Lower-Liability Appraising

by David Brauner, Editor

According to John Harris, appraising machinery and equipment is USPAP-compliant appraisal work that offers more opportunity and less liability than appraising real property.

“The clients for these appraisals are not mortgage brokers/lenders, so the first thing our graduates  tell us is that they are so happy to be doing appraisals without the pressure,” says Harris, a General Licensed Appraiser in Kansas and Missouri and Director of the NEBB Institute.

Harris says because there is less pressure to alter appraisal results, appraisals are more accurate, which minimizes liability. He also says that end-user clients are typically business owners who are generally more sophisticated than those in residential lending, and therefore are less likely to cause a fuss than a disappointed homeowner who is upset about a lower-than-expected appraisal that nixed a refi or sale.

Fanny (Not Fannie) Blankets
But there is another big reason why machinery and equipment (ME) appraisers are sued less; it’s the forms. The forms used in ME appraising are created to serve the appraiser and the appraisal- not the lender, as is the case with the Fannie Mae forms. Harris, who has been in the business for 30 years, says that while no one is ever completely insulated from liability, the limiting conditions in these forms, developed over three decades to protect the appraiser, do their job very well. He calls them fanny blankets.

Here are two examples of Limiting Conditions language: “This is a report estimating value based on reported conditions. If it is the client’s desire to verify the physical condition and/or needed repairs of the machinery/equipment, which is the subject of this report, the client should consult a qualified mechanic/technician. To determine actual mechanical condition is outside of the appraiser’s expertise and the scope of this assignment.” And a second example: “Physical condition in most instances has been determined by observation or indication by others. Any unknown conditions existing at the time of inspection could alter the value. No responsibility is assumed for latent defects of any nature whatsoever which may affect value, nor for any expertise required to disclose such conditions.”

Find a few additional samples of Limiting Conditions language used for ME appraisals developed by www.nebbinstitute.org.

Diversification Plus
Other advantages for appraisers who add ME appraising to their practice are that you can expand business without changing professions– for a real estate appraiser, it’s just another tool in the toolbox, according to Harris. The expertise acquired also affords an additional designation which contributes to reputation and professionalism– Certified Machinery/Equipment Appraiser or CMEA.

Finally, ME appraising is very profitable, according to Harris, with a huge demand and very little competition, and which offers a great opportunity for cross-selling. Individuals who can do both real property and ME appraisals are in a position to increase their referrals. For instance: an ME appraiser gets called to a job and learns that the client, in addition to needing a machinery and equipment appraisal, also needs an appraisal of the commercial and/or residential real estate that may be involved. It works the other way too. It is a complimentary program all the way around.

“It is very rewarding to help an appraiser, who otherwise would have starved out of the business during slow times, to continue to do what he or she loves doing,” said Harris.

Read more online: Expand Your Mind (and Income)