CUNA News
  • LOG IN
  • Create Account
  • Sign Out
  • My Account
  • LOG IN
  • Create Account
  • Sign Out
  • My Account
  • Topics
    • Community Service
    • Compliance
    • Credit Union Hero
    • Credit Union Rock Star
    • Credit Union System
    • Directors
    • Human Resources
    • Leadership
    • Lending
    • Marketing
    • Operations
    • Policy & Issues
    • Sales & Service
    • Technology
  • Credit Union Magazine
    • Buyers' Guide
    • COVID-19
    • Digital Edition
    • Credit Union Hero
    • Credit Union Rock Star
    • Subscribe
    • Advertise
    • Contact
  • Advertise
  • Awards
    • Nominate Credit Union Hero
    • Nominate Credit Union Rock Star
  • Podcasts
  • Videos
  • Jobs
  • Contact

News

Home » SPONSORED BY Iron Solutions
Sponsored Content
Sponsored Content
Description+goes+here

Valuing agriculture and outdoor power equipment

Avoid 4 common pitfalls when determining equipment value.

April 5, 2021
Cameron Hurnard
No Comments
Agriculture-and-outdoor-power_119219

 

 

Content Sponsored By:

Iron Solutions

Lenders faced with the challenge of valuing agriculture and outdoor power equipment should be aware of four common pitfalls.

Perils of historical depreciation

When determining what the value of equipment will be at some point in the future, it can be tempting to use past performance, as reflected in historical depreciation rates, as the benchmark for expected future value. However, that method does not account for market occurrences driving the value at that time, such as commodity prices, the demand for used equipment, and other market factors.

Using historical depreciation from a similar model for a 2011 CIH Magnum 215 tractor (Figure 1) results in a valuation that is off by about $34,000, or 34%.

Figure 1

Decisions based on averages

Another common approach used when valuing agriculture and outdoor power equipment is to rely on averages. While the use of an average value can appear to deliver a quick estimate, averages can distort the actual valuation because of outliers, sparse data points, and wide variation in data.

Figure 2 shows auction and retail transactions in 2016 for a John Deere 2014 8285R tractor. The graph on the left gives an average of $139,625, clearly unrelated to any of the actual sales prices, which range from $62,250 to $154,000. The graph on the right has 54 retail sales transactions, but the prices here also vary considerably. The differences are driven by the varying options, hours, and regions where the equipment was sold.

Figure 2

In the retail sale example, the average cannot capture the tremendous variation in prices or options. This model has at least 35 options, with a possible combination of 34,359,738,367 different equipment configurations. The number of configurations explains in part the variation in sales prices seen above.

How can a lender avoid a costly mistake in underestimating or overestimating a tractor like this? A tool like IronGuides allows adjustment and valuation for hours, options, and regions.

Are auction results a good source for equipment valuations?

Basing valuation on only advertised pricing and auction results is not indicative of what the equipment is worth. Auction results alone give an unreliable estimate of value since the auction environment can be erratic and accurate option details can be difficult to obtain. This, combined with subjective condition evaluations, can make accurate comparisons difficult.

Figure 3

When comparing the retail versus auction results of selected Case and John Deere combine models (Figure 3), the sales prices from dealer retail transactions are significantly higher for both models, with the average dealer retail price for the Case combine 27% higher than auction. The Deere combine’s average dealer retail price was 25% over the average auction value. Overall, for all combines sold in 2016 in the database, the auction results showed much more variance, ranging from $125,000 to $359,000 on only 64 sales. Meanwhile, dealer retail transactions, on a much larger volume of 607 transactions, varied between $155,000 and $295,000.

With the increased number of online farm auctions due to the pandemic, lenders should be cautious when using auction data to value equipment. While auction data has value, it is only one data source. Dealer sold reports are the best valuation source. They represent a price determined at arm’s length between a willing buyer and a willing seller.

Tools to help lenders avoid common pitfalls

Iron Solutions, which has a long history in the valuation of agricultural equipment, holds the largest agricultural equipment database of dealer sold and auction transactions in the North American market. Records span 30 years with more than 16,000 models of equipment, totaling more than $80 billion in dealer-reported retail sold reports. With these guides, you can obtain region-specific valuations and adjust for options, including historical values.

To read more about common mistakes in equipment valuation, explore these resources:

  • Can the Past Predict the Future for Farm Equipment Values?
  • The Flaw of Averages
  • Are Auction Results a Good Source for Ag Equipment Values?

CAMERON HURNARD is director of development and data services at Iron Solutions, Inc.

KEYWORDS business lending

Post a comment to this article

Report Abusive Comment

Credit Union Magazine: Spring 2023

Spring 2023

Credit Union Magazine’s Spring 2023 issue features the 2023 Credit Union Heroes and examines CUNA-League advocacy priorities, board leadership, the impact of financial well-being efforts, fee-related compliance issues, predictions for the year ahead, and more.
Digital Edition •  Subscribe

Trending

  • CUNA Mascot Madness: Voting opens for East Region

  • CUNA launches page with bank collapse response resources

  • League leaders highlight credit union difference, safety, soundness

Tweets by CUNA_News

Polls

CUNA Mascot Madness: Which Midwest Region mascot is your favorite?

View Results
More

Champion for the Credit Union Movement

Credit Union National Association is the most influential financial services trade association and the only national association that advocates on behalf of all of America's credit unions. We work tirelessly to protect your best interests in Washington and all 50 states. We fuel your professional growth at every level and champion the credit union story at every turn.

More CUNA

  • Membership
  • Contact Us
  • Careers

Resources for

  • Credit Union Advocates
  • Leagues
  • Press
  • Providers

Our Affiliates

  • American Association of Credit Union Leagues (AACUL)
  • Credit Union Awareness
  • Credit Union House
  • CUNA Strategic Services
  • National Credit Union Foundation
GET CUNA UPDATES
© 2023 Credit Union National Association | ADA Compliance Notice & Legal
Email Us