Every Machinery and Equipment Appraiser has been asked this question — “I’ve got some equipment that I need to have appraised. How much will it cost?” And every certified equipment appraiser should answer that question by asking for more information, because not only does the cost of an equipment appraisal depend on the location, volume and type equipment to be appraised, but just as importantly, always on what kind of appraisal is needed.
As we all know, the reasons for an equipment appraisal can be varied and multiple. Will the appraisal be used for litigation purposes, in an attempt to settle a loss claim with an insurance company, or to resolve a family law matter? Or will the equipment appraisal be used for due diligence, a property tax appeal or to make buy-sell decision?
The reason for the equipment appraisal points directly at the premise of value, or levels of trade, that will be most appropriate for that appraisal.
Because machinery and equipment appraisers deal with assets that, unlike real estate, can often be moved or sold in many different markets, or trade levels, the determination of level of trade is an important consideration in the machinery and equipment appraisal industry. Depending on the market, or the probable future use, equipment and machinery can have very different values. Consider the difference between the value of manufacturing equipment, for instance, sold for continued use in place at the plant, and that same equipment parceled out and hauled away. In determining the level of trade for a particular equipment appraisal, then, we are determining the basic market place that one is presuming in the valuation, which guides the appraisal’s bottom-line.
So before an accredited equipment appraiser will quote a price for appraising equipment for agriculture, manufacturing, construction, factory or rolling stock — and certainly before a USPAP appraisal report can be put together — the equipment appraiser needs answers to these 2 questions:
- What is the purpose of the appraisal? — “When the client has the appraisal report in-hand, what are they going to do with it?” A clear answer to this first question leads directly to the next question:
- Given the purpose of the equipment appraisal, which level of trade, or premise of value, will best meet the needs of the purpose of this appraisal?
Machinery and equipment appraisers generally choose from four major levels of trade with various subsections within each; these levels are Liquidation, Sale for Removal, Continued Use, and, of course, the catch-all category “Other.” Once we determine and confirm which of these values will be used in an appraisal, the Uniform Standards of Professional Appraisal Practice (USPAP) requires that the report “identify the type and definition of value.”
Being diligent in defining the definition of value used in the equipment appraisal report is not just a good idea for compliance with USPAP; it is critical in preparing an understandable and useful equipment appraisal report.
We’ll talk more about levels of trade in future posts. If you have any questions in the meantime, I hope you’ll comment or tweet.
Jack Young
NorCal Valuation
