Common Misconceptions About What Auction Value Really Means

Although it may sound strange, there really isn’t a formal definition of auction value. It means: “The price that a particular property brings in open competitive bidding at a particular public auction.” The value for assets being sold at an auction will vary greatly depending on several key factors, such as the assets being sold, location of the auction, how the auction was marketed and for what length of time, the size and type of the auction, and how many attendees were present.

Oftentimes, as we have discussed in numerous post about auctions, when most people talk about auction value, they are talking about pricing for a public auction sale or “forced liquidation value.” This is where misconceptions about auction value can occur. It often assumes an unwilling seller acting under duress; in addition, it implies a diminished sales value because of buyers taking advantage of the unwilling seller.

By using forced liquidation value to mean auction value, it also presupposes inflationary or depreciable conditions that affect sales, such as physical location, difficulty of removal, adaptability or specialization, marketability, physical condition, overall appearance, and total psychological appeal. It also means that the seller must find interested buyers during a marketing period of 90 days or less. Also inherent in this definition is the understanding that all equipment or assets listed be sold on a piecemeal, “as is/where is” basis, with the buyers being responsible for removal at their own risk and expense.

By using this definition for auction value, there is no consideration for additional values that might be obtained due to product line, equipment in place, ongoing operation, or other elements of value that could or might be produced at an auction sale.

Not all auction sales occur under forced sale conditions, and auctions sometimes produce a wide array of price points equal to many value definitions, so it makes sense to always make sure you use a certified equipment appraisal to understand all the definitions of value in an auction setting. Present Value can represent companies throughout the whole auction process.

By: Present Value

Additional Reading:

Know the Value of Your Machinery and Equipment Before an Auction

Case Study: Equipment Appraisal for a Lending Institution

Machinery and Equipment Auctions

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Auction Value: Fair Market Value

We’re continuing our discussion of the three different types of value a certified appraiser will provide before a company auctions off its assets. Read the other posts on this topic here.

Fair market value (FMV) is the estimated potential value of equipment and machinery if it were sold in an open market. The following assumptions are made when determining FMV:

• Both the buyer and the seller are willing and knowledgeable about the asset, and neither party is being forced into the transaction.
• The market is open and accessible by many buyers and sellers.
• All rights and benefits attributable to the asset are included in the sale.

Additional factors are considered when assessing FMV: the cost or selling price of the item, sales of comparable assets, replacement costs, and expert opinions. FMV can be somewhat subjective because it is based on the circumstances of place and time, and the availability of sales data for comparable machinery or equipment.

This concludes our series of posts on the three types of asset values that a business should know prior to an auction. Understanding the three types of asset value that should be provided by an appraiser can help a business set appropriate price ranges at auction and receive the highest possible profit from auction sales.

By: Present Value

Tags: auction value, certified machinery and equipment appraisal, fair market value, present value
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