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INVENTORYING A COLLECTION We all have collections. Over the years we have put similar things together: those baseball cards we collected as a kid or dolls or nails. After a while, the collection becomes large enough so that we do not know what we have when we are looking for additions. After about a hundred items, it's time to answer the question, "should I make a listing of what I have?" The answer is definitely "Yes." PROCEDURE TO FOLLOW WHAT IS AN INVENTORY? An inventory is a detailed, often descriptive list of articles giving certain information about the items:
The DESCRIPTION in concise terms refers to size, color, location, or traits about the object noticeable to the naked eye. The QUANTITY is usually a unit of one exception when items naturally occur in pairs or other groups. Example: salt and pepper shakers in a box. The AGE of an item as well as the maker and manufacturer is important to record. Rough dates of manufacture can be estimated until actual ones can be determined. As to CONDITION, this is divided into subjective categories: very good, good and fair are the more common conditions. Fine/mint is a description that should be reserved for articles which have not been removed from the original box and are in "as new" condition. Very good means without a scratch and in nice condition throughout. Good are items with slight mars and scratches, in working condition, while fair means the article shows its age, with some abuse. COLUMN HEADINGS
BOOKS: The inventory of books requires more information than other objects. In addition to noting condition, record of the author, Title, Publisher, Date of publication, and whether the books are signed, autographed, or are limited editions, the presence of a dust jacket is also noted. FINDING AID: A prepared list or inventory of your collection serves several purposes. When you are interested in adding to your collection and are out searching, it is a compact list you can check. If you are thinking about insuring your collection, it is an easy way to describe them, and if you know of someone who collects the same things, you can exchange lists to fill in the gaps with duplicates from their collection. Inventories of collections tell us what we have, and gives us ideas as to what to search for. BREATHING LIFE INTO LEATHERBOUND BOOKS Leather books, like people, need to breathe to stay alive. Through time, leather gets soiled, dirty, or scratched. The color fades and the leatherbound book may become powdery or the boards split or pull away. Application of the following chemicals at the proper time will retard and actually stabilize and bring back to life the leatherbound book that looks like it is on its last legs. An ounce of protection is worth the time! Procedure to Follow Materials required:
Procedure:
5. Polishing/Buffing
6. Inspection
REPEAT TREATMENT EVERY 5 YEARS 7. Suede books require special treatment
A Lender’s Guide
to Machinery & Equipment Appraisals
Steven M. Piletz is president
of National Valuations, Inc. of Connecticut.
He is a senior member of the American Society of Appraisers in the
machinery and equipment discipline. Is the appraisal adequate? Do you have sufficient collateral? The secured asset-based lender will see many types of machinery and equipment appraisals from a wide variety of industries. These appraisal reports will differ from report to report. Such differences can range from value concepts to the descriptions of the machines being appraised. Before a value can be determined, the item(s) being appraised must first be identified. The accuracy of the appraisal is dependent on the amount of information gathered on the machinery and equipment. Types of information needed include:
With changing technology, the appraiser is sometimes confronted with equipment with which he is not familiar. In such cases, he must make inquiries and do the research needed to enable him to identify the item. Valuation concepts The first step in understanding the machinery and equipment appraisal process involves understanding value concepts. Most asset-based lenders require a forced-sale, liquidation-value appraisal. There are three basic liquidation-value concepts: Liquidation Value, Orderly Liquidation Value, and Liquidation Value In Place. The first value concept, which is the mainstay of the asset-based lender, is Liquidation Value or Auction Value. This value is defined as:
The estimated gross dollar amount that
could be typically realized at a properly advertised and conducted public
auction held under forced-sale conditions and under present-day economic
trends. Inherent in this definition is the understanding that all equipment or assets listed in the appraisal are sold on a piecemeal basis, “as is and where is,” with the buyer being responsible for the removal of the equipment at his own risk and expense. Such conditions as physical location, difficult of removal, adaptability or specialization, marketability, physical condition, overall appearance, total psychological appeal and the ability to draw interested buyer(s) should be taken into consideration. Any deletions or additions to the appraisal could change the psychological and/or monetary appeal necessary to reach the estimated Liquidation Value. Consideration should not be given to such things as product lines, equipment in place, ongoing operation, or other elements that could be produced at an auction, but could not be foreseen by the appraiser. In an Auction sale, everything is put up for sale. The values realized are gross and are not net of liquidation cost. The next value concept is Orderly Liquidation Value. This value is defined as:
The amount of gross proceeds that
could be expected from the sale of the appraised assets, held under
forced-orderly-sale conditions, given a reasonable period of time in which
to find a purchaser(s) considering a completed sale of all assets, “as is
and where is,” with al sales made free and clear of all liens and
encumbrances. This value concept assumes a limited time for market exposure with a seller under duress. It takes into consideration the physical condition, quantity, difficulty and cost of removal, as well as the overall psychological appeal of the assets, and normally results in a higher gross value than can be obtained under a Liquidation Value (Auction) concept. Although in an orderly liquidation the gross value may be higher, the net return is not respectively higher, especially when taking into consideration such things as holding cost, cost of money, etc…. Orderly Liquidation value should be reserved for specialized or unique items for which there is a verifiable but limited market. The final value concept, which is used less frequently, is Liquidation Value in Place. Liquidation Value in Place is defined as: An amount of money that is projected to be obtainable considering the present marketplace. The value concept assumes that the entire facility would be sold intact along with all related equipment necessary to make it operable. It further considers that Fair Market Value, as normally defined, could not be obtained due to restriction of time and forced-sale conditions. This value concept includes the machinery, equipment and real estate. The value should be qualified because it assumes that economic conditions would be the same as the date of the appraisal and that the facility would meet some basic criteria, some of which are outlined below.
The Liquidation Value In Place further assumes that supply and demand would cause a fair profit to be made, and that the ratio of cost to manufacture a product and retail price was not a cause of the company’s failure. This value concept is more volatile than the other valuation concepts, but when used property, it can maximize the asset value. Care should be taken when reviewing this type of appraisal, as it could take one to two years to dispose of the facility. Valuation procedure Once the concept is determined and the item being appraised has been identified, the next step (or the first step in the office) is the valuation. For liquidation valuations, the value be arrived at by the use of comparable sales, which are either 1) the same item of similar design, material, quality and capability or 2) a replacement type item of comparable design, material quality and capability. Comparables can be found from a variety of different sources, the most useful being from recent auction sales. Auctions of machinery and equipment occur almost daily and the results can be monitored. There are also certain publications that monitor auction sales and publish the results. If property used, these results will be beneficial in helping to estimate the liquidation value. Used asked prices, if current, will help give the market value for the item of equipment being appraised. These prices can be obtained from trade journals, used-equipment publications, equipment dealers, etc….New cost or original cost should provide the high end of the value spectrum. This value would come straight from the manufacturer or purchaser of the equipment. Still other comparable may come from discussions with knowledgeable people, such as industry experts, equipment dealers, and other appraisers. After the comparables have been researched, adjustments may need to be made, depending on certain factors that may influence value. Some factors that should be taken into account include:
In evaluating any item under a Liquidation Value, it is important to understand the type of purchaser(s). Under most liquidation sales, there are basically two types of buyers. The first type is the equipment dealer who is looking to turn around and sell the item for a profit. His cost would normally include 1) the purchase price; 2) rigging and freight costs; 3) holding cost and 4) cleaning and repair cost. The second type of buyer is the direct user of the equipment. This purchaser is looking for a bargain or has an immediate need of this piece of equipment. He is hoping to find something costing less than what he could get from a dealer. Types of appraisalsThere are many different types of so-called “machinery and equipment appraisals, “but there is only one type of appraisal, and anything else should be considered an “opinion of value.” In an opinion of value, the equipment has not been physically inspected and/or properly researched. These types of “opinions” are sometimes called “desktop appraisals” or “walk-through appraisals.” A “desktop” may consist of a listing of equipment in which the appraiser estimates the value according to the information received. The more information the appraiser has regarding the item, the better the estimate of value. This should not be taken as an appraisal, since the items were never visually inspected. A “walk-through” normally involves the appraiser touring the facility on a conducted tour. During the tour, value indications are made on major pieces of equipment. A mass estimate is made on all other items of equipment. The values are totaled after the major pieces have been researched and a total range is determined. Both of the above approaches to estimating value have their uses, but they should not be taken as an appraisal. An appraisal should include a completed inventory of the machinery and equipment that has been visually inspected, along with enough description to identify properly the item(s) being appraised. Furthermore, values should be assigned on a per-item basis and totaled. Summary The asset-based lender must have sufficient knowledge about appraisals to make sure that the value of the collateral is sufficient to secure the loan. The lender should understand value concepts, in order to dictate to the appraiser what type of appraisal is necessary. Care should be taken when reviewing the appraisal. Having the proper knowledge about machinery and equipment liquidation value appraisals will help you to make sounder judgements and avoid loan losses. Originally prepared for a library in 1990 this was subsequently enlarged because of the downsizing of the economy and opinions expressed at the 1991 New England Museum Association Conference. The effect of downsizing in the for profit economy has affected the non-profit. The representative for the Hancock Shaker Village in Pittsfield, Massachusetts, 01202 requested a copy. Others have subsequently requested copies. CHOICES - CARING FOR OTHER PEOPLE'S MONEY Institutions and individuals in the 1990's are caught in an economic squeeze. Prices of items of tangible personal property increase while labor rates, essential to care for collections, also increase. In times past, items came to museums, some relevant to a museum' s mission, some are not. Once the Board of Trustees makes a decision to deacess, there are four avenues. Avenue #1. Auction PRO The auction is a fair market place. A good reputable auctioneer will market the items in a catalogue. The $ generate a commission for the auction so the money is "found" for both the museum and the auctioneer. CON Sales depend on the type of day. The larger the attendees generally the higher price realized. Proper inventory controls require matching pre and post sales descriptions of items. Auction descriptions must be the same as in the museum. Avenue #2. Sales Catalogue PRO The most money to the museum. The museum prepares the catalogue, assigning prices, so the description must be accurate. Proper accounting practices provide holding release of property until check clears the bank. CON Requires time for preparation and release of property. Requires knowledge of proper advertising practice and potential buyers. Avenue #3. Private Treaty PRO Private sale to individual or other museum maintains confidentiality.
CON Private treaty sale must be carefully reviewed by board of trustees prior to approval. Banking references and other financial aspects must be reviewed to be sure the purchaser acted in good faith. Response to conflict of interest claims must be considered before, not after the changes occur. Avenue #4. Dealer Visitation A variation of Avenue 1 restricting the participants to dealers visiting and making written bids. PRO A wholesale marketplace with interested dealers only in the arena. Any and all bids may be rejected allowing other avenues for sale. CON Potential conflict of interest claims if dealers are left out. Requires knowledge of proper dealer advertising as well as time for preparation and release of property. You have some choices and a decision to make. If you think through the process before making a decision the proper answer for you and your client will be self evident. John A. Woods Appraisers may be able to help you with answers to your questions. FAIR MARKET VALUE - ITS MEANING By Edw. C. Swift Appraisals are prepared to serve a number of purposes. Those purposes include insurance, sale of property, tax reasons and for estate settlement. The Fair Market Value determined for each of these purposes will be a different value. The reasons for the difference in value will be presented to clarify the differences. Fair Market Value (FMV) represents the price that property would sell on the open market. FMV for an item of property takes into consideration like kind and quality, and condition. It is the price that would be agreed on between a willing and knowledgeable buyer and seller. Fair market Value has been defined in the Income Tax Regulations for Donations and Estate valuations:
Each of the above factors differ when applied to appraisals for Insurance, Sale, Tax and for Estate valuations. It is the job of an experienced appraiser to make appropriate adjustments to each element when valuing a clients personal property. Lets take a simplistic look at each type of appraisal to see how the definition of Fair Market Value is applied to each.
Insurance: Insurance value is used conventionally to designate the amount of insurance which should be carried on destructible portions of property to indemnify the owner in event of a loss. In the event of a loss when it is deemed that the property to be replaced, is an item that is as good as, but no better than the property being replaced. That cost is found in the market place where the replaced is normally sold, including taxes.
Sale: The sale value is affected by considerations for the time allowed to sell an item and whether or not the property is offered in the appropriate market. Appropriate market is defined as the place or venue where a particular type of property is normally sold. For example, it is unlikely that one can sell an oil painting by a master and receive value if offered in an antique mall. Market sale data are utilized to evaluate items such as fine arts, furniture and books and take the form of Auction results and retail shop data. It should be noted that fine arts, period furniture, books and decorative appreciate in value with passage of time and for that reason the appraiser uses current data as part of a valuation. When appropriate, depreciation is considered as part of an evaluation. Valuation of personal property involving donations and estates are special cases since they are governed by rules defined by the Department of the Treasury, Internal Revenue Service, Publication 561, Determining the Value of Donated Property, should be considered. return to top of page |
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