Types Of Appraisals
TYPES OF VALUATION STUDIES
There are typically three types of studies that can be performed during an equipment valuation. The three are inventory, site inspection, and desktop.
The inventory appraisal is utilized when an accurate asset listing does not exist. This approach requires a detailed inventory and inspection of all the assets.
The site inspection appraisal involves a detailed inspection of a representative portion of the assets. This inspection is utilized to determine the physical condition, and to verify the existence of the major assets.
A desktop appraisal is utilized when timing is short, or a site visit is not required. A detailed asset listing must be provided and personnel familiar with the assets should be available to discuss their condition.
A desktop appraisal is performed without the appraiser physically being present on the site of the assets for the appraisal. Thus, no physical inspection of the assets takes place. A detailed asset listing must be provided. The appraiser depends only on the information he/she is given by the company.
This inspection provides confirmation that the:
- Assets are present in the location stated
- Specific information regarding the assets, such as year, make, model, serial number, rebuild, retrofit history, original cost information, and any other information that is important by the appraiser or to the client is complete and accurate.
- Assets are properly maintained and/or in good working condition
- Assets are being used in the appropriate manner as per the original design
The clients are responsible for gathering all physical data, reporting current conditions and supplying the appraiser with this information. A desktop appraisal should only be considered to address general questions relative to the potential value of the assets and to determine if a full scope, on-site inspection should be performed.
To complete a desktop appraisal, factors about the assets such as: age, manufacturer, model, serial number, and capacity are needed. In addition to this information, other factors such as the operating condition, maintenance, and history of the assets, is also considered and deemed necessary to both the seller and the appraiser. The appraiser assumes the assets are to be in average working condition and maintained within the industry standards.
In a Desktop Appraisal the appraiser believes that the information about the assets is an accurate representation of the assets subject to the desktop appraisal. This type of appraisal is utilized when timing is short, or when a site visit is not required.
On Site Full Machinery and Equipment Appraisals
All of our machinery and equipment (M&E) appraisal work is supervised and performed by certified appraisers and/or engineers. These appraisals conform to the Uniform Standards of Professional Appraisal Practice (USPAP). The steps in a typical machinery and equipment appraisal assignment include:
- Identifying the assets to be appraised
- Defining the purpose of the appraisal
- Establishing the valuation date for the appraisal
- Determining the appropriate valuation concepts and approaches to be utilized
- Determining the type of valuation study to be completed
- Selecting the type of appraisal report to be provided
- Checking the availability of data and information
IDENTIFICATION OF ASSETS
A full appraisal consists of machinery, furniture, fixtures, office and telecommunications equipment, computer and networking equipment, vehicles, etc. Appraisals can be performed for individual pieces of equipment, a production line, a complete operating facility, or multiple operating facilities.
PURPOSE OF THE APPRAISAL
An equipment appraisal can have many purposes including, but not limited to:
· Liquidation and bankruptcy
· Management Planning
The valuation date sets the exact date at which the value is determined, and establishes the context for the opinion of value.
TYPES OF APPRAISAL REPORTS
Under USPAP, there are three types of reports for equipment appraisals: Self-Contained, Summary, and Restricted Use. The essential difference among the three reports is in the content, level of detail and information provided. The Self Contained report is the most detailed of the three. The Restricted Use report is utilized when the client will be the only party relying on that report.
Fair Market Value is the professional opinion of the most probable price of the market value of a property expressed in terms of money. This exchange of property for money is between a willing buyer and a willing seller with equity to both. Neither the buyer nor the seller is under any compulsion, to buy or to sell the property. Both parties are fully aware of all of the relevant facts, as of a certain date.
Fair Market Value auction, As to the assets that are sold in a Fair Market Value auction, both the buyer and seller accept that the assets must be taken apart and removed at the owner’s expense and that the assets are sold as is. The above assumes that the buyer and the seller are well informed or well advised, motivated by reactions of typical users, free from undue stimulus, financially capable of ownership and/or use, and allowed a reasonable period of time in which to test the market. Any deletions or additions to the total assets appraised could change the psychological and/or monetary appeal necessary to gain the values indicated.
Fair Market Value in Continued Use is the professional opinion of the most probable price of the market value for a property expressed in terms of money. This exchange of property for money is between a willing buyer and a willing seller with equity to both. Neither the buyer nor the seller is under any duress or compulsion to buy or to sell the property. The seller and the purchaser are both aware and have reasonable knowledge of relevant facts of the property. These relevant facts include installation-as to a specific date, and this also assumes that the earnings accurately reflect to the value reported.
These relevant facts include installation-as to a specific date, and this also assumes that the earnings accurately reflect to the value reported. Fair Market Value in Continued Use also allows for the benefit of all leasehold and site improvements made to assist the progress of an operation. The seller accurately and completely representing the existing condition to the operation facility, or the contribution of all the assets as a whole, whichever appropriately addresses the production capabilities of the plant. In contrast to other Fair Market Value appraisals, this definition does take into consideration the past, present, or forecasted income generating performance of the product lines produced.
This definition also contemplates the retention of the assets in the current existing use for the purpose for which they were designed and that acknowledges that they were constructed as part of an on-going business.
Fair Market Value In Place is the professional opinion of the most probable price of the market value of assets expressed in terms of money. This exchange of assets for money is between a willing buyer and a willing seller. Neither the buyer nor the seller is under any duress to buy or to sell the assets. Both parties have reasonable knowledge of relevant facts. The assets that are sold under a Fair Market Value In Place scenario are to remain in place and be functional. All the assets which have been specifically designed and/or built will remain to be utilized in the way in which they were originally intended.
This definition does not take into deliberation the past, present, or forecasted income, generating performance of the product lines made. It should be comprehended that In Place appraisals do not allow for historical or future earnings potential. This is because the In Place appraisal is an estimate of limited scope.
Shortage of good sales information, leads In-Place appraisals allowing for the value of the personal property as individual assets. Although, further consideration is given to such costs as the estimated contributory value of depreciated installation, and other costs such as site improvement and transportation..
Forced Liquidation Value is a professionally estimated worth of the most probable price recognized by a forceful liquidation. The reason for a Forced Liquidation Value is that the seller’s company is under duress and he/she is compelled to sell his/her asset(s) because he/she has a sense of immediacy, such as being forced to liquidate to meet a specific deadline. The seller needs to sell the assets as quickly as possible. The price of a Forced Liquidation Value is the estimated gross dollar amount that could be characteristically realized from a properly advertised and conducted public auction.
The results of prices set by a Forced Liquidation Value take into consideration location, difficulty of removal of the item(s) being sold, condition, adaptability, specialization, marketability, overall appearance and psychological appeal. The seller realizes that all assets are sold one by one, on a piecemeal basis, and the purchaser also acknowledges they are sold on the terms of “as is,” and “where is.” This means the item(s) are sold “as is”, without any type of modification. The “where is” to the purchaser means the item(s) are the purchaser’s responsibility for removing the assets at their own risk and expense. The purchaser acknowledges that the “as is” and the “where is” conditions provide that there are no warranties on the assets.
It should also be known that any type of an alteration, such as additions or deletions to the assets appraised, would change the psychological and/or monetary appeal, which would then change the ability to generate the value(s) previously estimated
Appraisal Terms and Definitions
Orderly Liquidation Value is a professional opinion of the estimated price, expressed in money, that an asset or company could quickly be sold for, should the company go out of business.
Typically, an Orderly Liquidation Value is the value achieved at a privately negotiated sale so that the assets have an opportunity to draw adequate prospective buyers, ensuring competitive offers are considered. The sale is advertised and professionally managed by a seller. Similar to a Forced Liquidation Value, any type of an alteration to the assets would change the psychological and/or monetary appeal, which would then change the ability to generate the value(s) previously estimated.
Different from a Forced Liquidation Value, the Orderly Liquidation Value assumes that the company can afford to sell its assets in a predetermined time period (often three to six months) through private negotiation. The seller is under duress and has a compulsion to sell the assets in a limited amount of time.
Each asset is sold in the most appropriate mode through the channels of sale distribution that bring in the highest price reasonably. The purchaser understands all assets are sold one by one, on a piecemeal basis, and the purchaser also acknowledges they are sold on the terms of “as is,” and “where is” conditions provide that there are no warranties on the assets. This means the asset(s) are sold “as is”, without any kind of modification. The “where is” to the purchaser means the asset(s) are the purchaser’s responsibility for removing the assets at their own risk and expense.
Orderly Liquidated Value in Place – Orderly Liquidated Value in Place is the professional opinion of the estimated gross amount of assets in place expressed in terms of money that a knowledgeable buyer would be willing to pay a knowledgeable seller. Orderly Liquidated Value in Place
Appraisal Terms and Definitions
Orderly Liquidated Value in Place is the professional opinion of the estimated gross amount of assets in place expressed in terms of money that a knowledgeable buyer would be willing to pay a knowledgeable seller for the assets in place, taking advantage of all leasehold and site improvements designed to facilitate their operation.
Both the buyer and seller acknowledging the assets must be sold and are being purchased ‘as is, where is’, (without any kind of modification) with the intent of continuing the operation of the assets in the manner for which they were intended. Thee purchaser acknowledges that the “as is” and the “where is” conditions provide that there are no warranties on the assets. The seller professionally advertises and manages the sale. Any type of an alterations to the assets would change the psychological and/or monetary appeal, which would then change the ability to generate the value(s) previously estimated.
An Orderly Liquidated Value in Place assumes the company can afford to sell its assets in a predetermined time period (often three to six months) through private negotiation and it does not take into consideration past, present, or future income generating performance of the assets. The buyer and the seller acknowledge the sale of the assets is under duress and there is a compulsion to sell the assets.
However, the In Place appraisals often take into consideration the value of personal property as individual assets with additional consideration given to the estimated contributory value of depreciated installation costs, site improvements and transportation costs. In Place appraisals do not allow for historical or future earnings potential because the In Place appraisal is an estimate of limited scope.
Replacement Cost New is a professional opinion of the cost, expressed in terms of money, in offering substitutes similar to the assets that had been inspected. In contrast to Replacement Cost Used, these substitutes are new and they display modern design, along with technology, quality and utility. However, if a direct replacement is not accessible, then the appraiser uses his/her professional opinion in estimating the cost. Taxes and transportation are not included in the cost estimate.
Replacement Cost Used – A professional opinion of the cost in terms of money in providing substitutes similar to the assets inspected having comparable utility and exhibiting similar design and technology. This cost estimate excludes taxes and transportation.
Sound Value –The installed replacement cost new of an asset, less an allowance for physical, functional, and external factors of depreciation. Costs to remove assets for use elsewhere are not considered.
Valuation is the method of appraising the prospective market value of a financial asset(s) for an auction. These assets can include industrial machines, farm equipment, heavy equipment, machinery. Valuations are required in many contexts including investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability, and in litigation.