Appraising Specialty Equipment: Cost Approach
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Most of the time, appraising equipment and machinery is fairly straightforward. But every now and then, specifically for farm and manufacturing equipment, we get something so out-of-the-ordinary that a different sort of research is necesary.
Discover more 's not usually the case. Usually, whenever a USPAP appraisal is needed for a farm, factory, restaurant, ranch, fitness center or production shop, the equipment and machinery is merely what it looks. 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, an equipment appraiser could have a pretty good idea of what's being appraised. The ultimate opinion of value, needless to say, will take into account depreciation factors representing the condition, functionality and operability of said tractor, compressor, or drill, initially derived from this or observed health of the assets and adjusted, based on the Subject Asset's current physical condition taking into consideration the extent and regularity of maintenance, overhauls, and rebuilds. And, needless to say, the premise of value, or level of trade, will inform the final valuation in virtually any USPAP summary appraisal report.
Most equipment and machinery appraisers, however, would agree that--given the required information, even like the research and adjustments needed for such standard equipment--providing an opinion of value for, say, a 2007, well-maintained John Deere 6715 MFWD with 843 engine hours and a Raven System isn't particularly challenging.
What is challenging, and one of the areas of appraising I enjoy the most, is sounding 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 utilize the tried-and-true approach to Market, or Sales Comparison, Approach. A distinctive piece of custom equipment can not be valued by researching sales of other similar equipment-because there is absolutely no similar equipment.
Since we can't, regarding unique equipment, depend on Sales Comparisons to inform an equipment appraisal, we move ahead to Cost Approach. And that is where the fun starts.
Cost Approach estimates value using the cost to replicate or replace an asset with another of like utility. Replacement costs are typically obtained from manufacturers, vendors and published price lists. Regarding custom farm and manufacturing equipment, we can ignore the vendors and published price lists-these items aren't bought and sold in the public market. They're designed and built for just one specific and specialized use, usually for one particular interest or business.
What this often means is that the equipment appraiser will speak to the people 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 solution 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 truly made the unique machine or device.
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 existing value remaining, a critical value within an appraisal.
Most qualified, certified, accredited equipment appraisers come in the business enterprise in large part since they like machinery. So speaking with the people who've created these specialty equipment items for their particular needs, whether for manufacturing, farming, ranching or production, really makes us happy. We can hear from the enthusiasm and interest in their voices they care about equipment, that they are interested in how machinery benefits their very own work, and they are pleased to share the information they will have with someone who also cares.
Sometimes talking with folks is among the most best part to be an equipment appraiser. I've consulted and interviewed with manufacturer reps, sales people, companies, mechanics, auctioneers and appraisers across the nation and in my own neighborhood. It's a continuing delight to report that men and women are almost universally generous with their time and information.
Discover more 's not usually the case. Usually, whenever a USPAP appraisal is needed for a farm, factory, restaurant, ranch, fitness center or production shop, the equipment and machinery is merely what it looks. 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, an equipment appraiser could have a pretty good idea of what's being appraised. The ultimate opinion of value, needless to say, will take into account depreciation factors representing the condition, functionality and operability of said tractor, compressor, or drill, initially derived from this or observed health of the assets and adjusted, based on the Subject Asset's current physical condition taking into consideration the extent and regularity of maintenance, overhauls, and rebuilds. And, needless to say, the premise of value, or level of trade, will inform the final valuation in virtually any USPAP summary appraisal report.
Most equipment and machinery appraisers, however, would agree that--given the required information, even like the research and adjustments needed for such standard equipment--providing an opinion of value for, say, a 2007, well-maintained John Deere 6715 MFWD with 843 engine hours and a Raven System isn't particularly challenging.
What is challenging, and one of the areas of appraising I enjoy the most, is sounding 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 utilize the tried-and-true approach to Market, or Sales Comparison, Approach. A distinctive piece of custom equipment can not be valued by researching sales of other similar equipment-because there is absolutely no similar equipment.
Since we can't, regarding unique equipment, depend on Sales Comparisons to inform an equipment appraisal, we move ahead to Cost Approach. And that is where the fun starts.
Cost Approach estimates value using the cost to replicate or replace an asset with another of like utility. Replacement costs are typically obtained from manufacturers, vendors and published price lists. Regarding custom farm and manufacturing equipment, we can ignore the vendors and published price lists-these items aren't bought and sold in the public market. They're designed and built for just one specific and specialized use, usually for one particular interest or business.
What this often means is that the equipment appraiser will speak to the people 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 solution 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 truly made the unique machine or device.
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 existing value remaining, a critical value within an appraisal.
Most qualified, certified, accredited equipment appraisers come in the business enterprise in large part since they like machinery. So speaking with the people who've created these specialty equipment items for their particular needs, whether for manufacturing, farming, ranching or production, really makes us happy. We can hear from the enthusiasm and interest in their voices they care about equipment, that they are interested in how machinery benefits their very own work, and they are pleased to share the information they will have with someone who also cares.
Sometimes talking with folks is among the most best part to be an equipment appraiser. I've consulted and interviewed with manufacturer reps, sales people, companies, mechanics, auctioneers and appraisers across the nation and in my own neighborhood. It's a continuing delight to report that men and women are almost universally generous with their time and information.
