Understanding the Used Equipment Appraisal Process

“Value” is hard to determine. We’ve all heard that “one man’s trash is another man’s treasure,” and that’s as true with used equipment and machinery as it is for cars or antiques. Used equipment might be valued differently depending on the buyer, equipment owner, industry, or condition. The only way to conduct machinery valuation is through a formal appraisal. Equipment appraisal is an unbiased and dependable opinion on the dollar value of a piece of equipment. It’s important for business owners to have an accurate understanding of the value their assets hold. 

Heavy equipment appraisal is a complex task that requires experience in industrial machinery. The Equipment Hub, offers certified machinery appraisal services. With extensive experience in asset valuation, you can trust The Equipment Hub to provide in depth appraisal reports breaking down values in great detail.

What is the Purpose of Used Equipment Appraisal?

The process starts by understanding why an appraisal is needed. This is important because it can make a big difference to the final valuation. Some of the most common reasons to use equipment appraisal services include:

• Fair value: In order to independently determine a “fair” price for buying and selling equipment, appraisals determine the fair value between two parties. 
• Insurance purposes: To settle an insurance claim, equipment appraisal can help to accurately value a loss and corresponding coverage surrounding a piece of machinery. 
• Business asset valuation: When buying, selling, or dividing a business, or dissolving a partnership, equipment appraisal can play a part in the overall value of a certain acquisition or division. 
• Asset-based loans: When using assets as security for a loan, specifically pieces of machinery or equipment, it is important to accurately value the item to allocate a proper loan value.

Used equipment appraisals can be used in a variety of industries. A few examples of these industries include: 

• Metalworking
• Construction
• Food Processing
• Steel Mill
• Woodworking
• Chemical
• Printing
• Foundry
• Plastics
• Textile
• Rubber

Types of Appraisals

Once the appraiser understands the reason behind the appraisal and the specific industry the piece of equipment is utilized within, the expert can then decide which type of appraisal is required. The Business Development Bank of Canada (BDC) says there are six possible values. In summary, these valuations are:

Fair Market Value 

Fair Market Value is the dollar selling price between a buyer and seller for an item considering the current market conditions. The fair market value is what you might pay or receive for a machine through a dealer or auction. Fair market value is utilized within equipment appraisals with no time or location constraints set. 

Orderly Liquidation Value 

Orderly Liquidation Value (OLV) is utilized when a seller is facing stricter time or location constraints. It is the estimated dollar amount from an asset sale giving the seller a period of time to locate potential buyers. OLV can be described as the price that would likely be realized if a business was being wound-up in an orderly manner. 

Forced Liquidation Value 

Forced Liquidation Value is the valuation method when the equipment or piece of machinery has to be sold in a hurry. It is based on selling an asset as quickly as possible and therefore might be considered the lowest value option. 

Actual Cash Value 

Actual Cash Value (ACV) values your equipment on it’s worth today minus depreciation. ACV considers the age and condition your piece of machinery stands in. 

Replacement Value 

Replacement Value is the cost to replace your item with equipment of the equivalent utility, including installation. Replacement value is what you would pay for new equipment that would serve the same purpose.

New Cost of Comparable Asset 

New Cost of Comparable asset is used for unusual or “one-off” machines that would have to be built to order. 

The Used Equipment Appraisal Process

The machinery appraiser has three methods to use when valuing machines or pieces of equipment. It’s not uncommon to use multiple methods at a time, depending on the circumstances. 

Sales Comparison Method 

The Sales Comparison Approach is used for standard types of equipment. When many examples exist in the marketplace, appraisers are able to look at the price being asked of similar items at auctions and dealers. After finding the similar machine in the market place, the appraiser then considers useful life and adjusts for age and condition to arrive at the end equipment value. 

Cost Method 

The Cost Method is used for unusual equipment or new technology where there are few or no examples recently sold in the marketplace. It looks at the original price the piece was purchased for and subtracts depreciation to date.

Income Approach

The income approach assess the income the equipment or machine produces. Similar to price performance, this method is considered when the item has high money-making potential. Examples would be valuing a bottling line or a cabinet edgebanding machine. In this case, the appraiser looks at what the machine could earn its owner and calculates a value accordingly.

Used Equipment Appraisal Expertise

When it comes to any appraisal, especially equipment valuation, reputation and expertise matter. Finding an accredited equipment appraiser is an important part of understanding the value your assets and equipment hold. For financial institutions, courts of law, or insurance companies to recognize an appraisal it must be performed by someone competent. Competence is assured through membership of a professional body, such as the Association of Machinery and Equipment Appraisers (AMEA).

The Equipment Hub is an AMEA certified equipment appraiser and can provide accurate and dependable appraisal reports on a variety of equipment pieces. Ask us about appraising your used machinery.