Guru, How-to Tips from Industry Experts: Conduct Due Diligence Before Auction
Industry auction veteran shares best practices for buying and selling equipment through a machinery auction.
By Chuck Lepinski
Date Posted: 10/5/2018
Some companies in the market to buy machinery or equipment may seek to purchase used and may turn to an auction as their source. By the same token, a company that’s in the process of liquidating or that simply has surplus equipment to dispose of may elect to use the services of an auction firm.
Knowing how to navigate an auction and what ‘homework’ is involved can help lead to a successful outcome. With more than 20 years of experience in machinery sales and the auction business, I have seen a lot working in the industry. My company focuses primarily on buying and selling sawmill and pallet machinery and facilities. In addition, I previously operated a pallet and sawmill plant. The following are my tips for people looking to buy or sell machinery and equipment at auction.
For buyers, the most important thing in preparing to buy equipment at auction is to do some research and know the market value of the equipment, as well as the associated costs. The buyer pays a premium on top of the “hammer price” or sale price; the premium is the auctioneer’s commission to pay for costs and is disclosed ahead of time. In addition, there may be costs for dismantling and rigging equipment as well as shipping.
Do all the research in advance and set a budget. That way you go into the process with a game plan. There are various ways to ascertain the mechanical condition of used machinery and equipment. If it has a motor, the oil can be sampled. Review any service records kept by the owning company.
Another option is to pay a qualified person to inspect the machine. A lot of times, you can pay the manufacturer to go in and do an inspection. Paying a qualified person to perform an inspection is only a minimal cost when you consider the overall purchase price, rigging, transportation, and installation.
Expect to save from 20-50% when purchasing used equipment compared to new. In addition, purchased at auction, a machine can be put into service quickly. A manufacturer may not be able to deliver a machine as much as 12 to 18 months out. Buy a machine at an auction, and you can be working with it next week.
Tax reform provisions that were enacted this year apply to used as well as new machinery and equipment.
For sellers, make it a high priority to tap an auction company with expertise in the pallet and sawmill industry. General auctioneers may be local, but they don’t specialize in forest products machinery. It’s important that the auctioneer be knowledgeable about the assets to be sold if you want to get top money for them.
I remember once attending an auction put on by another company — not an auctioneer who specialized in the forest products industry. The auctioneer had to ask me how much an item should sell for.
Also, tap an auction company that is able to reach a large audience of potential buyers. Those would be auctioneers who have a good following in the industry, have a sizeable list of contacts in the industry, and a budget for advertising to promote an auction.
Choosing the right auctioneer is similar to selecting a vendor or supply based on the lowest price. You get what you pay for. If you select an auction company because they offer a lower commission on sales, the business still has overhead expenses but likely will have to cut corners compared to a larger firm that may charge a higher commission. For example, the company offering the smaller commission may not have as big a budget for advertising and marketing because they’re already working on the cheap.
Although I normally deal with a business that is liquidating all its assets, my company does work with other sellers. For example, a client with one or several pieces of excess or surplus equipment has a variety of options. Associated Auction can sell the machines on consignment, in some cases may buy the equipment outright, or can put the seller in touch with another client who may be in the market for the machines.
Expect to get from 30-80 cents on the dollar for assets sold at auction. If you hire the wrong auctioneer, it could be 10 cents on the dollar.
(For more information about Associated Auction & Liquidation Company, visit the company’s website at www.associatedauctioncompany.com. To contact Chuck Lepinski, call 800-598-3651 or email email@example.com.)
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