Are you considering listing your construction machinery or other heavy equipment for sale? If so, then you’ll need a heavy equipment appraisal. Also known as an equipment valuation, a machinery appraisal is designed to help you determine what your asset is worth on the open market. There are several different approaches to conducting machinery appraisals, so you must do your research before having the value of your equipment assessed.
With that in mind, here’s how to determine fair market value of equipment. You’ll also find critical insights into Purple Wave’s machinery and equipment appraisal process, designed to help you get top dollar for your assets.
Understanding Heavy Equipment Appraisal
An appraisal determines machinery and construction equipment value. Typically, appraisers are looking for the fair market value (FMV), which is the price at which an informed buyer and seller would willingly participate in a transaction. FMV represents a price point that feels fair and accurate to both parties. The seller isn’t making an exorbitant profit, and the buyer is getting a fair deal on their equipment.
When assessing the fair market value, a heavy equipment appraisal expert will consider variables like:
- Make and model
- Age
- Condition
- Operating hours and mileage
- Demand
- Supply
If a piece of equipment is in high demand but low supply, the value will go up. Conversely, the value will decrease if an asset is readily available, but demand is low. Fair market value constantly fluctuates, which can make the heavy equipment appraisal process tricky.
The good news is that your equipment probably won’t soar or plummet in value overnight. Instead, these fluctuations are gradual.
The Importance of Equipment Valuation
A heavy equipment appraisal goes beyond determining the list price of an asset. In fact, there are many different reasons for a professional appraisal. You could use an appraisal report for:
- Buying or selling
- Financial reporting
- Corporate planning
- Insurance claims
- Litigating or bankruptcy filing
- Mergers and acquisitions
- Property tax assessments
For instance, let’s say that you purchased a new excavator for $200,000 approximately 10 months ago. However, market conditions have shifted significantly, and the same excavator would now cost you $225,000. You could schedule a heavy equipment appraisal to assist with insurance purposes and demonstrate your asset's depreciation for tax filing purposes.
How to Determine Fair Market Value of Equipment
There are numerous ways to determine fair market value. Understanding the various valuation methods will help you decide whether to schedule a heavy equipment appraisal. Ideally, you want to work with an appraiser who uses multiple valuation methods so that you can fully understand what your asset is worth and what it should sell for under different conditions.
Methods of Valuation
Cost, market, and income approaches are the three most common valuation methods. The cost approach considers how much you would have to spend to purchase an asset identical to the one being appraised.
Next is the market approach, also known as the comparative sales approach. This method estimates your equipment’s value by comparing it to similar assets recently sold in your area. Let’s say you have a front loader you want to have appraised, and 10 nearly identical options have recently sold between $45K-$50K. Your equipment would fall somewhere in this valuation range.
The income approach calculates value based on the net income that the asset is likely to generate. Appraisers often use the capitalization rate to determine the property’s value from its income.
The Role of Condition, Age, and Market Demand
Regardless of what fair market value method appraisers use, the condition, age, and market demand for your equipment will impact its value. Older equipment in less desirable condition will be valued lower than newer, well-kept machinery. Minor age gaps don’t make as large of an impact as broad age ranges unless the manufacturer significantly changed the design or configuration of equipment from one year to the next.
For instance, let’s say that there are two front loaders for sale. One was manufactured in 2015, and the other was manufactured in 2017. The make and model are identical, as are the engine hours. However, the 2015 is in significantly better condition. In this instance, the older model may be more valuable, even though it was made two years before the 2017 equipment.
Lastly, we have market demand. Equipment that is in short supply and high demand will rise in value. Conversely, lots of supply with low demand drives values down.
Beyond Fair Market Value
Heavy equipment appraisal service providers like Purple Wave offer a more comprehensive valuation. Our team provides three values: FMV, orderly liquidation value, and forced liquidation value.
Orderly Liquidation Value (OLV) calculates how much your asset would be worth if you sold it as part of a planned liquidation effort. For instance, if you were retiring and wanted to sell off all of your equipment, you might engage in orderly liquidation. OLV prices are a bit lower than FMVs.
Forced liquidation value (FLV) is the lowest amount your asset should sell for if you face location and time constraints to sell your equipment. For example, you would use the FLV if you file for bankruptcy and are ordered to liquidate your equipment to pay off debts.
How Equipment Appraisal Services Work
Having a certified professional perform your appraisal is critical for valuation accuracy and, in certain instances, compliance. At Purple Wave, we offer three categories of appraisal, which include:
- Desktop Valuation: These online options provide fast, cost-effective results
- On-Site Appraisal: Our certified experts come to your work site to perform a comprehensive appraisal
- USPAP Appraisal: Our Uniform Standards of Professional Appraisal Practice (USPAP) team conducts a USPAP-compliant appraisal
All of these appraisals can be broken down into two of the following key stages:
Documentation and Inspection
When performing an online appraisal, we’ll review documentation about your equipment to confirm its age, condition, operating hours, and make and model. If conducting an on-site or USPAP appraisal, our team will comprehensively inspect your asset to determine its condition. Make sure you have all the necessary documentation on hand to expedite the process.
Comparative Sales Analysis
Next, we’ll perform a comparative sales analysis (CSA), known as gathering “comps.” We’ll look at comparable equipment recently sold or listed for sale in your region. That provides more reliable insights, as these transactions demonstrate what buyers in your area are willing to pay for similar machinery.
It’s vital to have an expert perform your CSA, as certified professionals can filter out inaccurate listings that may drive the value of your equipment down. For instance, Purple Wave filters out comps that are in significantly worse condition, as well as those that differ greatly in terms of features.
Heavy Equipment Appraisal From Purple Wave
Heavy equipment appraisals from Purple Wave ensure that you know the true value of your assets before listing them for sale. Our heavy equipment appraisers leverage proven best practices and industry expertise to ensure your assets are priced accurately. Once we’ve determined a fair heavy equipment value, we can list your machinery on our website and make certain that your listing gets nationwide exposure via our reputable and trusted platform.
As a seller on Purple Wave, you’ll also enjoy peace of mind and protection, knowing that buyers are carefully vetted through our registration system. We aim to ensure a smooth transaction for all parties, allowing you to sell confidently. Submit all equipment appraisal requests to Purple Wave to get the most accurate price on the market right now.