The Perils of Desktop Appraisals
Bill Engel
Machinery & Equipment Appraiser - Accredited Senior Appraiser designation and member of the College of Fellows of the American Society of Appraisers
Quite often, I receive requests to perform “desktop” appraisals - appraisals based upon equipment listings without the benefit of actually viewing the equipment. I generally indicate to the client that while I can produce an appraisal in this fashion (provided I have adequate information), the appraisal should be used with an “abundance of caution.”
Desktop appraisals typically have two advantages over standard appraisals: 1). They may be completed more swiftly and 2). They may cost less. That being said, in both these cases, these benefits aren’t always true. Traveling to a site and actually verifying equipment, may not require that much more of an investment and a standard appraisal may be completed more quickly if the appraiser is waiting for a great deal of information from the equipment holder in a desktop scenario.
So why do appraisers shy away from desktop appraisals? There are a variety of reasons, including, but not limited to:
1). Since the appraiser has not viewed the equipment, they cannot confirm the equipment’s identification nor even its existence.
2). A desktop appraisal puts an unnecessary burden on the equipment holder. They must take time out of their busy day to answer the appraiser’s questions and concerns and supply any needed backup documentation. Even after answering the appraisers initial round of questions, there may be followup questions. This is information that the appraiser, most likely, could have obtained on their own had they performed a site visit.
3). The appraiser cannot confirm the condition of the equipment.
4). There may be additional equipment on-site that is not listed on the originating documentation but should be. A desktop appraisal has no way of identifying this extra equipment.
5). It’s a professional appraisers job to be as precise as possible given the circumstances. A desktop appraisal presents many variables the appraiser cannot control.
6). A desktop appraisal could present more risk for the client in relation to the appraisal’s use since equipment verification did not occur.
I can say, categorically, that every time I have performed a standard appraisal for equipment that had been subject to a desktop appraisal previously, there have been discrepancies. Equipment ID information is incorrect, the equipment is no longer present, there is extra equipment or the condition is suspect.
Desktop appraisals do have their time and place. Generally, when there is not a great deal riding on the valuation and the client is willing to accept the risk that non verification may invite, or the equipment is just not available for inspection. Otherwise, clients should be cautious going the desktop route and it’s up to the professional appraiser to apprise them of the risks.
Director, Vice President, Asset Management at Hancock Whitney Equipment Finance, New Orleans, LA
7 年Bill, thank you for publishing this post. This is a very real challenge the we, in banking, deal with on a daily basis. I appreciate your insight.
Accredited Senior Appraiser (ASA) at IWI Valuation Services
7 年Bill these are excellent points and are very much appreciated. Lee Martin
ASA 2021-22 Appraiser of the Year. Helping attorneys, BV appraisers, CPAs, and executives with machinery and equipment values and reviews on which they can depend.
7 年Since I live and work in western US I do a fair amount of fire loss claim appraisals. Naturally these are all "limited scope appraisals" (a term I prefer over "desktop"). I also review a number of appraisals for this same purpose. The biggest problem that I see in these reports is the failure to properly document the extensive extraordinary assumption and other appraisal conditions that need to be documented in order to deliver credible results. I could write a chapter about this (and probably will soon). The end result is that these are often some of the most problematic reports I've seen. Usually when reading about half way through the boilerplate scope of work it becomes clear that troubled waters lie ahead. In conclusion I'd argue there is a correct way to do these in a way that delivers credible results...and it takes a fair amount of extra writing and explanation to accomplish that.
Business Owner at LC Environmental
7 年I can certainly see this happening when a property is in Special Assets and access to the equipment is difficult, if not impossible. But I would suggest that they do an "update" with boots on the ground before they move on anything.