The Cost of an Appraisal

Most clients I come in contact with understandably ask; “What is this appraisal going to cost me?” My answer is always the same; the cost is dependent upon the scope of the appraisal assignment. The key word here is “scope” and there are several factors that can affect the ultimate cost of an appraisal including;

Amount of Assets – appraisal assignments vary in size, from 1-2 units to several hundred. The actual number of assets involved will be a prime determination of cost.

Time Necessary – the amount of time required to complete an assignment is always a consideration and not every appraisal is straight forward and easy. For instance, when  approached to consider an assignment involving construction equipment, the first question asked is “what is the spread”? Construction companies usually have several projects going at any one time, and the projects could be within 10 miles of each other or 50-100 miles. The extended travel time required must be taken into consideration when figuring cost.

Travel – in addition to the travel that might be required once on site, there is the consideration of out of pocket expense for travel to the job site. For local clients or those within driving distance, the cost might only include mileage, meals and possibly hotel if an overnight is necessary. Client assignments beyond a fair driving distance may likely involve airfare. Out of pocket expenses can only be estimated, especially airfare, which seems to always be in a state of flux.

Research & Report Preparation – once the appraiser has concluded the inspection of the assets, research into the value of each must be conducted. For a fair valuation, most appraisers will conduct research to locate at least 3 recent sale comparables for each unit. Other approaches to value including; Cost and Income may also require consideration. An experienced appraiser will usually be able to properly estimate the time required and include it in his cost proposal.

Value Concepts – does the assignment require a sole value such as Fair Market Value or are multiple values necessary?  Some clients request values projected out over 3, 5, 7 and even 10 years. The value concepts required and any other elements such as projections will also affect cost since more time will be involved in the project.

Client Participation – there are several key actions a client can provide in working with an appraiser that may actually reduce his ultimate cost including;

a) Providing a driver and vehicle when equipment assets are spread out over large distances or where the appraiser is unfamiliar with the locale.

b) Producing a current maintenance log or record of all assets, whenever necessary.

c) Producing equipment documentation including; invoices, purchase orders and receipts. These documents can relieve the appraiser of significant research time necessary to determine the date of manufacture and other relevant information.

Some clients react negatively when quoted the cost for an appraisal. In most instances this is because their only prior experience is the engagement of a residential real estate appraiser where the average cost is $350-$500. A residential appraisal is a poor comparison for cost. Residential appraisers may perform only a brief physical inspection or drive by so as to confirm that municipal records concur with the actual homestead followed by a comparison of recent sales as recorded by Multiple Listing Services. The appraiser then analyses the information, looking for 3 recent comparable home sales in order to reach a value conclusion. A residential appraiser may perform 4 or more appraisals daily.

The Machinery and Equipment Appraiser performs similarly except that he physically inspects each asset and then researches at least 3 comparables for each asset. If an assignment contained 100 units, the appraiser is likely to compile 300 comparables. The amount of work and time necessary is far more than a single residential appraisal. The machinery appraiser, depending upon the number of assets, may perform a single appraisal every 7-10 days.

By their nature, equipment appraisals, particularly the physical inspection and research portions of an assignment are time consuming with a direct bearing on cost. In addition, most equipment appraisals may affect 3rd parties depending upon the purpose of the appraisal which may include; property settlement (divorce), collateral lending (lenders), purchase/sale of a business (buyers & sellers), bankruptcy (creditors), estate planning (beneficiaries), charitable contribution (IRS) or eminent domain (government/property owner). The equipment appraiser must assure that his work stands up to scrutiny. For this reason and all the other discussed previously, the cost of an equipment appraisal is usually justified. Of course, the client should seek competitive proposals in order to assure the best price possible.