What is Fair Market Value for Construction Equipment?

According to the Oxford Dictionary – Fair Market Value is defined as: “a selling price for an item to which a buyer and seller agree.” However, if you are a contractor concerned about money, you should learn how an economist defines the same exact term. An economist defines Fair Market Value as the price an asset sells in the open market when certain conditions are met. The specific conditions consist of the following: the parties have all the facts; they are acting on their own behalf; and (most importantly) free of pressure to buy or sell with ample time to make the decision. So why should you care? Keep reading and we’ll tell you!

Have you ever heard a heavy equipment auction company claim that they help set the market for Fair Market Value? The construction industry has been conditioned to recognize Fair Market Value as THE way to economically put a value on their asset. However, the conditioning has been promoted by auction companies and in the wrong context – the Oxford Dictionary definition. All too often we see these auction companies issue a press release after their latest event: “Over $40,000,000 of equipment sold at our event”. Then, you dig a little deeper: 4,100 assets sold. $40,000,000 divided by 4,100 = $9,756.10 per asset. If you’ve ever driven past an auction yard or even been to a heavy equipment auction, we bet you’d gladly pay less than $10K for the big equipment you see in the yard – we would!

In construction equipment economics these are the three common ways (and in our opinion, proper ways) to value a piece of equipment:

1. Fair Market Value: FMV - (big $$) - sell your equipment to the right person at the right time i.e. a listing service like Eiffel Trading

2. Orderly Liquidation Value: OLV - (medium $$) – sell your equipment in a reasonable amount of time on an as-is basis. i.e. Eiffel Trading Liquidations

3. Forced Liquidation Value: FLV - (low $$) – sell your equipment as fast as possible to whoever will buy it immediately. i.e. an auction – Eiffel Trading can help, but we prefer to help our customers maximize the value of their assets first!

As you start taking a hard look either at the idle company assets you have or assets you know you’re going to sell off a joint venture – consider the order of operation to maximize the value of your equipment:

Step 1: FMV – let people know you have it for sale, if it’s not moving after six+ months, go to the next step.

Step 2: OLV – let people know you have it for sale and are motivated, if it’s not moving after another couple months, go to the next step.

Step 3: FLV – send that thing to the auction so you don’t have to look at it anymore.

Our goal is to never have to resort to Step 3, although sometimes it’s inevitable. Here’s an example of someone who went from Step 1 straight to Step 3 and how much it cost:

Eiffel Trading had an early 2000’s Manitowoc 2250 available for sale around $650,000. According to the economic FMV of the equipment, that asking price was just north of the true Fair Market Value. After a few weeks of listing it, we brought an offer of $450,000 but it was declined. After a few months our customer decided to send it to an auction instead of moving to Step 2 – Orderly Liquidation Value. What happened next is gut wrenching. The crane was shipped to a physical auction location, then sold at the auction for less than $250,000. __Not only did they sell it for $200K less than the offer they had on the line, they had to pay to ship it to the auction and then had to pay the auctioneer’s commission out of their 250K proceeds.__x

Eiffel Trading’s mission is to help contractors maximize the value of their assets as much as possible. In partnering with our customers, we’re able to help them move assets at much higher values than what an auction can bring. And our Buyers are happy to find the right asset, at the right time, at a great price! Get started today – 1-800-541-7998 or sales@eiffeltrading.com.