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In Praise of Appraisals

By Pat Szany

January 30, 2019

When I moved into my first house and purchased homeowners insurance, the most crucial piece of advice from my insurance agent was to video and record all of my home possessions. In any event, I could prove and establish the value of my home possessions. I have since implemented this process into my business life.

Fifteen years ago, I became an American Society of Appraisers (ASA) candidate member, and I have used that license for many reasons within the packaging industry. That included flooded plants and other disasters, but it was mostly to provide customers with the knowledge of what their equipment is worth in value.

As an individual, your home is your most valuable purchase, but as a business owner, your equipment could be your greatest asset. We all can Google real estate sites and get a market value of our houses, but what your equipment is worth is a little more difficult to determine.

There are many reasons for an equipment appraisal, including business loans and for financial institutions to use the current value as collateral for financial decisions. In addition, customers use their assets for expansion plans or cash flow needs. Sometimes, customers are refinancing for lower interest rates or for purchasing additional equipment.

With the consolidation of facilities and the transfer of assets from plant to plant, owners need to know what their machinery is worth. There are many different values to be considered. I have appraised new and used items that were damaged in transit, or some companies need full replacement value insurance, provided to replace damaged machinery.

Equipment appraisals are an important business factor today. Many financial institutions require an appraisal every three to five years, and they are generally good for those few years, as long as the current market does not change drastically. Many financial companies want the appraiser to establish values for a period of seven or even 10 years into the future.

A qualified appraisal will be conducted in accordance with the Uniform Standards of Professional Appraisal Practices (USPAP), which was established by the Appraisal Foundation to provide appraisers with acceptable standards of conduct. Using a qualified appraiser with certification can eliminate problems. In a worst-case scenario, the appraisal may need to be defended in a court of law.

New corrugated machinery, for the most part, holds its value fairly well. It may lose 25 percent of its value in the first two years, but the decline lessens from there. Used machines, on the other hand, may not lose any value for the first five years of ownership. Many box plants prefer buying used equipment, as the major portion of the depreciated value has been absorbed by the original buyer. Others buy machines that are refurbished, rebuilt, or repaired. In most cases, these machines still have 20 years of useful life.

The bottom line is to know what your equipment is worth and to keep current documentation of your assets by taking videos of your facility. Have a formal appraisal on file; you can then use that value to evaluate your business and capitalize on your assets.

Pat Szany is president of American Corrugated Machine Corp. and vice chairman of AICC’s Associate Board.