Published: 08/10/2017 | Author: Jeffrey Doyle, ASA
There are many companies that offer Furniture, Fixtures, & Equipment (“FF&E”) appraisal services. When deciding which company to engage for FF&E appraisal needs, several important aspects should be considered, including an appraiser’s independence, experience (both in equipment appraisal and specific healthcare equipment), and ethics.
It is important to hire an experienced and credentialed (e.g., Accredited Senior Appraiser in Machinery and Technical Specialties) appraiser for the following reasons.
1. Determining the correct premise of value
An experienced appraiser has been trained and tested to understand all the different premises of value and how they apply in many different transaction scenarios.
There are many premises of value that need to be considered when determining appropriate value given a specific situation for FF&E, including: Fair Market Value - Installed, Fair Market Value - Removed, Orderly Liquidation Value, and Forced Liquidation Value. Relying on the wrong premise of value can result in significantly incorrect conclusions for a particular transaction scenario.
Client Experience #1
We reviewed an FF&E appraisal completed for our client where a Liquidation Value premise was used when Fair Market Value – Installed was the appropriate premise of value. The client was attempting to acquire a physician practice in a competitive market (i.e., there were four potential acquirers), the FF&E was to represent the majority of the purchase price by our client and the other potential suitors. Our client’s offer was not competitive because the FMV in the appraisal they received was 40% lower than Fair market Value - Installed due to the wrong premise of value being applied. In speaking with our client we found out that the appraiser that they had hired was not a credentialed appraiser and the majority of their business was focused on auctioning equipment and not appraising equipment.
Client Experience #2
We reviewed an FF&E appraisal completed for our client. The appraisal was for an imaging facility where the appraisers opined on Fair Market Value - Installed and Orderly Liquidation Value. The Client was shutting down operations due to financial instability therefore Orderly Liquidation Value was the correct premise of value. The appraisal was performed by an accredited appraiser and we deemed it to be reasonable upon our detailed review. The calculated Fair Market Value Installed was $2.2 million and Orderly Liquidation Value was $550,000. This example indicates if the incorrect premise of value (i.e. Fair Market Value – Installed) was used, the values would have been 4 times too high.
Client Experience #3
We recently performed an appraisal of a physician-owned hospital. Our Client asked us to opine on Fair Market Value – Installed, Orderly Liquidation Value, and Forced Liquidation Value, and our appraisal was to be used for lending purposes. We inventoried and inspected all the FF&E involved in the transaction. The Fair Market Value-Installed was $7.6mil and Forced Liquidation Value was $1.8mil. This example indicates that if the incorrect premise of value is used when calculating Fair Market Value for a hospital the value could be up to 80% different.
2. Drafting appraisals that are compliant with Uniform Standards of Professional Appraisal Practice (“USPAP”)
Relying on appraisals that are compliant with USPAP is extremely important. If an appraisal ends up in litigation, often one of the first questions posed is whether the appraisal is compliant with USPAP, and if the answer is “no”, the appraisal may not be admissible in the court of law.
3. Providing independent opinions of value
All experienced and credentialed appraisers follow stringent ethical guidelines and maintain independence. A credentialed appraiser always maintains independence with no prospective interest in the property or the parties involved and is not receiving compensation contingent upon a predetermined value. If an appraisal is performed by a non-credentialed, non-independent, or inexperienced appraiser, it may not be a credible appraisal.
4. Experience in the healthcare industry
Along with all the normal considerations that need to be made when valuing FF&E in any industry including, but not limited to, normal useful lives, technology changes, rebuilds/refurbishments, depreciation curves, installation costs, etc. There are unique considerations that need to be made when appraising FF&E in a healthcare environment. Some of the items unique to healthcare that need to be considered are:
- Stark Law and Anti-kickback statutes
- Commercial Reasonableness
- Medicare Reimbursements
- HIPPA Laws
- Time-Share Assets
All accredited appraisers are required by USPAP to acquire the necessary competency to perform the appraisal. Given that regulations and technology are rapidly changing in the healthcare environment, it is important to consider the amount of time it may take a general appraiser to acquire the competency required to properly appraise medical equipment, as opposed to a specialist who works exclusively in the healthcare industry.
If you hire an experienced and credentialed appraiser to perform your appraisal, you know you will receive a credible, an independent, and an ethical work product. Engaging a credentialed appraiser can mitigate the risk of a significant difference between the value in the appraisal you receive and the Fair Market Value of the Equipment. This is particularly important to protect your business in the healthcare regulatory environment.
A credentialed appraiser will determine the correct premise of value to make sure the buyer and seller are protected in the transaction, and guarantee that your company will make a competitive offer when bidding on transactions. HealthCare Appraisers is proud to have credentialed FF&E appraisers that have many years of experience in appraising all types of equipment in the healthcare industry, including, but not limited to, hospital equipment, surgical equipment, imaging equipment, diagnostic equipment, lab equipment, linear accelerators, surgical robots, and lithotripters.