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Making Heads or Tails out of a
Machinery & Equipment Appraisal
Location of Subject Appraisal:
Gastonia, North Carolina
Machinery & Equipment Appraisal Basics
 USPAP Standard 7: Personal Property Appraisal,
Development
 USPAP Standard 8: Personal Property, Reporting
– Self contained
– Summary
– Restricted use
M&E Appraisers
 No License required – Caveat Utilitor
 Machinery & Equipment Designations
– PPS - International Association of Assessing
Officers
– ASA, AM – American Society of Appraisers
– MCMEA, CMEA – NEBB Institute
– CEA/ AEA - Association of Machinery & Equipment
Appraisers
Letter of Transmittal
Appraisal Contents
Appraisal Contents (Continued)
Scope of Work
Scope of Work (Continued)
Caveat Utilitor
The Subject Machine Shop Equipment
 Turning is a machining process in which a cutting tool, typically a nonrotary tool bit, describes a helical toolpath by moving more or less linearly
while the workpiece rotates.
 Forming- A CNC press brake uses programs to automatically execute a
series of bending operations that leads to increased productivity and
flexibility.
 Milling is the machining process of using rotary cutters to remove
material[1] from a workpiece advancing (or feeding) in a direction at an
angle with the axis of the tool.
 Laser cutting is a technology that uses a laser to cut materials, and is
typically used for industrial manufacturing applications. Laser cutting
works by directing the output of a high-power laser, by computer, at the
material to be cut.
Press with Bending Die & a Cutting Tool
Equipment Detail
Equipment Detail
Equipment Detail
Equipment Detail
2007 Mazak Hyper Turbo Laser
Historical Cost - $570,000
FMV Per Appraisal - $440,000
Gaston County Tax Value - $467,400
Difference = (6.2%)
2007 Ermak Press Brake
Historical Cost - $75,000
FMV Per Appraisal - $44,000
Gaston County Tax Value - $47,250
Difference = (7.4%)
2004 HAAS Lathe VF-4D Milling Center
Historical Cost - $70,095
FMV Per Appraisal - $54,000
Gaston County Tax Value - $17,524
Difference = 68%
3
CNC Mill
HAAS
VF-4D
36942
2004
Good
Condition
5
$54,000
$25,000
Appraisal Notes HAAS VF-4D
M&E Appraisal Data Collection Form
Item Number
Depreciation Schedule Information
Type
Manufacturer
Model No.
Serial No.
Year
Condition:
§ Is this machine working well and at peak function?
§ How many hours each day in use?
§ Does it need anything presently (repair/maint)?
§ Are repairs done by staff or third party?
§ Has any major repair been done lately?
§ Is there a regular service schedule on this machine?
§ Have there been any upgrades made?
§ Have there been any special accessories added?
§ Electrical Specs: wattage, ampage, ohms, etc.
§ Capacity: ft dimensions, length, size, etc.
§ How easily could you sell it?
§ What would you ask for it?
§ Do you keep maintenance records?
§ If so can I get a copy?
Comments
When Purchased
Purchased New or Used
Amount Paid (including installation)
Installation Costs
Who purchased from
Appraisal Contacts (Partial List)
TURNER BUSINESS APPRAISERS
List of contacts for M&E values
Compressed Air Systems
Jack Connor – assisted me on the J&L Appraisal. He provided information on Kaeser Air Compressors
P: 800/626-8177
Web: www.compressedairsystems.com
OSS, LLC – Scott provided me with information on the Clausing Lathe – J&L Appraisal
380 Wingo Heights Rd 4B
Spartanburg, SC 29303
P: 864/585-3275
Web?
Jeffreys – A division of Phillips
Kip Asmuth – very helpful regarding the value of the HAAS CNC Mill & Lathe – J&L Appraisal
P: 336/456-3242
Email: kasmuth@phillipscorp.com
Bit Yack CAM
Patrick Moonie – helpful regarding the pricing of the Cincinnatti Mill – J&L Appraisal
P: 804/405-9540
Machinery Solutions
Daniel Jones, Sales Manager – provided me with a second opnion on the Cincinnatti Mill and an opinion
on the Doosan Lathe
PO Box 130
Lexington, S.C. 29071
803/359-7000
Final Value Summary
Value Reconciliation
Seventh Inning Stretch
Mass Appraisal Method Trend & Depreciate
Making Heads or Tails out of the M&E Appraisal
Compared to the Ad Valorem Appraisal
Reconciliation of M&E Appraisal with County Ad Valorem Appraisal
Source M&E Appraisal County Appraisal Reconciliation SS
Category March 28, 2012 January 1, 2012 Difference Percent Variance
Machine Shop Equipment $1,315,300 $1,084,582 $230,718
21%
Shop Support and Ancillary Items $12,500
$6,912 $5,588
81%
Appraised Value
$1,327,800
$1,091,494 $236,306
22%
Nuances Among the Appraisal Method Utilized
by the M&E Appraiser vs. the Mass Appraiser
 The M&E appraiser often utilizes the market approach
 The mass appraiser is prone to exclusively utilize the cost
approach
 When a cost approach is necessary USPAP SR-7.4
requires the M&E appraiser to calculate the accrued
depreciation. The M&E appraiser must estimate the
effective age of the property
– Effective age can be greater than, equal to, or less than
chronological age
 The mass appraisal cost approach utilized in most
jurisdictions presume chronological age = effective age.
Economic Obsolescence
The Inutility Method
Scale Factor 0.55
0.6
0.65
0.7
0.75
0.8
Plant Utilization (actual/capacity) Inutility Factor Inutility Factor Inutility Factor Inutility Factor Inutility Factor Inutility Factor
50%
31.7%
34.0%
36.3%
38.4%
40.5%
42.6%
60%
24.5%
26.4%
28.3%
30.1%
31.8%
33.5%
70%
17.8%
19.3%
20.7%
22.1%
23.5%
24.8%
80%
11.5%
12.5%
13.5%
14.5%
15.4%
16.3%
90%
5.6%
6.1%
6.6%
7.1%
7.6%
8.1%
100%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Inutility formula = [(Actual Production/Design Capacity)^(scale factor)] X 100
Scale Factor:Studies indicate cost-capacity factors average .6 to .7
Note: Design Capacity < Max Capacity. It is based upon a theoretical
product mix and often allows for future expansion.
U.S. Capacity Utilization Rates
 U.S. average capacity utilization total industry
1972-2012 = 80.2%
 Manufacturing average capacity utilization
1972-2012 = 78.7%
Source: Board of Governors of the Federal Reserve System
Industrial Production and Capacity Utilization – G.17
Release Date July 16, 2013
Takeaways Obsolescence
 If the inutility calculation is utilized to quantify economic
obsolescence remember to ask questions:
– Did you Calculate the RCN for the subject M&E?
– How did you calculate the effective age of the M&E?
– Did the market approach corroborate the obsolescence?
• Request copies of comps
 The source documents which depict the plant capacity
and the plant utilization
 Perform your own analysis to determine what are
customary utilization rates for the subject Company’s
industry
 Attempt to find comparables to verify the presence of
economic or functional obsolescence
Takeaways M&E appraisal
 Caveat Utilitor – M&E appraisal is an unregulated industry
– There are plenty of good M&E appraisers
– Perform some due diligence to ascertain the validity of the M&E
appraisal
 To corroborate the veracity of an M&E appraisal ask for these
items:
– Data collection forms or their equivalent
– Conversation notes and contact information to ascertain the
RCN and market approach
– Ask the appraiser for the contact information of the expert
who gave him/her the tour at the subject company
Discussion & Questions
The Finish Line!
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