Desktop vs Field Appraisal

Nearly every day clients request that I perform a desktop appraisal of certain assets for a variety of reasons.  However, a significant percentage of these requests are for collateral lending purposes and for the dual purpose of keeping the borrower's costs low.

Before I proceed further, perhaps it would be wise to redefine the difference between a Desktop and a Field appraisal.  The Desktop appraisal is a valuation performed without the benefit of a physical inspection of the assets whereas the Field appraisal includes the physical inspection. 

In the past, the Desktop appraisal was commonly employed in order to obtain a "preliminary" or guideline of values in order to determine whether the assets would provide sufficient coverage in the event of a default.  Unfortunately, the Desktop appraisal is now more frequently used as the final determinant in the collateral evaluation process.   This frequently leads to higher losses in a default situation since the assets were never properly confirmed and valued.

The primary problem with a Desktop appraisal is that the appraiser is forced to make several assumptions during the valuation process including;

a) that the assets actually exist.  You would be surprised how many times lenders have extended credit on equipment assets that do not exist.
b) confirmation of asset identification including year, make, model, serial number, attachments and or accessories.  Liens are often filed based upon erroneous information, deliberate or accidental.
c) determination whether the assets are being properly maintained.   Whenever businesses experience cash flow problems the first two issues that are affected are insurance and maintenance.
d) determination as the whether the assets are being employed in accordance with their primary design.  Borrowers often will redeploy assets for uses that were not intended by the manufacturer.

Let me cite a single simple example where proper asset identification is of vital importance.   I was recently asked to appraise a large inventory of rolling stock including a fleet of pickup trucks.  Several trucks were listed thusly; "Chevrolet 1500 Pickup."   Sounds simple until one realizes that Chevrolet manufactures two models: the 1500 and the Silverado 1500.  Additionally, both come in 4 different body styles, short bed, long bed, extended cab and crew cab.  So there are 8 different possible models, each with a different value.  So now you can see the value of proper equipment identification. 

Failure to examine or consider any one of the above cited factors can result is a significant loss to a lender which is a real shame when one considers that the usual reason for requesting a desktop appraisal is to save the borrower money.   While it is agreed that the Desktop will likely save money initially, the exposure to a significant loss later on should serve to warn lenders that "due diligence" should never be compromised. 

I recommend that Lenders not assume that there is a significant cost difference between a Desktop appraisal and a  Field appraisal.   Discuss the assignment with the appraiser before making any final decisions.  Please keep in mind the old adage; "You get what you pay for" and remember that proper asset coverage in the long run is far more important than lowering your borrower's cost.

Comments

[lawn equipment]

Yeah, the primary problem with a Desktop appraisal is that the appraiser is forced to make several assumptions during the valuation process

Luigi Hanway

[Abdul Rahman Alieh]

Dear Sirs,

Hope all is great at your end.
We are interested in your services. Would you kindly send us a brief regarding your specialty as well as a sample appraisal report?
Appreciate it!