Hire smart. Selection of the right appraiser is the most important determinant of a successful appraisal that will be accurate, credible, and done on time. Inquire about industry experience and knowledge of the subject asset class. Know the appraiser’s credentials, to allow credibility and sale-ability to third party investors. Ask about confidentiality practices to ensure the confidentiality you require.
Ask “who exactly will do my appraisal”. If it is a large appraisal firm, they may put a new, junior appraiser on your project who may not have much experience with your collateral type. Ask for examples of appraisals in the relevant industry. Maintain a list of qualified appraiser indexed by experience and expertise in different equipment types – mining, transportation, medical, etc. Ask for a specific list of engagements documenting experience. Ask for credentials – #1 credential for machinery and equipment appraisal is American Society of Appraisers, Accredited Senior Appraiser designation. Other acceptable accrediting appraisal entities include AMEA, RICS, Chartered Surveyor (Canada).
Vet appraiser qualifications. You can quiz on subject matter knowledge and methodology even if you don’t know it that well yourself: Who are the three leading batch plant makers in the US?; What are the most popular process chambers in the Applied Materials Endura PVD tool?; How does a CAT scanner work and what are the latest government regulations”. Ask your investors and syndication partners which appraisers they accept. Negotiate the price – very fee-driven market for appraisers on the “bank list”. Once you have a trusted appraiser, sign a master services agreement with prices for recurring work spelled out.
Get the Contract Right
Define clear expectations:
- purpose of appraisal – lease residual, bank loan collateral, SBA loan, property tax valuation
- inspection vs. desktop – will onsite inspection be needed; is the equipment new or used
- premise of value – fair market value, orderly liquidation value, fit for the purpose
- intended user – must list approved users, which may include the SBA or third parties
- fee / cost of appraisal – generally paid on report delivery, not contingent on appraised value
- as/of date – could be past, present, future, appropriate for the purpose
- deadline for report delivery – can change depending on arrangement of inspection
- assumptions – extraordinary, hypothetical
- confidentiality – standard USPAP appraisal methodology requires confidentiality
Develop Long Term Relationships With Preferred Appraisers
Sets expectations of format, turnaround, fees. Many appraisals require annual updates. Many users of appraisals, such as banks and equipment leasing companies, want appraisers who can assist in remarketing.
Monitoring and Managing the Project
Good communications, regular updates, interim results make everyone happy and avoid surprises. Typical appraisal engagements may span on the order of a few weeks. Define project milestones and deliverables, final report delivery date. Aftermath of the appraisal may include remarketing and auction, court deposition or testimony, other follow-up work. Must coordinate the appraisal work and inspection with third parties on site at the target asset/plant/facility.
Large lenders generally require appraisers to enter into Master Service Agreements, which spell out confidentiality requirements. Information requiring confidentiality protection may include secure emails and attachments, storage and retention of data. Specify confidentiality requirements of appraiser subcontractors and sources. Keep in mind that the client is generally the only party who can get a copy of the appraisal report – there may be attorneys and other stakeholders who want to see the results.
BlueChip Asset Management is an appraisal and asset management services company which serves the ABL, banking, equipment finance, legal, and turnaround industries. Members of TMA, ELFA, and CFA. Our appraisers have over 25 years of experience in machinery and equipment appraisals, spanning a wide variety of assets from basic industry: covering construction, high technology, medical, mining, processing, rail, transportation and diverse assets. Contact us for asset valuation assistance at 415-515-1110, www.bcamasset.com, or schedule a free 15 minute consultation.