As appraisers, we often get asked the question, “do you do desktop appraisals, or do you require on-site inspections in order to prepare your appraisals?” While appraisers are often equipped for either approach, the answer to this question is typically dictated by the use case and scoping requirements of the engaging party.
For low-risk situations, it is not uncommon for third parties to order a desktop appraisal in the interest of saving time and money, as well as being minimally disruptive to the equipment owner’s day-to-day operations.
However, there are many situations that drive inspection needs, each with their own scoping needs.
- Sample inspections: in some cases, inspections are requested on a sample basis. Think of an equipment rental operation with a big geographic footprint and equipment that is routinely coming and going from branch locations.
- Full-scale inspections: some cases dictate that a full-scale inspection is required. These tend to crop up when there is a higher risk from a credit perspective, or there is an imminent asset sale dictating the need for a full cataloguing of equipment conditions and values.
Clear-cut benefits to ordering an appraisal with inspections.
First, the users of the report will benefit from the “on the ground” intelligence that will be provided about the quality, condition, and existence of assets. Appraisers will record their work through photographs, condition notes, and other pertinent bits of information which will flow downstream to the appraisal conclusions and reporting.
Along the way, there will be an opportunity to confirm details that are presented in company-provided asset listings, such as serial numbers, year of manufacture, make, and model.
Importantly, an on-site inspection will enable appraisers to record the prevailing meter reading on inspected assets in order to ensure the asset values are reflective of the usage at the time of the appraisal.
In addition, the on-site work enables some key risk identification procedures. One example is by way of identifying the “down” units at the time of inspection (i.e., those units that are unavailable for use due to a parts or maintenance need). An outsized or growing percentage of down units could indicate maintenance negligence or other operational deficiencies. Likewise, an on-site inspection affords the opportunity to audit the asset listing for completeness.
If there are assets that appear on the listing but are not available on site (or vice versa), it gives appraisers and inspectors the opportunity to ask well-informed questions to establish the single source of truth when it comes to the asset pool.
There are some investigations which take place on site that go beyond the inspection. Maintenance recordkeeping and maintenance protocol can be investigated in order to identify gaps in maintenance programs and whether OEM-prescribed recommendations are being followed. Alternatively, on-site work enables appraisers to inquire about equipment that is not on-site at the time of the visit. This provides an opportunity for the subject company to provide things like rental contracts as a paper-trail or evidence to support the existence of the equipment, as well as the current whereabouts on the basis of the prevailing contract for that item.
Count on Rouse to deliver the most accurate fair value reports, supported by true market reference points and extensive experience. Contact Rouse for a free consultation on your fair value needs.
