Inspections – the key to cutting costs for equipment and inventory appraisals
An equipment appraisal inspection or inventory appraisal inspection allows the appraiser to collect data about the assets in a shorter period of time, thereby reducing the hours that the appraiser spends on the assignment. These hours can add up to significant savings.
How can an inspection appraisal cost less than a desktop appraisal?
These days we’re all looking for ways to “sharpen our pencils”. When an appraisal is for a single, commonly sold asset, a desktop machinery appraisal may be an economical solution. However, when the assets are located within driving distance of the appraiser, it is often less work for the appraiser to visit the site, collecting his/her own data, rather than relying on others to provide it. The back and forth process of requesting data, reviewing the collected data, and following up on still missing data usually takes longer than the appraiser can do the travel and site visit.
Typically, desktop appraisals cannot be reliably performed for inventory appraisals. Inventory is valued by considering turnover rates, product mix, and other factors that require significant analysis. Each industry has its own set of valuation factors to consider, both onsite and offsite. Also, inventory perpetual reports typically do not contain sufficient asset identifiers for an appraiser to understand the unique specifications of the inventory.
Take into consideration the following extra steps the appraiser needs to perform for a desktop appraisal.
Step 1: Review the supplied asset list
In contrast to an inspection, for a desktop appraisal, the appraiser has to carefully review the asset or inventory list and supply the property owner with an exhaustive list of questions for every line item or category. However, an equipment appraisal inspection provides the appraiser with most of the identification data necessary to properly value the assets.
Step 2: Request additional data and identifiers
For machinery and equipment appraisals, the property owner would need to supply good quality photos of each line item along with all available identifiers including: quantity, type, vintage, make, model, serial number, usage (miles, hours), capacity, dimensions, material, options, and physical condition. Depending upon the level of detail in the descriptions, inventory perpetual reports may be insufficient as a basis for a desktop appraisal. In either case, listing questions for the property owner is a substantial task for the appraiser. The appraiser may also need to provide instructions for the quantity and type of photos required. The data request process can take several rounds of communication just for the instructions to be understood before the data is collected. This places a burden on the equipment owner that can be avoided with an equipment appraisal inspection.
Step 3: Review the additional data and follow up
After the property owner supplies the requested data, the appraiser then has to review the data to ensure that each asset has sufficient identifiers to perform the valuation. Often, the equipment owner provides insufficient identifiers or inconsistencies in the level of data collection between assets. The appraiser reviews the data provided, then assembles a revised list of asset identification requirements that were overlooked by the owner. Additional questions can arise after the appraiser reviews the owner’s responses. The data request and review process is repeated until a sufficient amount of data is collected for each asset in order to provide credible appraisal results. This data collection and refinement process can take much longer than simply ordering an equipment appraisal inspection.
Since the property owner is not an experienced inspector, his photographs typically do not encompass the complete asset or do not show attachments that are included with the property, unique asset qualities, or any asset damage. If the appraiser cannot determine the nature or use of an asset from the photograph and description, he/she may be unable to properly value the asset. At times, the owner is required to obtain additional photos to show all of the property characteristics.
Step 4: Record assumptions and limitations
Desktop appraisals require additional reporting that inspection appraisals do not. The appraiser records the scope of work limitations in the appraisal report. In addition, the appraiser explains what he/she did to overcome any obstacles necessary to provide a proper valuation. Also, the appraiser needs to report the assumptions made about the subject property that were necessary in order to arrive at a credible valuation.
Regardless, a desktop appraisal does not skip the inspection step
You’ll notice that, even though the appraiser is not performing the site visit, an equipment inspection is still required. Typical accounting records have insufficient descriptions of the assets for use in valuations. When property owners collect the data, they take longer than an experience appraiser, so the appraisal assignment is drawn out. Asset data collection and reconciliation can be a tedious, time-consuming process. Not only is this extra work for the appraiser, but can be a significant time commitment by the property owner. The larger the asset list, the more reconciliation issues both the owner and appraiser have in verifying that all data was collected.
Do yourself a favor, get the inspection!
Whether you’re a lender or equipment owner, you can save yourself a lot of time – and potentially cost – by ordering an inspection with the appraisal. Accredited equipment appraisers are experienced in getting through equipment appraisal inspection quickly while collecting the required information in a single pass. This saves time for all parties involved, and therefore produces a completed appraisal in the least amount of time.
About the Author
Tammy Blackburn, ASA is an Accredited Senior Appraiser with over 15 years of experience performing Machinery & Equipment appraisals and Inventory valuations. As an expert witness, Ms. Blackburn has defended her appraisals in Circuit Court, Federal bankruptcy court and in Value Adjustment Board hearings. Having served 7 years as a Special Magistrate in 10 counties for ad valorem Tangible Personal Property, Ms. Blackburn is uniquely qualified to perform appraisals to be used for establishing taxable value.
