Equipment appraisals are essential for businesses, investors, and lenders who need to determine the value of their assets for various purposes. These purposes can include sale, purchase, financing, tax, insurance, and legal matters.

An equipment appraisal provides an unbiased, expert opinion on the value of the equipment based on a rigorous process that involves appraiser selection, pre-appraisal planning, physical inspection, research and data gathering, analysis and valuation, and appraisal reporting.

Selecting an appraiser

The first step in the equipment appraisal process is selecting an appraiser.

Choosing who does the appraisal can be a difficult decision. Here are some factors to consider:

• Has the appraiser been trained?
• Is the appraiser certified? By whom?
• Have they been recognized as an expert in the field in a court of law?
• Are they willing to defend their work in a court of law? 

Experience is one of the most important things an appraiser can bring to the table. Keep in mind that this means experience with the fundamentals of appraisal and not necessarily experience appraising a particular type of equipment. The ability to research a piece of machinery and its market is often more valuable than familiarity with the machinery.

If the appraiser is certified by a training agency, recognized as an expert by a court of law, and willing to defend their appraisal, the last two factors to consider are ethics and professionalism.

Ethics are defined as the moral principles that govern a person’s behavior or conduct. When you invite an appraiser into your place of business, either physically or virtually, you should have a level of confidence in their moral compass since you are exposing yourself and your business to them.

The appraiser you choose should have a high standard of professionalism in appearance, the way they handle your data, who they share it with, and how they interact with you and other people in your organization.

Pre-appraisal planning

The second step in the equipment appraisal process is pre-appraisal planning.

This step involves determining the scope of the appraisal, the purpose of the appraisal, and the intended use of the appraisal. The appraiser should also identify any relevant standards, guidelines, and regulations that apply to the appraisal.

Additionally, the appraiser should gather any relevant documents, such as a list of equipment and their descriptions, purchase orders, maintenance records, and sales contracts.

Physical inspection

The third step in the equipment appraisal process is physical inspection.

This step involves inspecting the equipment to determine its physical condition, age, and functionality. The appraiser should take note of any visible damage, wear and tear, or modifications. They should also identify the make, model, and serial number of the equipment and compare them to the equipment description.

This step may change depending on whether the appraiser shows up in person to do an on-site inspection or if they perform a desktop appraisal.

In the instance of a desktop appraisal, it is up to the equipment owner or client to ensure that physical inspection data is captured to the best of their ability. It is their duty to act as the appraiser's eyes and ears.

The appraiser may be required to write some assumptions into the report based on the amount of data that is provided. The more accurate the data that is given to the appraiser, the more accurate the appraisal will be.

Research and data gathering

The fourth step in the equipment appraisal process is research and data gathering.

This step involves gathering relevant market and industry data, such as sales and auction data, industry reports, and trade publications. The appraiser should also gather any financial data related to the equipment, such as income statements, balance sheets, and tax returns.

Finally, the appraiser should consider any relevant economic and environmental factors that may affect the equipment value.

Analysis and valuation

The fifth step in the equipment appraisal process is analysis and valuation.

This step involves analyzing the data gathered in the previous steps and applying appropriate valuation methods to determine the value of the equipment. The appraiser should consider all relevant approaches to value, such as cost, income, and market approaches. The appraiser should also consider any relevant adjustments, such as for condition, age, and obsolescence.

The appraiser should finish by documenting the rationale and assumptions used in the analysis and valuation in their notes.

Appraisal report

The final step in the equipment appraisal process is appraisal reporting.

This step involves preparing a written report that summarizes the appraisal process, the data and analysis used, and the conclusions and opinions reached. The appraisal report should include any necessary disclosures, such as limitations, assumptions, and disclaimers.

The appraisal report should be clear, concise, and compliant with any relevant standards, guidelines, and regulations. Last but not least, the appraisal report should be presented in a professional and objective manner.

In conclusion

The equipment appraisal process is a rigorous and systematic procedure. The person chosen to perform the appraisal should be experienced, knowledgeable, and objective, and should follow appropriate standards, guidelines, and regulations.

The equipment appraisal provides an unbiased, expert opinion on the value of the equipment and is essential for businesses, investors, and lenders who need to make informed decisions based on the value of their assets.