As a construction equipment appraiser, I’ve been watching values for for construction equipment rise, and that’s true whatever the reason for the equipment appraisal might be. Generally, construction equipment appraisals are for the purposes of collateral loans or due diligence for buy/sell negotiations, but this year we’ve also provided construction equipment appraisal reports for family law situations, insurance claim appraisals, estate tax and step-up in basis situations, and tax appeals. Of course, these different reasons for construction equipment appraisals use a variety of value definitions, but one thing all the value definitions have in common these days is some of the highest opinions of yellow iron values since the Great Recession of 2008.
Don’t read this wrong — Construction equipment values aren’t skyrocketing by any means. In fact, according to the Rouse Rental Report, which regularly reports on used equipment values, values have recently “stabilized.” But considering the values we saw for this same category of equipment not that long ago, stabilization at current values means more value in heavy equipment appraising than we were finding even a few years ago.
Of course, the construction industry is composed of many different sectors. Most sectors have at least some equipment in common — it’s hard to think of a construction project that won’t involve equipment for dirt work — but some use more specialized equipment. When we’re inspecting bridge cranes, for example, we’re usually not on single family housing construction sites!
The Rouse Rental Report divides construction equipment into 14 common categories: air compressors, compaction (light), articulating boom, compaction (rolling), forklifts hi-reach & forklifts warehouse/industrial, scissor lifts, dozers, skid steer loaders, telescopic boom, excavators, loader backhoes, wheel loaders, generators. Some of the more popular heavy equipment we work with as construction equipment appraisers are backhoes, excavators, rough terrain forklifts, manlifts, telehandlers, rollers, dump trucks, and equipment trailers. Brands include not only the ever-popular Caterpillar and John Deere, but also Hyundai, Case and Komatu as well as others.
Although our research is not predictive, we can’t help but wondering about future value in the construction equipment arena. So what might construction equipment appraisers expect for the future of construction equipment values? Well, we might see values rise a little more, if the 2014 construction industry continues to grow as construction industry experts predict. Over at McGraw Hill, a recent construction industry outlook report predicts moderate growth in 2014 and breaks that growth down into 6 specific construction market sectors:
- Single family housing to grow 26% in dollars
- Multifamily housing up 11% in dollars
- Commercial building up 17%
- Institutional building up 2% (turning the corner after 5 years of decline)
- Public works drop 5%, pulling back after 3% gain in 2013 (large highway & bridge projects)
- Electric utility construction down 33%
Growth in an industry often translates into an increase in value for the equipment used in those industries as businesses expand to meet growing demand. On the other hand, a recent report from Construction Equipment states that “construction equipment investment is expected to decline by 5 to 10 percent,” which may or may not influence values. Whatever happens, you can bet that we’ll be keeping an eye on the construction business as we continue to provide equipment appraisals for the variety of reasons needed by the construction industry.
Jack Young, ASA, CPA
Construction Equipment Appraiser
NorCal Valuation, Inc.
