This presentation was given by Jim Turner, CPA, CVA at the 2013 Annual International Association of Assessing Officers Conference. The purpose of the presentation was to explain the nuts and bolts of how a fee appraisal for Machinery & Equipment is completed.

2. Continuing Education (CE) Credit:
Participants desiring CE credit for attending this
session should sign the document at the back of
the room and indicate the session name on the
back of the Uniform Request for Recertification
Credit form. The sign-in sheet will not be
available once you leave the room.
Housekeeping Note:
Please silence your cell phones

3. Making Heads or Tails out of a
Machinery & Equipment Appraisal

4. Location of Subject Appraisal:
Gastonia, North Carolina

5. Machinery & Equipment Appraisal Basics
 USPAP Standard 7: Personal Property Appraisal,
Development
 USPAP Standard 8: Personal Property, Reporting
– Self contained
– Summary
– Restricted use

6. 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

7. Letter of Transmittal

8. Appraisal Contents

9. Appraisal Contents (Continued)

10. Scope of Work

11. Scope of Work (Continued)

12. Caveat Utilitor

13. The Subject Machine Shop Equipment
 Turning is a machining process in which a cutting tool, typically a non-
rotary 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.

14. Press with Bending Die & a Cutting Tool

15. Equipment Detail

16. Equipment Detail

17. Equipment Detail

18. Equipment Detail

19. 2007 Mazak Hyper Turbo Laser
Historical Cost - $570,000
FMV Per Appraisal - $440,000
Gaston County Tax Value - $467,400
Difference = (6.2%)

20. 2007 Ermak Press Brake
Historical Cost - $75,000
FMV Per Appraisal - $44,000
Gaston County Tax Value - $47,250
Difference = (7.4%)

21. 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

22. Appraisal Notes HAAS VF-4D

23. 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

24. 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

25. Final Value Summary

26. Value Reconciliation

27. Seventh Inning Stretch

30. Mass Appraisal Method Trend & Depreciate

31. Making Heads or Tails out of the M&E Appraisal
Compared to the Ad Valorem Appraisal
Source M&EAppraisal CountyAppraisal ReconciliationSS
Category March28,2012 January1,2012 Difference PercentVariance
MachineShopEquipment $1,315,300 $1,084,582 $230,718 21%
ShopSupportandAncillaryItems $12,500 $6,912 $5,588 81%
AppraisedValue $1,327,800 $1,091,494 $236,306 22%
ReconciliationofM&EAppraisalwithCountyAdValoremAppraisal

32. 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.

33. Economic Obsolescence
The Inutility Method
ScaleFactor 0.55 0.6 0.65 0.7 0.75 0.8
PlantUtilization(actual/capacity) InutilityFactor InutilityFactor InutilityFactor InutilityFactor InutilityFactor InutilityFactor
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.

34. 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

35. 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

36. 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

37. Discussion & Questions

38. The Finish Line!