When your bank asks for a machinery appraisal or you need to value equipment for a business sale, understanding the different types of appraisals available can save you time and money. A machinery and equipment appraisal is a formal, USPAP-compliant opinion of value prepared by a certified appraiser to determine what your assets are worth in today's market.
You might need an appraisal when securing SBA financing, buying or selling a business, filing insurance claims, handling estate matters, or resolving partnership disputes. The key is choosing the right type of appraisal for your specific situation.
Quick Answer: The main types of machinery appraisals include Fair Market Value (for ongoing operations), Liquidation Value (for asset sales), and Replacement Cost (for insurance). Report formats range from detailed Summary Reports with onsite inspections to cost-effective Desktop Reports using remote analysis.
This guide explains the different appraisal types by value, report formats, valuation methods, and helps you determine which option fits your needs and budget.
The type of value you need depends on your specific situation and how you plan to use the equipment. Here are the most common value types and when to use each:
Fair Market Value (FMV) represents what a willing buyer would pay a willing seller in an open market, assuming both parties have reasonable knowledge and neither is under pressure to act. This is the gold standard for most business transactions, loan applications, and tax purposes. For example, if you're selling a profitable manufacturing business, FMV assumes the equipment will continue operating in its current environment.
Fair Market Value in Continued Use considers the equipment's value as part of an ongoing operation, including the benefit of trained operators, established workflows, and existing customer relationships. This typically yields higher values than standalone FMV because it accounts for the operational synergies.
Orderly Liquidation Value assumes you have reasonable time to market and sell the equipment, typically 3-6 months. This applies when you're downsizing operations, selling surplus assets, or closing a facility but aren't under immediate pressure. Values are usually 20-40% lower than FMV because buyers know you're motivated to sell.
Forced Liquidation Value reflects what you'd receive in a quick sale scenario, such as an auction or distressed sale where you need cash immediately. This typically yields the lowest values, often 40-60% below FMV, because buyers have significant negotiating leverage.
Replacement Cost New estimates what it would cost to purchase equivalent new equipment today, which is essential for insurance coverage decisions. This helps ensure you can actually replace damaged equipment at current market prices, not what you paid years ago.
The format of your appraisal report affects both cost and acceptance by third parties. Understanding your options helps you balance budget constraints with credibility requirements.
Summary Appraisal Reports include onsite inspections where the appraiser physically examines each piece of equipment, takes photographs, and documents condition details. These comprehensive reports typically run 20-50 pages and include detailed asset descriptions, comparable sales data, and thorough methodology explanations. Banks, courts, and the IRS generally prefer summary reports for significant transactions because they provide the highest level of detail and credibility.
Desktop Appraisal Reports rely on photographs, documentation, and remote research without an onsite visit. These cost-effective options work well for preliminary valuations, internal planning, or situations where the equipment is easily identifiable and standardized. To learn more about this approach, see our guide on what is a desktop equipment appraisal. However, some lenders and legal proceedings require onsite inspections, so check requirements before choosing this option.
Cost Consideration: Desktop reports typically cost 30-50% less than summary reports but may not be accepted for SBA loans, litigation, or major insurance claims where accuracy is critical.
Restricted-Use Reports serve specific, limited purposes and cannot be relied upon by third parties. These abbreviated formats work for internal decision-making but aren't suitable for financing, legal proceedings, or regulatory compliance.
The choice between report types often comes down to your intended use and budget. If you're securing a business loan or involved in litigation, invest in a summary report. For internal planning or preliminary assessments, desktop reports may suffice.
Professional appraisers typically employ three main approaches to determine equipment values, often using multiple methods to cross-check their conclusions.
The Sales Comparison Approach analyzes recent sales of similar equipment to establish market values. Appraisers research auction results, dealer transactions, and private sales, then adjust for differences in age, condition, features, and location. This method works best for common equipment types with active secondary markets, such as construction machinery or standard manufacturing equipment.
The Cost Approach starts with replacement cost new and applies depreciation for age, wear, and technological obsolescence. This method proves valuable for newer equipment or specialized machinery where comparable sales are limited. For example, a custom-built production line might be valued primarily using cost approach because similar systems rarely change hands.
MethodBest Used WhenKey Data NeededTypical AccuracySales ComparisonActive secondary market existsRecent sales, auction dataHigh for common equipmentCost ApproachLimited sales data availableOriginal cost, depreciation ratesGood for newer assetsIncome ApproachEquipment generates measurable incomeRevenue data, operating costsVariable by industry
The Income Approach considers how much income the equipment generates or saves, then calculates present value of those future cash flows. This method applies mainly to revenue-generating assets like production equipment in profitable operations or specialized machinery that provides measurable cost savings.
Most equipment appraisals rely primarily on sales comparison and cost approaches because isolating income attributable to specific machinery can be challenging in complex operations. For a deeper understanding of these methodologies, explore our article on different types and applications of equipment & machinery appraising.
USPAP compliance ensures your appraisal meets professional standards recognized by banks, courts, and government agencies. Look for appraisers with relevant certifications such as ASA (American Society of Appraisers), CMEA (Certified Machinery and Equipment Appraiser), or AMEA (American Machinery and Equipment Appraisers). Understanding why certification matters for appraisers of equipment and machinery can help you make an informed decision.
The typical appraisal process begins with a consultation to understand your needs and determine the appropriate value type and report format. The appraiser then gathers information about your equipment, conducts inspections if required, researches comparable sales and market data, and prepares a detailed report with their value conclusions.
Timeline Expectation: Most machinery appraisals take 1-2 weeks for desktop reports and 2-3 weeks for summary reports, depending on the number of assets and complexity of the analysis.
Your final report will include the scope of work, assumptions and limiting conditions, detailed asset descriptions with photographs, methodology explanations, and clear value conclusions. Quality reports also provide enough detail that another qualified appraiser could understand and potentially replicate the analysis.
To prepare for your appraisal, gather purchase invoices, maintenance records, serial numbers, and any previous appraisals. For onsite inspections, ensure equipment is accessible and have knowledgeable personnel available to answer technical questions. The more information you provide, the more accurate and defensible your appraisal will be. For helpful preparation tips, check out our guide on how to choose the right appraiser for your equipment & machinery.
Whether you need a comprehensive fair market value analysis for a business acquisition or a quick desktop assessment for internal planning, understanding these appraisal types helps you make informed decisions. The right appraisal provides the documentation and credibility you need while fitting your timeline and budget constraints. Before proceeding, review our list of common mistakes to avoid when getting an equipment & machinery appraisal to ensure a smooth process.
At AppraiseItNow, our certified appraisers provide USPAP-compliant machinery and equipment appraisals accepted by banks, courts, and the IRS nationwide. Contact us to discuss your specific needs and get a customized quote for your equipment valuation.
Fair Market Value assumes the equipment will continue operating in its current environment with willing buyers and sellers, while Liquidation Value reflects what you'd receive when selling equipment outside normal operations. Orderly Liquidation Value assumes 3-6 months to market the assets, typically yielding 20-40% less than FMV. Forced Liquidation Value applies to quick sales or auctions, often 40-60% below FMV due to time pressure and buyer leverage.
Summary Appraisal Reports include onsite inspections and are preferred by banks, courts, and the IRS for major transactions, providing the highest credibility and detail. Desktop Reports cost 30-50% less and work well for preliminary valuations or internal planning, but may not be accepted for SBA loans, litigation, or major insurance claims. Choose based on your intended use and whether third-party acceptance is required.
Look for appraisers with certifications from recognized organizations such as ASA (American Society of Appraisers), CMEA (Certified Machinery and Equipment Appraiser), or AMEA (American Machinery and Equipment Appraisers). Ensure they follow USPAP standards and have specific experience with your equipment type. Proper credentials ensure your appraisal will be accepted by banks, courts, and government agencies.
Desktop reports typically take 1-2 weeks, while Summary reports with onsite inspections take 2-3 weeks, depending on the number of assets and complexity. The timeline can vary based on equipment accessibility, documentation quality, and market research requirements. Providing complete asset information and maintenance records upfront can help expedite the process.
