The Case for Site Visits

The question we are asked most frequently by clients is, without a close second, “Can you do a desktop?”

Why? Because clients think they will get the same results for a lower fee.

Most appraisers who publish content of any type – including myself – have addressed desktop appraisals. However, it is a topic that is worth keeping top-of-mind.

I previously wrote about the basics of desktop machinery and equipment (M&E) appraisals.

This article will focus on the benefits of site visits. (Yes, those are the type of appraisals that cost more than a desktop...don't X out of this window yet!)

Specifically, I want to talk about the situations where conducting a site visit will likely result in better outcomes for the client which more than justify the higher fees.

What is a Site Visit Appraisal?

The term “site visit” is often used interchangeably with “inspection.” In some cases, we use the term “inspection” because a client is familiar with it. In other cases, we avoid the term “inspection” because we don’t want to confuse a valuation inspection with a mechanical, safety, or other type of inspection.

For the sake of clarity we’ll stick to “site visit” in this article.

In practical terms, a site visit appraisal means that an appraiser physically saw the assets with their own eyes.

(This is not always a clear definition in the digital age! Does a Facetime walking tour with a client equal a drone flight guided by the appraiser? But those are topics for a future article...)

The scope of a site visit is determined by the appraiser as necessary to provide credible results for the assignment. Defining what constitutes “credible results” is largely at the discretion of the appraiser, as I discussed in my last article about pricing.

For some assignments, a site visit may simply be a walkthrough which allows the appraiser to verify the physical existence of assets. For other assignments, a site visit may involve minutely detailed descriptions and photographs of each asset.

Typical site visits for our assignments include the following aspects:

- We inventory all assets above a certain value threshold. Assets below this threshold may be described in groups.

- The inventory includes pictures, condition assessments, primary identifiers (such as make, model, serial, and year), and primary value factors (such as capacities, usage, accessories, and attachments).

- We note our general impressions of the facilities and maintenance procedures, including any potential red flags which the client may want to investigate further.

Why does a Site Visit Cost More than a Desktop?

The cost difference is a factor of time, expense, responsibility, and risk.

With a desktop appraisal, the client and/or business owner provides the information needed to develop credible valuations. We don't have to go there ourselves. This saves time and expense for us.

A desktop appraisal also shifts some responsibility for accuracy away from us as the appraiser. If an asset is misrepresented (usually, but not always, an honest mistake), or is wrongly included or excluded from the appraisal, the fault lies mostly with the party providing the information. A site visit, on the other hand, puts the responsibility for accuracy mostly onto the appraiser. This exposure necessitates a higher assignment fee.

Finally, a site visit always includes some risk of the unexpected. Doors are locked; hosts run late; additional locations must be visited; flights are delayed. We find ourselves in limbo in a factory lobby, a coffee shop, or an airport bar.

It's not like we can focus on other assignments during this time - we're usually on the phone trying to rearrange babysitting and soccer practice pickups.

With a desktop appraisal, we can focus on other revenue-generating assignments up until the time we receive all of the information needed to complete your assignment. This allows us to work with greater efficiency, serving multiple clients concurrently, and therefore allows us to charge you a lower fee.

Lower Fees Sound Great!

Why would a client ever want to pay more?

Because the benefit of engaging a site visit appraisal often overwhelms the higher fee.

Below are some of the most common reasons clients choose a site visit appraisal:

- Independence: The person providing information for a desktop is an interested party to the appraisal results. They will – consciously or subconsciously – affect the results in their favor. Even if you as the client are the one providing the information – can you really trust yourself to do this objectively when you are interested in the results?

The answer is no! You can read more about the importance of disinterest here.

A site visit means the asset information is observed and recorded objectively by a disinterested third party.

 - Time and focus commitment: Our clients are busy professionals and business owners. They do not want to invest their own time, or the time of key employees, inventorying M&E assets and taking pictures. They would rather spend that time focusing on their own business or practice, and they would rather have their employees focus on their own jobs.

Have you ever taken a week off work to complete a home improvement project, and when it was finished you wondered if you even did it right? You often end up wishing you had called a contractor: it would have been done correctly and quickly by somebody with the proper tools and expertise. 

It is not uncommon for a client to engage a desktop appraisal and come to regret it: “I just don’t have the time for this and I don't think I'm doing it right – is it too late to pick the site visit option?”

We get it...and we’ll be there ASAP!

- Confidentiality: This may seem counterintuitive – after all, what raises eyebrows more than an appraiser taking pictures of your machinery? However, the appraiser can in some ways be more discreet than a business owner in their own facility.

We can complete a site visit quickly and quietly, after hours or on a weekend if needed. The business owner may not be able to complete the inventory quickly enough to avoid notice.

Employees will not ask us a lot of questions. We can pass as an inspector from an insurance company, bank, or agency relevant to the business. When employees do ask us what we’re doing, we can professionally and competently answer in a manner that satisfies their inquiry without raising suspicions. The business owner has a harder time shrugging off questions from their own employees.

We leave immediately after the inspection and leave no trail. The business owner, on the other hand, tends to leave bread crumbs. They often ask an administrative employee to help type up the inventory and upload the pictures. Assistants are thoughtlessly BCC'ed on emails; SD cards are left in the company camera.

When we complete a site visit, the process tends to be quicker and quieter than when the client or business owner does it themselves. 

- Robustness: Business owners often don’t know which of their assets are important in terms of market value.

Financial people focus on the most expensive assets; operations people focus on the most productive assets. They both tend to disregard other marketable and valuable assets because they weren’t expensive to buy and/or they aren’t central to producing the company's profitable products.

Also, some business owners are “big picture” people, and they don’t bother inventorying smaller M&E assets for a desktop appraisal. These items may have marginal value individually, but many facilities have a HUGE volume of supporting equipment. In aggregate, the supporting items may represent the value needed to push a deal over the tipping point.

Appraisers do this every day. We consider every item in a facility. We know which items are the most marketable and valuable.

We also know how to determine which items are included as M&E, which are real property improvements, and which are inventory. As I wrote about previously, this is not always easy to discern. 

Finally, business owners and managers may or may not be ready to create original descriptions of assets, particularly assembled lines and customized assets.

Consider the overhead conveyor system pictured at the top of this article: the pertinent value factors, such as weight capacity or max speed, may not be known; some lines may be best valued in combination with a coating line and some as standalone assets; the structure and installation factors may or may not be important, depending on whether the appraisal is being conducted on a removed or installed basis; and so on.

Why should a tube mill manager be expected to know any of these things? I don't expect them to know any more about inventorying an overhead powder coating conveyor than they would expect me to know about making galvanized fence posts.

- Turnaround time: We can fly to Texas and inventory a facility faster than the business owner or the manager who works there every day.

Why? Because that person has a thousand balls in the air – this is not their day job and this is not their priority. They will get to it when they have time.

We, on the other hand, are focused on getting your assignment done.

THIS IS OUR DAY JOB!!!

Sometimes it’s worth the extra fee to let us do it for no better reason than the fact that you won’t have to worry about it anymore.

So how do I know which to choose?

Pick up the phone and call!

M&E appraisal is not standardized or regulated – every assignment has unique parameters. We will walk you through the potential costs and benefits of a desktop or a site visit in your particular situation.

We will not automatically recommend the higher fee.

Why should you believe that statement?

First, we don't automatically take in more net revenue for a site visit appraisal. Travel expenses (including the "unknowns" discussed above) can be difficult to estimate accurately. Site visits also require us to push off other assignments in order to complete the necessary travel; we may lose more revenue than we gain with the site visit appraisal.

Second, we do not want you to pay additional fees if not necessary. We would much prefer for you to feel satisfied with your fee and recommend us to your colleagues!

Tim Roy, ASA, Senior M&E Appraiser

Capitale Analytics

[email protected]