Can You Do a Desktop?

As machinery and equipment (M&E) appraisers, this is the most common question we receive from our clients.

Let’s answer it.

Terminology

(These are my very informal definitions. You can find more formal guidance at USPAP.org and in various ASA publications.)

Desktop appraisal: An appraisal without inspection; an assignment where the appraiser is given all of the information about the M&E being appraised, and does not confirm that information by physically seeing the assets.

As in: “Just tell me about your M&E and I’ll appraise it from my desktop.”

Site visit appraisal: An appraisal with inspection; an assignment where the appraiser physically sees the assets to gather and/or confirm information about them.

As in: “I’ll visit your site and personally catalog your M&E.”

What Else Does a Desktop Assignment Entail?

Nothing. Read the definitions above – that’s it.

Other than the means of gathering and confirming asset information, no other assignment components need to be affected. The appraisal report may look identical for either option, other than clearly stating how the information was gathered and whether the appraiser physically inspected the M&E.

Anything you hear to the contrary is misinformed. Many appraisers and users have misconceptions about desktop appraisals based on changing recommendations from various appraisal firms, user groups, and professional associations over the years.

Certainly, many appraisers (including myself) have strong opinions about how to handle desktop assignments, but these are individual preferences – they are not dictated by USPAP or any other standards organization.

In any case, M&E appraisal is unlicensed and unregulated. It is up to the appraiser and client to determine the best process for each assignment. Don’t look for rules and forms – they don’t exist.

Main Pros of a Desktop Appraisal*

Cost: A desktop appraisal is usually cheaper. The appraiser has no travel expense. The appraiser bears less (or no) responsibility for accurate identification of assets, so they may quote a more competitive rate.

Turnaround: If the information is prepared and organized (and that is a major “if”), desktop appraisals can often be completed more quickly as the appraiser can schedule the work more efficiently around other assignments.

Confidentiality: There is no stranger walking around the business, fending off inquiries from employees and raising suspicions about the company being sold.

Main Cons of a Desktop Appraisal*

Effort: If the appraiser is not spending time gathering information, then somebody else has to do it. Small business owners are busy and may not have time to catalog all of their machinery in detail.

Accuracy: The business owner is an interested party to the appraisal. As I discussed in a previous article, they are not capable of being unbiased, even in gathering simple facts about their machinery.

(For example: a 2005 machine which was refurbished in 2014 will often be listed by the business owner as a 2014 machine. They aren’t trying to be dishonest – they see it as a 2014 machine.)

Missed value: A business owner will often focus on their large capital investments and ignore smaller assets which can add up to significant appraised value. They may assign the cataloging job to an inexperienced employee who may miss major value factors (such as expensive machine options) in their descriptions.

Hassle: A desktop appraisal adds an extra layer of communication – and miscommunication. Some business owners really “get it” and work very well with the appraiser to gather the requested information…but many do not.

*There are major caveats to all of these pros and cons. These points are just generalities. These are often not true. Did I say that enough different ways?

How do I Decide which Type of Appraisal I Need?

Below are some questions you can ask before deciding whether to engage a desktop or site visit M&E appraisal:

• Is the business owner organized, patient, and a good communicator?
• Does the business owner have time to catalog the assets or ensure an employee does it correctly?
• Do you need to save money on the assignment, even if it creates hassle and delays?
• Do all intended users of the appraisal trust the business owner to be honest and accurate?
• Does your code/SOP/protocol allow for desktop appraisals for this situation?
• Do all intended users of the appraisal already have a good understanding of what the M&E assets are and what kind of condition they are in?
• Are you willing to accept that less significant assets may be left out of the asset catalog?
• Are you willing to accept that no independent third party has confirmed of the existence and operable condition of the assets?
• Are you confident that legal action regarding the appraisal is very unlikely?

 If you answered a lot of these with “yes,” then perhaps you can engage a desktop appraisal. If you answered any of these with “no,” then perhaps you need a site visit.

Convenience and Trust

As you can see from the list of questions, the main determinants are convenience and trust. When you engage a site visit, the appraiser takes care of everything and verifies everything. With a desktop, you might save money and time, but the business owner has to do a lot of legwork and nothing is verified by an independent party.

Ask!

If you aren’t sure, ask your appraiser to quote both options and to discuss the pros and cons of each in your particular situation. Every appraisal, business, and M&E type comes with unique considerations.

If you are bidding the assignment, ask for these things from each bidder. As with any professional service, if all you get is a fee and timeline quote, you don’t know what to expect and you may make a poor selection.

If you choose an appraiser who can give you sensible, straightforward discussion about your options, you will be more comfortable as you move forward with the assignment.

Tim Roy, ASA, Senior M&E Appraiser

Capitale Analytics

[email protected]