What can I do when an equipment appraisal comes in lower than expected?
Read the report before disputing the value. Most low equipment values trace to the premise of value, the effective date, the scope of work or the assumptions, and the report has to state every one of them. If a fact was wrong or missing, the appraiser can be given it to consider. If the work itself is in question, an appraisal review under USPAP Standards 3 and 4 tests it. No appraiser can move a value to fit a loan, a settlement or a sale price: USPAP forbids it.
Lukes & Lukes is an independent machinery and equipment appraisal firm. Every report and every appraisal review is USPAP-compliant and prepared by a NEBB-certified Machinery & Equipment Appraiser (CMEA).
By Jared Lukes · CEO & lead appraiser
Need a review of an equipment appraisal? Request an appraisal or review →
Why do equipment appraisals come in low?
Expectations are usually set by what the equipment cost, what a dealer is asking for a similar unit, or the value on the books. An appraisal answers a narrower question, and each of these causes shows up in a specific part of the report.
| Cause | What it looks like | Where to check in the report |
|---|---|---|
| Premise of value | Orderly or forced liquidation value where you expected fair market value | The type and definition of value, and its cited source |
| Installed or removed | Value net of de-installation, rigging, freight and reinstallation | The premise definition and the assumptions |
| Obsolescence | An older control, an unsupported software platform, a model with no parts, or an industry with weak earnings | The condition notes and the analysis for each unit |
| Records | No hours, service history or rebuild invoices available at inspection | The scope of work and the condition notes |
| Comparables | Sold prices where you expected dealer asking prices | The market data, with dates and sources |
| Effective date | A softer used market than when the equipment was bought | The effective date and the market conditions discussion |
| Scope | Units left off, leased units excluded, tooling or real property not included | The scope of work and the asset schedule |
The premise accounts for the largest gaps. The same machine carries different values under fair market value, orderly liquidation value and forced liquidation value, and a lender ordering collateral work asks for a liquidation premise.
What should I check in the report first?
USPAP Standards Rule 8-2 sets the minimum content of a personal property appraisal report. Read these items against what you expected.
- Intended use and intended users. A report written for a lender's collateral file answers the lender's question. A copy given to a borrower does not make the borrower an intended user.
- Type and definition of value. Named, defined and sourced. This is where most surprises are explained.
- Effective date. The value is as of that date, not today.
- Scope of work. Whether the equipment was inspected, what research was done, and what was not done.
- The asset schedule. Every unit present, with serial numbers. A missing machine or a wrong model is a fact error.
- Comparables. Sold or asking, dated, and similar in model, age and condition.
- Extraordinary assumptions and hypothetical conditions. Anything the appraiser assumed rather than verified.
Can the original appraiser reconsider the value?
Yes, on facts. A machine left off the schedule, hours recorded wrong, a spindle rebuild with invoices, a tooling package that conveys: each is information the appraiser can consider and then report whether it changes the value. It may not. When the lender ordered the appraisal, the lender is the client, and new information goes to the appraiser through the lender.
A request for a higher value is not a fact. The appraisal review route exists for disagreement with the work itself.
How does an appraisal review under USPAP Standards 3 and 4 work?
A second appraiser, the reviewer, forms an opinion about the quality of the first appraiser's work. Standard 3 governs how the review is developed; Standard 4 governs how it is reported.
- Setup (Standards Rule 3-2). The reviewer identifies the client, the intended use of the review, its purpose, and the work under review, including its effective date.
- The test (Standards Rule 3-3). The reviewer develops an opinion on whether the analyses are appropriate and the opinions and conclusions credible, and the reasons for any disagreement.
- An optional value. The reviewer may develop their own opinion of value, which for equipment falls under Standard 7, disclosed separately from the review.
- Information after the fact. Under the comment to Standards Rule 3-2(g), information the original appraiser could not have had in the normal course of business cannot be used to judge the quality of that work.
A review can find the original work credible. That is a result, and it is reported as plainly as a finding against it. Our equipment appraisal reviews are desk or field reviews, with or without the reviewer's own value.
When is a second appraisal reasonable?
| Situation | Reasonable next step |
|---|---|
| The premise fits the lender, not your purpose (you need fair market value for a sale, a buyout or an estate) | A new appraisal for your intended use, at the premise it requires |
| A review finds the analysis not credible | A new appraisal, or a review that includes the reviewer's own value |
| A divorce, buyout or lawsuit where the other side has its own appraisal | Your own appraisal, or a review of theirs, prepared for testimony |
| The effective date is stale and the equipment or the market has changed | An update or a new appraisal at a current date |
| Same facts, same premise, same date, a different value wanted | Not a reason. Many lenders accept only an appraisal they ordered. |
What does a low value mean for each party?
- A borrower whose loan no longer works. The lender decides what comes next: more collateral, a smaller advance, a different structure. The appraisal reports value; it does not set the loan.
- A lender. A low value against the request is the information the credit file needs. A review answers whether the report can be relied on.
- An owner selling equipment. Check whether the report used a liquidation premise when you needed fair market value.
- A divorcing spouse. Each side can retain its own appraiser, and the court weighs the reports. Our divorce appraisal article covers the premise and the date.
- An executor or heir. An estate return uses fair market value under the federal estate tax regulation, 26 CFR 20.2031-1(b). A liquidation premise answers a different question.
What can an appraiser not do?
The USPAP Ethics Rule states that an appraiser must not perform an assignment with bias, must not advocate for any party, and must not accept an assignment that includes reporting predetermined opinions and conclusions. It also bars any assignment or fee contingent on a predetermined result, on a direction in value that favors the client, on the amount of the value, or on a stipulated result such as the loan closing. The certification required in every personal property report (Standards Rule 8-3) states it.
We write every value from the evidence and report what it shows. When a value is challenged, our expert witness support carries the report or the review into testimony.
Common questions
Answers, up front.
The bank's appraisal on our equipment came in too low for the loan. Can we ask the appraiser to raise it?
You can ask, through the bank, for the appraiser to consider facts that were missing or wrong; you cannot ask for a higher value. The USPAP Ethics Rule bars an appraiser from accepting an assignment contingent on a predetermined result or on the loan closing. When the lender ordered the appraisal, the lender is the client, and new information reaches the appraiser through the lender.
Why is the orderly liquidation value on my equipment so much lower than what I paid for it?
Orderly liquidation value is what the equipment would bring in a sale with reasonable time to find buyers, sold as is, where is. The price you paid included new-equipment pricing, freight, installation and integration that a used buyer does not pay for. A fair market value appraisal of the same equipment in place answers a different question and reports a different value.
Can I get a second equipment appraisal if I think the first one is wrong?
Yes. A second appraisal is reasonable when the first used a premise or effective date that does not fit your purpose, or when a review finds the work not credible. A lender may accept only an appraisal it ordered, and in a dispute the other side and the court see both reports and weigh each on its evidence.
Who can order an appraisal review of an equipment appraisal?
Anyone with a use for it: the lender that relied on the report, a borrower, an attorney, either side in a divorce or a partner buyout, or an executor. Under Standards Rule 3-2 the reviewer identifies that client and the intended use, and the review answers whether the original work is credible for its intended use. It does not have to produce a new value.
My spouse's appraiser valued our business equipment far lower than mine. What happens now?
Each report is tested on its premise, effective date, asset schedule and evidence. A large gap often comes from different premises or dates rather than different opinions about the same machine. A review of the other report, or testimony, puts the differences in front of the court, which decides the value it uses.
Our father's estate equipment appraised low. Will the IRS accept it?
The IRS looks for fair market value as defined in the estate tax regulation, 26 CFR 20.2031-1(b): the price between a willing buyer and a willing seller, neither under compulsion and both with reasonable knowledge of the facts. A report on that definition, supported by sold comparables, is defensible whether the value is high or low. A liquidation premise on an estate return answers a different question.
Does a low equipment appraisal mean my machines were in bad shape?
No. Most low values trace to the premise, the effective date, or the cost of removal and resale, not to condition. Condition is recorded unit by unit in the report. If service records or rebuild invoices were not available at inspection, they can be supplied to the appraiser to consider.