When your Bankruptcy Attorney requests an equipment appraisal, it’s usually up to you to find a qualified equipment appraiser. And as you might suspect, not all machinery & equipment appraisals are created equal! When you need an appraisal for your bankruptcy—or any other reason, for that matter—be sure that the equipment appraisal company you choose meets the four important qualifications of Accreditation, Experience, USPAP Education and Approval of your Bankruptcy Attorney.
Professional Accreditation A professional equipment appraiser has the expertise, certification and knowledge to conduct an independent, third-party machinery and equipment appraisal. When you work with an equipment appraiser accredited by the American Society of Appraisers, you can be confident that you’ll receive a summary appraisal report with substantiated and realistic values.
Experience While you might be tempted to cut corners and use a less experienced appraiser for your bankruptcy appraisal, someone with minimal or no experience in bankruptcies might not prove to be a bargain in the end. Make the wise choice and be sure your equipment appraiser has knowledge and understanding of the bankruptcy process to ensure that you get the best appraisal possible for your situation. Two areas that need to be addressed during a bankruptcy equipment appraisal are Level of Trade (aka Premise of Value) and Absorption:
Level of Trade: A bankruptcy appraisal must be calculated based on the correct level of trade or premise of value. Most bankruptcy cases call for Forced Liquidation Value, which can often provide a value lower than Fair Market Value.
Absorption: In addition, an experienced equipment appraiser will be aware of the possibility of what the IRS calls “blockage,” also commonly referred to as “absorption rate” — a common problem when having to quickly liquidate a high volume of similar equipment, such as a fleet of Peterbilt trucks. I’ll discuss this further in a separate post, but be sure that your equipment appraiser is familiar with this concept, especially if your business has a large inventory of very similar items.
USPAP Qualified Only work with an equipment appraiser who has been trained in and abides by the regulations and ethics of the Uniform Standards of Professional Appraisal Practice (USPAP). Be aware that just because a person claims USPAP compliancy, or a report states that is it USPAP compliant, doesn’t make it so. Check your equipment appraiser’s curriculum vitae / resume to be sure that USPAP classes are up-to-date.
Confirm with your Bankruptcy Attorney When you’ve found a qualified professional equipment appraiser for your bankruptcy appraisal, take the time to consult with your attorney regarding the scheduling of the appraisal, as well as the asset list (items to be including in the appraisal). It could be a good idea, as well, for your equipment appraiser to have a conversation with your attorney to clarify level of trade, asset list and any details regarding the bankruptcy that may not a little out of the ordinary. In bankruptcy proceedings, as in any equipment and machinery appraisal, communication is critical to producing the most desired results.
Jack Young, ASA, CPA
NorCal Valuation
