“When Is An Appraisal Required In The Lease Financing Process?”
An equipment appraisal is an assessment of value by someone for a particular piece of equipment.
Appraisals are not typically required when you are purchasing a piece of new equipment expect in situations where there is some type of bargain pricing or sale element that places the asset below its market value.
In those cases, an equipment leasing company may want to validate the condition of the asset to make sure that its truly new in terms of its condition.
Otherwise, almost all equipment appraisals that are required for equipment financing are related to the acquisition of used equipment.
For smaller financing amounts, and/or for assets that a leasing company has a good working knowledge of with respect to its value in the resale market, an internal desk top appraisal may be all that’s required.
As the amount of financing being requested increases for a used equipment acquisition, the more likely that a third party equipment appraisal will be required.
A third party appraiser can be an accredited as well as unaccredited appraiser.
An accredited appraiser has received a qualification from a recognized agency as to their competency in performing an objective third party assessment.
An unaccredited appraiser is typically a dealer that actively buys and sells similar assets in the open market.
The specific type of appraisal and appraiser will be determined by the leasing company after reviewing the initial application of financing.
There are times when providing your own comparative sales from the internet or off line can also be helpful to support the price you are paying, especially if the sales are coming from a well known auction service.
This can help support a desk top appraisal that is basically trying to do the same thing and find recently completed sales from relevant sources.
There are also different types of appraisals that can be requested by a leasing company.
When the request for financing is for a sale and lease back to provide more capital into a business, the appraisal required is typically a forced liquidation appraisal where the appraiser is determining what the value of the asset or assets would be if they needed to be sold off in a very short period of time through an auction service or other sales methods.
This provides the most conservative valuation from which to lend on.
For a used equipment purchase, the appraiser can be asked to do a fair market value appraisal, an installed valuation if an installation is required, or a relocation and installation appraisal if the asset needs to be uninstalled from one location and then moved to another location and reinstalled.
Equipment appraisals to support financing are most typical with sale and lease back transactions where multiple assets are involved and for large single used asset transactions.
The cost of the required appraisal will be born by the applicant or lessee and will need to be paid for prior to lease funding in most cases.
For more information on equipment appraisals and how they may or may not relate to a lease financing requirement you have, please give us a call and we’ll make sure you get all your questions answered right away.