Most of the time, appraising equipment and machinery here in the Sacramento area is fairly straightforward. But every now and then, especially for farm and manufacturing equipment, we get something so out-of-the-ordinary that I get to put on my detective hat and do a different kind of research.
That’s not often the case. Usually, as I pointed out in a previous post, when I’m asked to do a USPAP appraisal for a farm, factory, restaurant, ranch, fitness center or production shop, the equipment and machinery is just what it appears to be. The inventory lists of Subject Assets I see usually include such basic items as a John Deere 6715 MFWD, a Leroi Diesel 185 towable compressor, or a Bridgeport mill. So in most cases, just by looking at the inventory, I have a pretty good idea of what I’m appraising. The final opinion of value, of course, will take into account depreciation factors representing the condition, functionality and operability of said tractor, compressor, or drill, initially derived from the age or observed physical condition of the assets and then adjusted, based on the Subject Asset’s current physical condition considering the extent and regularity of maintenance, overhauls, and rebuilds.
Despite the research and adjustments needed for even such standard equipment, however, I think any equipment and machinery appraiser would agree that providing an opinion of value for, say, a 2007, well-maintained John Deere 6715 MFWD with 843 engine hours and a Raven System is not particularly challenging.
What is challenging, and one of the aspects of appraising I enjoy the most, is coming across a one-of-a-kind, custom-designed & -built, just-for-our-shop/farm/assembly line creations. In a situation like this, an equipment appraiser can’t use the tried-and-true method of Market, or Sales Comparison, Approach. A unique piece of custom equipment can’t be valued by researching sales of other similar equipment—because there is no similar equipment. Not in Sacramento, not in Yuba City, not in San Francisco, Oakland, Reno, Stockton or Placerville. And no, not anywhere else, either.
Since we can’t, in the case of unique equipment, depend on sales comparisons to inform an equipment appraisal, we move on to Cost Approach. And that’s where the fun starts.
Cost Approach estimates value based on the cost to reproduce or replace an asset with another of like utility. Replacement costs are typically obtained from manufacturers, vendors and published price lists. In the case of custom farm and manufacturing equipment, we can ignore the vendors and published price lists—these items are not bought and sold in the public market. They are designed and built for one specific and specialized use, usually for one particular interest or business.
What this means is that I get to talk to the folks who built the specialty equipment. Often that’s someone who’s hands-on in the business—the farmer who owns the almond orchard, the rice farm, or the fruit and vegetable farming and distributing company; an owner-engineer who figured out a more effective way to cut or polish a lens, dredge a river for gold, or twist a sheet of metal; and sometimes a rep from a manufacturing business that actually made the unique machine or piece of equipment.
Two important steps follow these interviews: First, indexes from the Bureau of Labor Statistics are used to track the original cost up to “Replacement Cost New” and then an age/life analysis determines the current value remaining, a critical value in an appraisal.
I’m an accredited equipment appraiser in large part because I like machinery. So talking to the folks who’ve created these specialty equipment items for their particular needs, whether for manufacturing, farming, ranching or production, really makes me happy. I can hear from the enthusiasm and interest in their voices that they care about equipment, that they’re interested in how machinery benefits their own work, and that they are pleased to share the information they have with someone who also cares.
Sometimes talking with folks is just about the best part of being an equipment appraiser. I’ve consulted and interviewed with manufacturer reps, sales people, business owners, mechanics, auctioneers and appraisers across the nation and right here in my own neighborhood of the Sacramento Valley and the San Francisco bay area. It’s a continuing delight to report that folks are almost universally generous with their time and information.
Jack Young
NorCal Valuation
