Head photo courtesy of Titan Machinery.
The skill of an independent appraiser is to formulate an unbiased value based upon a thorough understanding of the farm equipment market, while using real data from multiple data sources — “guesstimating” it is not.
There’s more to farm equipment appraising than meets the eye. We talked to several experienced appraisers to get their take on the current market for used agricultural equipment in this unusual environment.
Brian McGahey of Ringling, Oklahoma, has been an independent appraiser for the past 18 years and said he uses several data sets when figuring farm equipment valuations.
“An appraiser is more of a personal property consultant, and that poses a lot of challenges because the valuation is never going to be good enough or high enough,” he said. “But the comparables and the data are the ultimate test and that’s all I can use and present.”
Comparables and Data Sets Needed for Farm Equipment Valuation
“I look at comparables and include several data sets when figuring valuation,” said McGahey. IronGuides® – the blue book for farm equipment – is a good source because the valuations are based on actual retail transactions, he commented.
Most appraisers agreed that 2020 was a crazy year, but said the COVID-19 pandemic did not greatly affect their business. Agricultural appraisals have to be done – despite the pandemic – because there are still divorces, estate settlements, equipment sales, foreclosures and bankruptcies.
“When economic cycles force prices down, other agricultural professionals tend to suffer substantially more than do appraisers,” said Jay Proost, Executive Director of the American Society of Agricultural Appraisers (ASAA). “Agricultural land appraisals, as well as farm equipment appraisals, are still needed for banks, insurance companies, attorneys, estate settlements, partnerships, bankruptcies, divorces, tax purposes, government agencies and auctions.
One aspect of the business that previously kept appraisers busy, has slowed down in recent years – the typical small farm estate sale.
“Forty years ago, in our area, there used to be five estate sale auctions per week,” Proost said. “Now there are only about five estate sales per month and those can be live and online simultaneously.”
Farm Equipment Online Auctions Increased in 2020
While the number of small farm estate sales declined, the number of large online auctions increased in 2020. In fact, the increased number of online-only farm auctions, due to the pandemic, has boosted business for ag appraisers, Proost said. Prospective buyers are hiring appraisers to go to farm auctions in advance to assess equipment value and take photos.
Farm auctions have presented an opportunity for more appraisals, McGahey said, as clients want more farm equipment inspections, detailed photos and equipment values since they can no longer attend in-person to physically walk around and put their hands on the equipment.
McGahey cautiously uses auction comparable sales along with other data sources.
“Auctions confuse the public, and they want to use those auction prices to value their equipment. What they don’t realize is many factors affect the selling price including reserve pricing, inaccurate option details and condition,” he said.
While auction data has value, it is only one data source, McGahey said. An appraisal is an unbiased valuation using data from several sources including online sales, auction sales, and guide books.
Mark Nordin has been an independent appraiser for the past 25 years. Nordin, who lives in Sheridan, Arkansas, also actively buys and sells farm equipment, and provides auction services for banks and lenders.
He was raised on the family farm, having farmed about 4,000 acres with his dad and grandad until 1985 when they quit farming and he became a firefighter. After retiring from the fire department, he turned to appraising full time.
Despite COVID-19, Farm Equipment Appraisal Business Mostly Grew in 2020
When asked how COVID-19 has affected his appraisal business, Nordin said that it has not been negatively impacted – in fact business increased in 2020. He noted that auctions increased, and consequently hiked farm equipment prices.
“People will typically pay more at auction in a competitive environment than they would at a dealership,” Nordin said. “Usually, farmers have researched prices in advance with their goal to beat the dealer’s price. They have a set price in mind, but usually end up spending more at auction bidding in the heat of the moment because they have to make a decision immediately.”
Nordin said he’s heard all the justifications for spending more than anticipated.
“Maybe that combine belonged to their neighbor, and they knew he took good care of it, or they didn’t think they could find another combine like it.”
“Farm Auction Prices can be unrealistic if you don’t know the circumstances”
There are times when auctions can be a good deal, and a farmer finds a bargain. That’s just the nature of auctions, Nordin said. “Mostly, you have to know the market to understand auction prices because they can be unrealistic if you don’t know the circumstances — was it an absolute auction, a reserve?“
When looking at auction results, it’s important to note where the auction was held, he said. For example, the results of an auction in Iowa don’t reflect the market in Washington or Arkansas.
Also, when equipment gets to be of a certain age, the year is no longer as important. In those cases, the condition and hours are more important. For assessing single pieces of equipment. IronAppraiser®, is a good tool to use as it is the only online appraisal tool for agricultural equipment that adjusts for unique options and usage.
As an appraiser who also buys and sells farm equipment, Nordin consults several sources. “I have to stay on top of the market,” he said. “So, I look at lots of auction reports from all over the country. I look at IronGuides® to check serial numbers, year models, and look at retail prices.”
“I think there will be fewer auctions in 2021, at least in this area, because farmers had a very good crop here and they’re doing well,” he said.
Larry Herrington, 74-year-old independent appraiser from Stephenville, Texas, became an appraiser eight years ago. His focus is on ag equipment and livestock with 90% of his business with banks and lending institutions.
Herrington uses IronGuides® and other equipment value publications, as well as internet searches, when looking for appraisal values. He also uses online auction sites to get comparable sales.
“Auction site sales may not reflect the true value of the equipment,” Herrington said. “There can be two identical tractors with similar hours, options and conditions with five people looking at it. The highest bidder may spend $10,000 more than it’s actually worth just because he wanted that particular tractor that fit his individual needs. So, the auction value may not be a true value.”
This sums up the typical farmer-appraiser conversation:
Farmer: “What do you think my tractor is worth? The other day one just like it sold at auction for —– .”
Appraiser: “Was it exactly like yours with the same number of hours, with the same attachments, and same condition?”
“It’s hard for an owner to come up with an objective valuation, rather than subjective. But, I just lay out the facts and in the end, all I have is my reputation,” said McGahey.
For more information on auctions as a source for equipment valuations, please read the article entitled, “Are Auction Results a Good Source for Ag Equipment Values.”
The American Society of Agricultural Appraisers (ASAA) is an 800-member organization of appraisal professionals, providing educational and organizational support to its members and the public. Founded in 1980, the ASAA is the nation’s only appraisal association exclusively for livestock and farm equipment appraisers. The ASAA consists of three divisions: livestock, farm equipment and equine.