What to look for in a plant and equipment valuation
To accurately value various plant, machinery and equipment assets, valuers must account for a wide range of factors. The physical characteristics of the asset, the methods used and the general state of the economy must all be considered, for starters. Licensed plant and equipment (P&E) valuers in Queensland specialise in providing accurate reporting for numerous purposes.
These include financial reporting, taxation, insurance and the sale or purchase of assets.
Understanding what these well-trained professionals look for in a valuation is key to maintaining and maximising the market value and general utility of those assets.
Their physical attributes are the first point of focus. Valuers look for age, wear and tear, maintenance history and overall functionality. Establishing significant defects or necessary repairs is a crucial part of those process as they can notably impact value.
Another point of interest is to examine the market demand and supply for such item.
Relevant market trends include:
- the availability of comparable assets
- recent sales transactions
- the prevailing demand within the relevant industry.
This is known as the market-based approach and helps to ensure that the final valuation report truly reflects the real worth of the assets in the present economic climate.
The market can also be influenced by various legal or regulatory requirements.
What do valuers look for regarding compliance?
Ensuring regulatory compliance remains in the back of any valuer’s mind throughout the valuation process. They must research, consider and adhere to numerous sets of relevant laws, regulations, standards and industry guidelines. This is for the sake of both their reporting and their clients.
First, as valuation reports are intended to be legally certified, they must be fully legally compliant. This could include complying with standards for financial reporting, as well as environmental laws and specific industry requirements.
In short, a valuer will need to adhere to any conditions that their client generally would.
Safety standards make up a significant part of this. They look for various safety features, including protective guards, emergency stop buttons, warning labels and more.
Doing so means gathering and analysing key documentation and maintenance records.
This helps a valuer identify factors including:
- regularity of safety inspections
- frequency of maintenance and repairs
- compliance with the manufacturer's recommendations.
Environmental compliance falls under a valuer’s safety concerns as well. They are trained to identify and report on non-compliance regarding the likes of pollution control measures and official waste management practices.
This is particularly important for industries with potentially hazardous operations or equipment.
Of course, being mindful of standards and regulations also means looking out for impactful changes to those regulations and industry standards. This is vital to maintaining compliance.
How valuers compare your assets against the market
The core of most valuation services is arguably what valuers call the direct comparison or market-based approach. This is an extensive process of research, information gathering and analysis.
Essentially, this means compiling a list of all the assets being valued, called an asset register, and then using premiere databases to make direct comparisons between the assets on the register and those on the open market. This provides key information on an asset’s true market value.
Throughout this comparison, valuers consider various internal and external factors.
Noting an asset’s exact specifications is the first step. That means listing its age, condition, make, model, size, capacity, features and any unique attributes. This will allow a valuer to draw more accurate market comparisons. The comparison also entails accounting for the differences between the assets being compared when determining their value.
P&E valuers look for transaction data as well. In other words:
- sales prices
- lease rates
- terms and conditions.
This is directly related to market demand and supply, another key factor. Demand and availability are impacted by industry trends, technological advancements, changes in regulations, market competition and much more.
When market comparisons are made, they are made against assets located in similar regions or proximity. The region can affect points such as market conditions, accessibility, infrastructure and market preferences.
How far back do valuers look?
The extent to which valuers look back in time can vary depending on several factors.
This may be dependent on:
- the purpose of the valuation
- official guidelines and regulations
- the maintenance history of the assets.
For instance, guidelines provided by professional bodies such as the Australian Property Institute (API) and the Australian Valuers Standards Board (AVSB) may dictate the extent to which a valuer must dive into an asset’s history.
This may be necessary to provide an accurate and fair assessment of the current market value of plant and equipment.
Generally, the primary focus of a valuation is on current market value. At times, however, they may also consider historical data to gain insights into market trends and fluctuations. It is common to review data from past years but the extent to which they do may do so.
Looking into past data can help a valuer pinpoint the volatility of the industry and market by assessing recent market changes or significant events.
That said, in the vast majority of cases, valuers prioritise current market conditions and recent transactions as they provide the most accurate reflection of the value at the time of valuation. Historical data is supplementary and can provide some useful context.
If you’d like to hear more about what we look for in a valuation, contact one of our certified valuers and receive a free quote on your next service.