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APPRAISING MACHINERY _ EQUIPMENT By - Appraising Machinery

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APPRAISING MACHINERY _ EQUIPMENT By - Appraising Machinery Powered By Docstoc
					        APPRAISING
  MACHINERY & EQUIPMENT
                 By

    RONALD J. SAVILL, ASA

INTERNATIONAL APPRAISALS, INC.
            The
   Machinery & Equipment
         Appraiser
 Tested, Certified, and Designated
              by the
American Society of Appraisers
     American Society of Appraisers

      Requirements for Professional Designations in
                          ASA
1.   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.
Reaccredidation Certificate
                             Types of Appraisals


        Liquidation Value

Orderly Liquidation Value

Liquidation Value In Place

        Fair Market Value

Fair Market Value In Place

                Insurance

      Replacement Value

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 estimated amount at which an asset ( or liability) could be
  bought (or incurred) or sold (or settled) in a current transaction
  between willing parties, that is, other than in a forced or liquidation
  sale.


• 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.
                             Types of Appraisals


        Liquidation Value

Orderly Liquidation Value

Liquidation Value In Place

        Fair Market Value

Fair Market Value In Place

                Insurance

      Replacement Value
        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



1.   Internet
2.   Published Cost Guides
3.   Auction Monitoring Services
4.   Trade Journals
5.   Machinery Dealers
6.   Other Appraisers & Auctioneers
7.   Attending & Monitoring Auction Sales
     Uniform Standards of Professional
        Appraisal Practice (USPAP)

 The purpose of the Uniform Standards of Professional
 Appraisal Practice (USPAP) is to promote and maintain
 a high level of public trust in 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.


   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              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.

2.   Physical Appearance             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                  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.


4.   Psychological Effects               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

  A) Determine The Purpose

  B) Request Asset Schedule

  C) Estimate Cost And Time

  D) Preliminary Inspection
        How An Appraisal Is
           Conducted
2. On Site Procedure


  A) Physically Inventory And Inspect Each Asset


  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) Deliver Final Report

				
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