous 3 steps. So now we can take what we have accumulated and start tying those pieces together for inclusion into the appraisal report.
This will help the machinery and equipment appraiser to compile all of the results in one place, in an organized manner. This helps to provide big picture clarity on the assignment by identifying areas that are complete, sections that need attention, and things that have been overlooked.
With a rough draft of the appraisal report in front of our eyes, we inspect every detail, looking for deficient areas. Once those areas are identified, the appraiser should go into Sherlock Holmes investigation mode.
This might mean the appraiser gets on the phone with the foremost expert of a piece of machinery, or meets up with an appraiser peer to inquire about a similar experience, or researches auction results, or…
The depth of this step will vary from appraiser to appraiser, based on their experience (and/or imagination), so this might be a good series of questions to ask when considering appraisers.
It is important to note that appraisers aren’t experts on each and every piece of equipment out there.
Shy away from machinery and equipment appraisers who tell you otherwise…because it’s just not possible!
We’re not the foremost experts on every type of equipment. And we’re proud to say that.
Posing as an expert on everything is a stubborn mindset that minimizes effectiveness by producing less-credible appraisal results. (in our humble opinion) 🙂
We are professional researchers who just so happen to have a 30+ year background in equipment, cultivate a strategic alliance with one of the best independent equipment dealers in the United States, maintain a database of equipment sales, and a possess an ever-expanding network of contacts in the equipment industry at our fingertips.
Step 5: Deliver
Finish preparing the appraisal report* in accordance with Standard 8 of the USPAP. Make any reconciliations necessary. Deliver the appraisal report to the intended users identified in Step 1.
*Though we touched on the subject of appraisal report writing throughout, we deemed it outside the scope of this article, so won’t offer any more detail.
Though delivery seems assumed, we felt it was significant enough to have its own step to wrap things up.
Appraisal assignments should be a collaborative effort throughout the appraisal life cycle, and appraisal results delivery should be no different. The equipment owner and/or client should have a chance to see the appraisal before the final delivery.
The point of this isn’t to allow for biased opinions to persuade values, or any other reason but to help identify omissions or miscommunications – and ultimately, make any necessary reconciliations.
Once all sides are confident that no blatant errors or omissions exist, put the final touches on the machinery appraisal report, and deliver it to the client and intended users.
Now we can dust our hands from this appraisal project, burn all of our research behind us, and move on to the next appraisal assignment.
Not so fast!
According to the USPAP Record Keeping Rule:
An appraiser must retain the workfile for a period of at least five years after preparation or at least two years after final disposition of any judicial proceeding in which the appraiser provided testimony related to the assignment, whichever period expires last.
In other words, keep everything.
We put it on lockdown! It’s just safer that way.
You’re proud of your work and want your appraisal business to thrive, so you want to show it off to anyone that comes knocking.
Oh, and you probably don’t want to be in hot water by violating the ASB’s Ethics Rule!
How Much Does an Equipment Appraisal Cost?
Fast, Accurate, or Cheap: Pick 2
Let me just start off by saying I WISH I could give you a 1 line answer immediately when you land on our site:
Your appraisal will cost $XYZ dollars.
Because it would be so much easier to give you a simple answer and move on.
But what happens if you only need 1 machine appraised, and the “simple” pricing answer was for 47 items and included travel?
That sort of one-size-fits-all pricing seemed convenient at first, but not so much when you see the number.
So I have to answer your how much will it cost question with a question (or 3) of my own:
- What do you need appraised, including quantity?
- How fast do you need it?
- Does your situation require a physical inspection?
Not too bad, right?
Those uncomplicated questions get us so much closer to serving you the best way we can.
Think about it this way:
As personal property equipment appraisers, we are required by Congress (by way of The Appraisal Foundation) to identify your problem to be solved, determine the scope of work necessary to solve that problem, and correctly complete research and analyses necessary to produce a credible appraisal for you.
…so we kind of need answers to those questions anyway. And by answering them now, you’re getting a head-start.
We would be doing you a disservice to give you a quote cost without knowing the facts of your specific situation.
So if you want a free, no-obligation quote, answer these 3 super-simple questions right now.
Thanks for the opportunity to earn your business!
Heavy Equipment Appraisal Certification:
Is it a Myth?
Ahhh, certification. That oh-so-official-sounding buzzword.
What is a “certification”, anyway?
Is it some special waxy stamp that only the wisest appraisers can heat up and press onto their completed appraisal report?
Is it a space age hologram that you can only see if you hold the report up to the light just right?
There just isn’t a lot of clarity as to what the term certified means as it relates to the equipment appraisal profession.
For a general definition of the term, Google says this:
The action or process of providing someone or something with an official document attesting to a status or level of achievement.
“Someone or something”? “Official document”?
Dig a bit deeper and Wikipedia has this to say about professional certification:
Professional certification, trade certification, or professional designation, often called simply certification or qualification, is a designation earned by a person to assure qualification to perform a job or task. Not all certifications that use post-nominal letters are an acknowledgement of educational achievement, or an agency appointed to safeguard the public interest.
The picture is becoming a bit more clear, but who are these persons earning these designations from? And if you can’t trust a guy solely because his LinkedIn profile boasts Fletch F. Fletch – ABC, XYZ, then…WTF, who can you trust?!
But what about the Government, do they regulate appraisers? Hand out licenses and mythical certifications?
According to the Appraisal Foundation (the source of appraisal standards and qualifications):
Currently, the government regulates only real property appraisers. Regulatory authority currently rests with the individual states and territories that issue licenses and certifications to real property appraisers. In addition, each state appraiser regulatory agency is responsible for disciplining appraisers.
At this time, there are no immediate plans for the regulation of appraisers who specialize in other types of property.
So now we know that certification isn’t some designation bestowed upon the lucky few by the Appraisal Gods, but instead, by certifying entities. And you know that the Government only regulates real property appraisers.
Are you disappointed?
I was, at first. “What is this, the wild west?”
But then I did my research and found that most of these companies are very well respected, are very protective of their reputation, and put their students through rigorous (continued) education, training, and exams.
I’m sorry to be the dumper of more work on your plate, but…more work on your plate:
It’s your responsibility to carefully investigate candidates to be your next equipment appraiser.
Luckily, the International Society of Appraisers already has already assembled this handy list of questions to ask a prospective appraiser.
Equipment Appraisal Methods
There are three recognized methods to the determination of equipment value:
- Sales Comparison (Market Data)
In case you missed it, we covered all 3 at length in Equipment Appraisal 101 – Step 3 above.
These are the generally-accepted valuation methods for real property (Real Estate), business, and personal property.
The theory of substitution is the underlying principle behind all appraisal methodology. The Appraisal Institute defines the substitution valuation principle as:
When several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution.
The American Society of Appraisers defines the principle of substitution similarly (page 7):
A prudent buyer will not pay more for an asset than the cost of acquiring a substitute property of equivalent utility.
So one method tasks a machinery and equipment appraiser with finding the sales price of the same exact (or less ideally, a very similar machine) machine that has sold recently.
This may sound simple at first, but consider this:
Machinery and equipment aren’t made public, like home sales.
We don’t have a public database of sales information gift-wrapped for us.
The struggle is real!
Have you hugged your equipment appraiser recently? 🙂
Start Your Equipment Appraisal Here
- I’m in a hurry, just give me a free quote!
- Why choose us?
- What type of appraisal do you need?
What Our Customers Are Saying
Thanks for the quick turn and the professional approach to getting this done for all concerned.
I am pleased to announce that I am looking to buy another piece of equipment & am in need of your equipment appraisal services once again.
I was very pleased with the previous appraisal you provided & had to put zero thought into who I would choose to do this one.
I was very pleased with the speed & thoroughness of your work & will recommend you to others needing appraisal services.
Nationwide Equipment Appraisal Services
Where is your equipment located?
Online Equipment Appraisal
Time & Budget Friendly
What is an online equipment appraisal?
An online equipment appraisal (limited scope appraisal, or desktop appraisal) is the practice of assigning a value opinion to an item without physically inspecting that item.
What are the benefits of an online appraisal?
✔ ZERO ($0) travel expenses
✔ Perfect for tight budgets
✔ FAST turnaround times
✔ No physical inspection of the equipment
✔ You provide equipment details & photos
✔ Electronic copy (PDF) delivered to your e-mail
✔ Professionally printed & spiral-bound copy
On-Site Equipment Appraisal
What is an on-site equipment appraisal?
An on-site appraisal (field appraisal or physical inspection appraisal) is assigning a value opinion to an item after having the chance to physically inspect that item.
What are the benefits of an on-site equipment appraisal?
✔ Send your list & we take care of the rest!
✔ We physically inspect all equipment
✔ We take photos of all machines
✔ We meet with mechanics
✔ Your business doesn’t stop
✔ Electronic copy (PDF) delivered to your e-mail
✔ Professionally printed & spiral-bound copy
Heavy Equipment Appraisal Services
What do You Need Appraised?
How to Become an Equipment Appraiser
- Assuming you know a bit about equipment, start here: How to Become an Appraiser by the Appraisal Foundation
- But then what? Check out these equipment appraiser organizations:
- Here are some places to find heavy equipment appraiser jobs
Heavy Equipment Appraiser Jobs
Now that you’re a certified heavy equipment appraiser, it’s decision time:
Work for yourself or someone else?
If you need some help, read these:
- 23 Reasons Working For Yourself Will Drive You to Drink
- 23 (Surprising) Reasons To Work for Yourself
Now that you’ve decided to work or not work for yourself, here are some ideas to get you appraising:
Work for Us!
We’re not currently hiring, but you might be able to talk us into it.
Get in touch. 🙂
Work for Other Heavy Equipment Appraisers
Put your appraiser research skills to good work and go find an equipment appraisal company that you could picture yourself working with/for.
Here are a few we’ve seen hiring lately:
- TTA Appraisal. Seems like they’re always looking for appraiser contractors and in-house people.
- Tiger. As of this writing, they’re hiring for 2 machinery and equipment appraiser positions. Also, there’s a real-life tiger on their home page.
Cliche, I know, but why reinvent the wheel?
Take an hour and put your resume up.
If you don’t want to put yourself out there for the world to see, put your search on auto-pilot by setting an alert to be notified via e-mail when your dream job comes along.
It’s like hiring a headhunter…but for free.
Here are some specific job sites that we’ve had good luck finding heavy equipment appraiser jobs on:
- Indeed helps people get jobs
- Great insurance jobs. I’ve had a ton of appraiser jobs come across this site.
- The Balance: Top 10 Websites for Jobs