Transcript Appraising Machinery & Equipment Presentation

APPRAISING
MACHINERY & EQUIPMENT
By
RONALD J. SAVILL, ASA, MRICS
INTERNATIONAL APPRAISALS, INC.
The
Machinery & Equipment
Appraiser
Tested, Certified, and Designated
by the
American Society of Appraisers
American Society of Appraisers
1.
Requirements for Professional Designations in
ASA
Education
A degree from a recognized institution of learning or such
other education, knowledge or experience as may be
deemed to be equivalent of such professional education
by the International Board of Examiners of the American
Society of Appraisers.
2.
Experience
Member status requires a minimum of two years full time
appraisal experience. Senior Member (ASA) status
requires a minimum of five years full time appraisal
experience.
American Society of Appraisers
3.
Examinations
In addition to other mandatory requirements, individuals must
pass comprehensive examinations covering areas of: General
Value Theory, Technical Expertise, Professional Ethics.
4.
Appraisal Reports
As part of the professional designation process, candidates
must submit several appraisal reports for evaluation and grading.
5.
Personal Investigation
Each individual seeking a designation must furnish numerous
professional and personal references and be subject to local
credit and background investigations.
6.
Continuing Education
To ensure that competent, relevant, and current valuation counsel
is available to the public, ASA requires Accredited Senior
Appraisers to reaccredit.
Reaccreditation Certificate
Royal Institution of Chartered Surveyors
• RICS credentials are only awarded to individuals who meet
the most rigorous education, experience and ethical
requirements.
•
MRICS - Member of The Royal Institution of Chartered Surveyors
The letters MRICS represent professionalism and quality and are
awarded to individuals who meet the following criteria:
•
Education - the individual must hold a relevant Bachelor's level
qualification and/or an RICS recognized professional designation.
Experience - most individuals have at least ten years relevant
experience. Those with a Master's degree may only need five years.
Ethics - the individual agrees to be accountable to a strict code of
conduct.
Evaluation - most individuals complete written submissions and a
final assessment interview to communicate professional and
technical competence.
•
•
•
“appraisal” Definition
USPAP defines “appraisal” as:
the act or process of developing an opinion of value; an opinion of value.
Dimensions Of Value
REPL
FMV-ICU
FMV
OLV
FLV
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Once you have determined that you need an appraisal, we can help you
decide what type of appraisal is appropriate for your situation. The
following concept definitions are recognized as standard by the
American Society of Appraisers.
Types of Appraisals
• Replacement Cost New
Is the current cost of a similar new property having the nearest
equivalent utility as the property being appraised, as of a
specific date.
• Reproduction Cost New
Is the cost of producing a new replica of a property on the
basis of current prices with the same or closely similar
materials, as of a specific date.
• Insurance Replacement Cost
Is the replacement cost new as defined in the insurance policy.
It is the cost new of the items specifically excluded in the
policy, if any.
• Insurance Value Depreciated
Is the insurance replacement cost less accrued depreciation
considered for insurance purposes.
Types of Appraisals
• Forced Liquidation Value
Is the estimated gross amount expressed in terms of money
which could be typically realized from a properly advertised
and conducted public auction with the seller being compelled
to sell with a sense of immediacy on an as is-where is basis, as
of a specific date.
• Orderly Liquidation Value
Is the estimated gross amount expressed in terms of money
which could be typically realized from a liquidation sale given
a reasonable period of time to find a purchaser, the seller
being compelled to sell on an as is-where is basis, as of a
specific date.
Types of Appraisals
• Liquidation Value In Place
Is the estimated gross amount expressed in terms of money
which is projected to be obtainable from a failed facility
assuming that the facility would be sold intact within a limited
time to complete the sale, as of a specific date.
• Fair Market Value
Is the estimated amount expressed in terms of money that may
reasonably be expected for a property in exchange between a
willing buyer and a willing seller with equity to both, neither
under any compulsion to buy or sell, and both fully aware of all
relevant facts, as of a specific date.
Types of Appraisals
• Fair Value
Is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date.
• Fair Market Value In Continued Use
Is the estimated amount in terms of money that may
reasonably be expected for a property in exchange between a
willing buyer and a willing seller with equity to both, neither
under any compulsion to buy or sell and both fully aware of all
facts, including installation and assuming the earnings
support the value reported.
Types of Appraisals
• Fair Market Value-Installed
Is the estimated amount of an installed property expressed in
terms of money that may reasonably be expected in exchange
between a willing buyer and a willing seller with equity to both,
neither under any compulsion to buy or sell and both fully
aware of all the relevant facts, as of a specific date.
• Fair Market Value-Removal
Is the estimated amount expressed in terms of money that may
reasonably be expected for an item of property between a
willing buyer and a willing seller with equity to both, neither
under any compulsion to buy or sell and both fully aware of all
relevant facts, considering the removal of the property to
another location, as of a specific date.
Three Approaches to Value
For every appraisal assignment, an appraiser must
consider all three of the approaches to value:
Cost Approach, Market Approach, Income Approach
1.
The Cost Approach is that approach which measures
value by determining the current cost of an asset and
deducting for the various elements of depreciation, physical
deterioration and functional and economic obsolescence.
The logic behind the cost approach is the principle of
substitution: a prudent buyer will not pay more for an item
than the cost of acquiring a substitute new item with the
same utility as the subject asset.
Three Approaches to Value
2.
The Market Approach is that approach to value where
recent sales and offering prices of similar property are
analyzed to arrive at an indication of the most probable
selling price of the property being appraised. The logic
behind the market approach is that a prudent purchaser
would pay no more for an item than the cost of acquiring an
existing replacement in the used market.
The market approach is the truest indicator of what an asset
would bring on the open market. The type of sale-auction or
negotiated, conditions of the sale, and condition of the
equipment at the time of the sale need to be considered.
3.
The Income Approach is that approach where the net
income that the property can produce is capitalized. The
logic is that a prudent purchaser would likely base his
buying decision upon potential future income generated by
ownership of the assets.
Market Approach Resource Materials
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7.
Internet
Published Cost Guides
Auction Monitoring Services
Trade Journals
Machinery Dealers
Other Appraisers & Auctioneers
Attending & Monitoring Auction Sales
Uniform Standards of Professional
Appraisal Practice (USPAP)
The intent of USPAP is to promote and maintain a high level of
public trust in professional appraisal practice by establishing
requirements for appraisers. It is essential that appraisers develop
and communicate their analyses, opinions, and conclusions to
intended users of their services in a manner that is meaningful and
not misleading.
USAP establishes requirements for impartiality, independence,
objectivity, and competent performance. Because of these
standards, appraisers who comply with USPAP are viewed as
unbiased professionals whose work is worthy of public trust.
To document recognition and acceptance of his or her
USPAP-related responsibilities in communicating an
appraisal completed under USPAP, an appraiser is required
to certify compliance with USPAP.
USPAP
USPAP Reflects the Current Standards
of the Appraisal Profession
USPAP
USPAP
An appraiser must not disclose confidential
information or assignment results prepared for a
client to anyone other than the client and persons
specifically authorized by the client.
Appraisal Report Contents
Proper appraisal practice requires the following
elements be included in any appraisal report.
1.
Letter of Transmittal
2.
Identification of Appraisal Property
3.
Certification and Limiting Conditions
4.
Appraisal Methodology Narrative
Letter of Transmittal
All appraisals should begin with a letter of
transmittal. This letter should state the identity
of the client and any intended users; state the
intended use of the appraisal; state the type
and definition of the value; state the property
interest being appraised; state the value
conclusion; state the effective date of the
appraisal and the date of the report. This letter
should be signed by the appraiser responsible
for the value conclusion contained in the report.
Identification of Property
All items being appraised should be sufficiently
identified so as to avoid any misunderstanding or
confusion over what specifically is included. This
identification could include, when available, the
following:
a) Manufacturer
b) Model Number
c) Serial Number
d) Size and Capacity
e) Year of Manufacture
f) Attachments & Auxiliary Equipment
g) Special Features
h) Photographs
Certification and Limiting Conditions
Each written machinery appraisal report must
contain a signed certification that is similar in
content to the following form:
a) The statements of facts contained in this report are true and
correct.
b) The reported analyses, opinions, and conclusions are limited
only by the reported assumptions and limiting conditions and are
my personal , impartial, and unbiased professional analyses,
opinions, and conclusions.
c) I have (or have not) made a personal inspection of the property
that is the subject of this report
d) The appraiser has no financial interest in the items appraised,
and no personal interest with respect to the parties involved.
Certification And Limiting Conditions
e) The fee was not contingent on the value reported
f) Statements, information, or data supplied by others, on
which the conclusions were based, should be summarized.
g) My analyses, opinions, and conclusions were developed,
and this report has been prepared, in conformity with the
Uniform Standards of Professional Appraisal Practice.
A signed certification is an integral part of the appraisal report.
An appraiser who signs any part of the appraisal report,
including a letter of transmittal, must also sign this certification.
Methodology Narrative
Because intended users’ reliance on an appraisal may
be affected by the scope of work, the report must
enable them to be properly informed and not misled.
Sufficient information includes disclosure of research
and analyses performed and might also include
disclosure of research and analyses not performed.
Furthermore, the appraiser must provide sufficient
information to enable the client and intended users to
understand the rationale for the opinions and
conclusions, including reconciliation of the data and
approaches.
When an opinion of highest and best use is developed
by an appraiser, there should be a description of the
support and rationale for that opinion.
Causes & Effects
When the time comes to actually liquidate assets,
there are certain circumstances which tend to have
a positive or negative influence on the actual
outcome of the sale. These factors effecting value
are often the least understood by both the appraiser
and the client. A client can readily understand why
the condition of the particular machine will have a
direct relationship on the liquidation value of the
machine. However, it is often much more difficult to
understand why the condition of the building in
which that machine is located can have a similar
effect on its value. Causes and effects can be
divided into four categories.
Causes & Effects
1.
Total Draw of M&E
2.
Physical Appearance
There is a direct relationship
between the selling price of machinery and equipment and the
“appeal” of the overall sale. If there are insufficient quantities, too
many of the same item, or if the majority of the equipment is
somewhat obsolete, it will be difficult to draw enough buyers to
create a favorable selling situation. It is for this reason that sellers
should consider carefully the decision to “sell off” assets prior to a
total liquidation.
The appearance of the machinery
and equipment can be of more importance than actual condition.
The appraiser must consider the appearance as well as condition
when arriving at a liquidation value.
Causes & Effects
3.
Location and Industry Economics
4.
Psychological Effects
The appraiser
has to consider the health of the industry that would likely
produce the buyers for the subject machinery and equipment as
well as the practical aspects for transporting the machinery and
equipment.
It is a fact that the assets sold
after an enterprise has failed will usually sell for less than if sold
prior to failure. This is an effect of psychological factors, rather
than the machinery and equipment itself.
How An Appraisal Is
Conducted
1. Before We Begin
1. Determine the purpose, client(s), intended user(s)
2. Request asset/depreciation schedule
3. Estimate cost and time
4. Preliminary Inspection
How An Appraisal Is
Conducted
On Site Procedure
a. Physical inventory: description, model and serial numbers,
attachments, etc.
b. Photograph
c. Note age and condition
d. Interview maintenance personnel
How An Appraisal Is
Conducted
3. In Office Procedure
a) Research Data Base
b) Interview Industry Experts
c) Arrive At Final Value Conclusion
d) Assemble and Deliver Final Report