Equipment Appraisals are Important Before Selling any Heavy Machinery
Heavy Construction Equipment (CE) are always very costly and demand huge initial investment. Hence, finances have to be worked out carefully. Same is the case with used heavy equipment too. But the irony is that they don’t command good value when the companies wish to resell them.
There is no doubt that every company/seller would want good value for their equipment as per the market demand but most of the times, it does not happen. Here comes the most vital aspect as to how to determine the right price of the equipment after you have used it for several years and now don’t have any need for it or want to buy a new upgraded equipment or any other factor and thus, want to sell it.
Well, selling a used equipment is definitely a complex process involving various important aspects. It is not that easy to assess the right cost of the equipment after all the wear and tear and constant use since many years. However, if you have done the equipment appraisal correctly, then you will be able to command good value for your used machinery. Thus, it goes without saying that equipment appraisals are important before selling any used heavy machinery and you should take this task very seriously.
Imagine a scenario, where you have put up your used equipment on an online auction site and it is not catching the due attention of the buyers. On finding out the reason, you realise that the cost of your equipment is significantly higher than the other sellers and this is why, you are being neglected by the buyers. Hence, in order to avert such a situation, you need to ensure that you set an accurate starting price for you heavy CE. But how to arrive at the right cost? Well, here is where equipment appraisals come into picture.
Here is how you can do the equipment appraisal...
1. Adopt the cost approach: Determining the replacement cost of the machinery and then subtracting any value that has been lost due to economic obsolescence, functional obsolescence or physical deterioration is the cost approach. Simply put, it is the current cost (as if new) less all forms of depreciation. The main prevalent logic behind this approach is the principle of substitution i.e., a careful buyer will not pay more for an equipment than the cost of acquiring a substitute equipment of equivalent utility. The three types of depreciations that affect the cost of the used equipment include:
a) Economic obsolescence: Outside factors like increased raw material, labour cost or competition, changes in the industry and various other things may result in the loss of value of the equipment. Hence, you need to look at all these factors to determine the right cost for your equipment.
b) Functional obsolescence: There may be loss of value of heavy machinery due to technological advancements. This is termed as functional obsolescence and should be looked at carefully while deciding on the price of your used equipment.
c) Physical deterioration: The loss of value due to wear and tear on machinery is termed as physical deterioration. Often, as the equipment is operated regularly, it experiences physical stress and is exposed heavily to the outside environment. This results in wearing of the machinery and requires regular maintenance. If the regular maintenance is not performed, then the machinery may deteriorate faster. This physical deterioration affects the equipment cost greatly. So, you need to look at physical deterioration to assess the cost of your equipment rightly.
2. Adopt the market approach: In this approach, you need to look at the cost of similar machines that were sold recently. This method is considered to be the best way to arrive at the best cost for your used equipment. For applying this method, you can talk to dealers, auction houses etc., for getting the data. Some of the other factors that you may consider when comparing you equipment with the others include manufacturer, model, effective age, condition, capacity, price, time of sale, type of sale, location and accessories amongst other things. You should also gather information about the market trends, present demand and statistics and future growth scenario of CE business. However, this method may not work, if you machinery is unique in its nature.
3. Adopt the income approach: In this method, you calculate the future income or benefits you will be able to earn with the given equipment and based on that, you fix a cost. However, this approach is not widely used as it is difficult to calculate the future benefit that a specific equipment can bring to an owner, though, it can be used as an indicative method.
Apart from the above factors, you need to look at all the exemplary features that your equipment is providing as compared to its competitors in the market and then establish a suitable price range for your equipment. Generally, you should keep your quotes at par if not lower than that of the competitors because more often, customers compare rates.
Overall, equipment appraisals are extremely important. The above mentioned equipment appraisal steps may seem time consuming and laborious but they are extremely important when you are selling any used equipment. You need to pay heed to each of them so as to not suffer losses. However, most of the times, you may not be able to assess the worth of your equipment correctly as it requires special analytical skills. Here, an expert appraiser can come into picture. Expert appraisers can inspect the equipment thoroughly and provide a certificate indicating an accurate value for your CE. It is very important to have a reputable and fully-certified appraiser to appraise your valuable equipment as after all, huge money is involved. Generally, certified appraisers use the right methodology to arrive at the right price.
So, do remember to appraise your used equipment before selling. Moreover, equipment appraisal may help you for insurance claims purposes too!