Exapro, a platform for selling and buying used industrial machinery, has launched a new system called Exaval for its web portal.

Exaval will primarily be used for machinery appraisal, estimating the value of machinery prices.

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Appraisal Definition

An appraisal is the act or process of estimating value of a product or service.

Value is defined as the monetary worth of a property, goods, product, or service.

  1. Determination of the value of property
  2. Estimation of the cost of:
    a. Production of a new property
    b. Replacement of an existing property by purchase or production of an equivalent property, or
    c. Reproduction of an existing property by purchase or production of an identical property
  3. Determination of the nonmonetary benefits or characteristics that contribute to value (the rendering of judgments as to age, remaining life, condition, quality, or authenticity of physical property)
  4. Forecast of the earning power of property in other words, an appraisal is an unbiased opinion of value or other physical attributes of identified property.

Source: American Society of Appraisers (ASA) in its Principles of Appraisal Practice and Code of Ethics (1994)

Appraisal Procedures

Regardless of the type of property, service, good, or purpose of the report, certain general
procedures are essential to the process. These procedures include:

  1. Collection of data
    a. Inspect the assets.
    b. Inventory the assets.
    c. Describe the assets.
  2. Valuation
    After ascertaining what is to be appraised, for whom, for what purpose, and the date of value, an appraiser must apply experience and judgment to all of the information available and arrive at an opinion of value of the property being appraised.

Difference between Appraisal Valuation and Consulting Evaluation

Appraising (valuation) is the process of estimating
the value of a property.
Consulting (evaluation) is the act or process of providing information, analysis of data, and
recommended conclusions on diversified problems other than estimating value. It is a study of the nature, quality, or utility of a property or interest
in, or aspects of, a property without reference to a
value estimate.
Uses—an appraisal may be used to estimate
market value, investment value, insurable value,
Uses—consulting may be used to determine
desirability, alternative planning, and so forth.

Pricing Methods and Approach

Cost Approach or Principle of Substitution

The cost approach is based on the proposition that an informed purchaser would pay no more for an asset than the cost of producing a substitute with the same utility as the subject asset.

Read also:  Tips to Know Before Buying Used Industrial Machinery

This concept is also known as the principle of substitution. The cost approach assumes the maximum value of an asset to a knowledgeable buyer is the amount currently required to purchase or construct a new asset of equal utility.

When the asset is not new, the current cost new must be adjusted for all forms of depreciation attributable to the asset as of the date of the valuation.

In its simplest form, the cost approach can be represented as follows:

Cost new – Depreciation = Value

The starting point or basis of the cost approach is reproduction cost new, replacement cost new, or a combination of both.

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Sales Comparison Approach

The sales comparison approach considers market data in determining the value of the subject assets.
The purpose is to determine the desirability of the subject assets through an analysis of recent sales or offerings of similar assets to arrive at an indication of the most probable selling price for the assets being appraised.
If the comparables from the market are not exactly like the subject being appraised, adjustments are made to the price of the comparables to make them as similar to the subject as possible. The adjustments are based on the asset characteristics that the market indicates relate to value.
If a comparable is superior to the subject regarding a specific characteristic, the comparable is adjusted downward. Conversely, if the comparable is inferior to the subject, an upward adjustment is applied. Keep in mind that the comparable is adjusted, not the subject.

Typical adjustments include:

  1. Age
  2. Condition
  3. Capacity
  4. Model
  5. Type of item (indirect approach)
  6. Type of sale
  7. Time of sale
  8. Location of property or machinery

Income Approach

The income approach considers value to be represented by the present worth of future benefits derived from ownership, typically measured by the capitalization of a specific level of income.
This approach to value may be utilized for machinery and equipment. However, it is seldom used by a machinery and equipment (ME) appraiser since it is often difficult to determine precisely what portion of the income stream is specifically attributable to the subject ME. With the proper
tools, the machinery and equipment appraiser, in unique circumstances, may be able to properly utilize the income approach.
The basic premise of the income approach is that a purchaser expects to receive a certain rate of return on the income stream specifically attributable to the asset.

It can also be stated as follows:
Value × Rate = Income

This concept is sometimes restated as Income = Rate × Value or IRV.

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Photo by Ant Rozetsky on Unsplash

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