Machinery and Equipment Appraisal
As pointed out in the previous Leased Equipment post, today’s equipment lessor must be more knowledgeable than ever before about the value of leased equipment: Many leasing decisions, from the initial transaction pricing through the ultimate disposition of the equipment, are based on the value of the underlying asset. In addition, it’s critical to have an accurate projection of residual values.
For all of these reasons, equipment lessors need a qualified equipment appraiser to guide them through the maze of asset valuation. The question for equipment lessors, then, is how to select an appraiser, what to look for in the equipment appraisal contract, and what to expect in a leased equipment appraisal report. Thanks again to Bob Podwalny for the generous contribution of his knowledge and experience in this area.
Over the years, I’ve done a number of valuations on leased equipment for various reasons. It’s almost aways the case that the folks who are leasing the equipment and the folks who own it don’t agree on what the value of the equipment is or even what the premise of value should be for the equipment being appraised. Most equipment appraisers would probably agree that valuing leased equipment is more straightforward if the contract specifies a premise of value, but we know we can’t count on that. What we can count on is that equipment lessors will continue to need their equipment appraised. This post is really for them. And I want to thank Bob Podwalny, again, for the generous contribution of his knowledge and experience in this area.
One of our new year’s resolution at NorCal Valuation is to be even more paperless in 2013. We took a big step in saving paper last year when we stopped mailing printed equipment appraisal reports. We now send electronic reports to all of our clients, whether attorneys, lending institutions, corporations, CPAs, or small businesses. Not only does this save paper, it also saves time and allows our clients and end-users to share the reports more efficiently if needed.
Whether retail propane companies need an equipment appraised for collateral lending situations, buy-sell agreements, family law, estate tax or any other reason, the equipment appraiser needs to take a good look at not only the basic equipment of the retail propane industry — trucks and trailers, customer tanks, and large volume storage tanks — but also the industry itself. In the last two posts, we covered recent changes in the retail propane industry and considered the influence of those changes on the value of delivery trucks and tanks. In this last post, we’ll finish up with a discussion about the other tanks in the retail propane delivery industry: customer propane tanks and the large, on-site propane storage tanks.
Earlier, we reviewed current conditions in the retail propane industry, a commodity-based industry in a mature market place suffering from reduced sales and relatively flat projected growth. With a general understanding of the industry situation, the retail propane equipment appraiser can more easily address the interesting challenges in valuing the 3 standard equipment categories of a typical retail propane company:
- Delivery, transport and service trucks and trailers
- Customer tanks
- Large volume storage tanks
Each of these categories presents its own particular challenges in valuation, from the varieties of obsolescence to the consideration of absorption, or blockage. In this post, we’ll focus on the delivery trucks, saving the propane tank valuation considerations for another day.
Retail propane companies may need their equipment appraised for collateral lending situations, buy-sell agreements, family law, estate tax or several other situations. Whatever the reason, when appraising retail propane equipment, it’s important for an equipment appraiser to understand the overall retail propane industry as well as how the basic equipment — trucks and trailers, customer tanks, and large volume storage tanks — fits into the big picture. Over the next few posts, we’ll talk about recent changes in the retail propane industry and how those changes are influencing the value of basic propane delivery equipment. Let’s start with an industry overview.
Installation costs are one of the variables in equipment appraisal. There are two different reasons why many equipment appraisals wouldn’t include installation values. The most obvious reason is that a great variety of equipment doesn’t have any associated installation costs. Installation costs include freight, delivery, engineering, foundations, wiring and exhaust systems, along with all other costs necessary to make equipment fully functional in place such as calibration. One obvious example of equipment with no installation costs is rolling stock — this category includes not only transportation units like trucks and commercial trailers, but also most agricultural and construction equipment, as well as landscaping equipment like edgers, mowers, shredders and blowers. That’s a pretty straightforward reason not to include installation costs in an equipment appraisal.
So an accountant and an equipment appraiser walked into a bar … the punchline would refer to a misunderstanding about depreciation, but depreciation in equipment appraisals is no joke. Mention depreciation to an accountant and the first thing that comes to mind is the depreciation schedule, whereby the value of fixed assets are reduced annually by a predetermined amount. To an equipment appraiser, depreciation means a real loss in value of the equipment, whether from physical deterioration, functional obsolescence, economic obsolescence — or all some combination of the three.
When you or a client need an equipment appraisal, the first step should be generating an asset list. Not just “oh, we have a lot of construction equipment,” but a solid, comprehensive asset list. Why is this? Because when you call an equipment appraiser to get a quote and timing, the first thing an experienced appraiser will ask is what exactly needs to be appraised and where it is. Those questions can only be answered if you already have in-hand a comprehensive list of the items to be included in the equipment appraisal.