What would you think if I told you that the value of wine tanks increases annually? That the longer you use them the more they're worth? You'd think I was out of my mind! It just doesn't sound reasonable, does it? How can it be possible that the value of equipment as standard as wine tanks goes up annually? And yet, because of the way that wine tanks are assessed in California, the assessment value for ad valorem taxes often does increase annually whether the value of the tanks actually increases or not. Considering that wine tanks often make up a large portion of a winery's fixed asset value, this unreasonable alleged increase in value can create an expensive problem.
Appraisers frequently refer to what they do as an "art." And in fact, the word "art" features prominently in the title of a book on appraisal review published by a major appraisal organization. But the practice of referring to appraisals and appraisal review as an "art" can be problematic, especially when we're providing appraisals to the legal community.
Several years ago while serving as equipment appraisal expert witness for the Ophir Fire, I discovered the Wildland Fire Litigation Conference and put it on my appraisal bucket list. Just this year, my schedule finally allowed me to attend the conference. In the intervening years, I've done many equipment appraisals related to insurance loss claims, a number of them for fire loss claims (see below), so I felt prepared. Although the conference is mostly attended by attorneys, a fair number of other experts also attended: mostly in fire science such as cause of action analysis, ignition theory and burn patterns; several vegetation experts representing areas such as noxious weed analysis; and a handful of real property appraisers along with me, the lone equipment appraiser.
Big changes are happening in California agriculture! As farmers convert massive amounts of acreage to orchards and vineyards, abandoning annual crops like tomatoes and rice, farming equipment is changing as well. As one would expect, orchard and vineyard crops use entirely different machinery types, especially for harvesting. This is an interesting transition for appraisers of agricultural equipment because orchard and vineyard equipment is mostly traded at the private party level and rarely at the dealer level, the exact opposite of more standardized traditional agricultural equipment. Orchard and vineyard equipment appraisal, therefore, is often more about who you know than what price indexes and public source materials you can access.
Appraising inventory is generally one of my least favorite assignments; in the case of fire loss, however, even a static inventory can become more interesting, if only because of its absence. Combined with an absence of appropriate record keeping, the process of valuing the lost stock takes us into a level of detective work that can be both frustrating and rewarding.
How do we appraise equipment that's been destroyed or stolen? Of course we hope for good records - photos, equipment lists, maintenance records - but rarely are those available. Often whatever records might have existed have been lost in the same fire that destroyed the equipment. In most of the fire cases we've been called into, the underlying problem can be that either that the insurance company doesn't agree with the loss value submitted by the claimant or that nobody can confirm what has actually been lost.
Equipment appraisers often claim expertise in particular markets. And we do often become experts through our experience in valuing a particular industry throughout the years. In many situations, however, it's more important to be an equipment appraisal expert than an industry expert! An expert equipment appraiser knows how to research the processes and equipment lines of a specialty industry, is able to locate and interview dealers and other experts in that field, and understands how to calculate values for specialty equipment that often does not have a viable market for used equipment sales. An expert equipment appraiser is an expert in USPAP compliance, producing a well-written report in compliance with the research standards of USPAP.
Considering an ad valorem tax appeal for your business? Business owners who provide independent equipment values researched by experienced, qualified equipment appraisers are more successful in their tax appeal. Whether negotiating assessed values with the county property appraiser or in a value adjustment board hearing, a taxpayer who's prepared with a USPAP equipment appraisal review has a better chance of having their assessed values reduced.
Several equipment appraisal report clients have recently asked me to include information on California's on-going drought conditions and how current and continuing conditions might affect the value of the equipment appraised.
A previous post introduced the 3 Rules of Appraisal Review, and in a perfect world, the equipment appraisal report you're basing financial decisions on would always meet these 3 basic rules.