February 8, 2018
By: Tom Hirt, President and Owner of FSK Equipment & Supply, Inc., McKinney, Texas
In my equipment career that has spanned more than 40 years, I have interacted with loggers and small business contractors—all great people—around the world. This has been key to my understanding of the many opportunities and challenges that exist in the purchasing and/or selling of used equipment.
My company has focused on the used equipment market since 2007 and I have learned much about the pitfalls that exist when individual owners enter this ‘hazardous world’ on an occasional basis. I will try to highlight some of the more critical issues in this article.
Here are some answers I get when I ask owners why they want to sell equipment themselves:
— “I am not trading, so the only way to maximize value is to sell it myself.”
— “My dealer won’t give me what it’s worth to me.”
— “I need to sell it fast and my dealer or broker won’t make as much effort as I will.”
— “I know as much about equipment as anyone, so I can sell it just as well as any dealer or broker.”
— “I don’t want anyone else to know I’m selling some of my stuff!”
Here are some reasons why you should consider enlisting sales help:
— Specialists will have more contacts and will advertise your machines on websites and use other media.
— You work long hours as it is. Do you want to put your phone number in front of thousands of people and receive calls at all hours?
— If you find a buyer, are you prepared to document the sale properly to avoid any legal issues or conflicts after the sale?
Do you know how to price your machine fairly so you attract buyers and still get the most for your equipment?
You are most likely not an equipment buyer or seller by design. Your expertise is in your business. You have a banker, an insurance agent, and a doctor. It may be reasonable for you to have someone you trust to help you find or sell your used machinery.
Knowledge Is Key
Regardless if you go it alone or work with a dealer/broker, it is in your best interest to know as much about the process as possible. Here are some observations that may help you better understand the ins and outs of used equipment.
Let me emphasize that the condition of a used machine is subjective! You might consider yours to be in good condition, but the guy who wants to buy it could see it completely different simply based on his perspective. So be aware that it is common to have differing opinions on what the actual condition might be.
What are some of the important things to know about the equipment you want to buy or sell? There are several, as follows:
Do you know the history of the unit? Has it ever been damaged by fire, turned over, submerged in water or involved in a collision of some type?
Is the seller the original owner? If not, where did he buy it? Any idea how many operators the machine may have had? The more operators involved, the greater the chance for lurking problems. It only takes one bad jockey to ruin a horse, or in this case, mistreat a good machine and cause it to begin a premature downfall.
Did the owner perform regular maintenance? Did he do it from within or enlist a dealer? What were the intervals for greasing and changing engine and hydraulic oil and filters, and were fluid samples pulled regularly for lab analysis? What brand oils were used? Conventional or synthetic? Does he have records of repairs? You may be surprised at how many owners do not keep close track of this important information.
Check all fluids. Do they appear clean? Again, this relates to the owner’s records of regular maintenance.
Is there grease showing on the pins and pivot areas? Are pins and bushings tight?
If the machine has low hours, is there any warranty remaining? If so, is it transferable to a new owner? Remember, there are different types of warranties: standard, powertrain, and structural.
Did it come from an auction? If so, proceed with caution! Auctions are an important player in the buying and selling of used machines, but remember that a machine with some negative history can be dressed up —think of lipstick on a pig—and made to look attractive to bidders. Despite attempts by reputable auction firms to have as much information available as possible, there are some individuals who use deception as a means of disposing of their mistreated equipment.
Auctions can be ‘competitive’ so do not let your common sense and due diligence get sabotaged by your urge to ‘win the bid!” Just because some other guy is all excited about a machine does not mean he knows more than you, so do not compete. Set your maximum price in your mind and do not exceed it. To sum up, do extra research on auction machines, as there are more forces at work that might cause you to misjudge a machine.
Get the serial number. If there is no serial number plate, you may find it stamped somewhere on the frame. If you still cannot find it, you may be able to locate the serial number of the engine. If it’s the original engine, the manufacturer should have that recorded number and should be able to match it with the machine serial number.
If there is no serial number, then the historical data is suspect! If the seller cannot produce the documents that he received when he bought the machine, then your purchase should be considered ‘risky.’ Talk to a professional for advice as to how to proceed…or if you should run from this machine!
What are the hours? Do they seem to match the overall machine condition? Be aware that it’s possible to change the hours on some machines, such as when a new engine is installed or a dashboard is replaced.
If the hour meter is broken, you are now dealing with a total unknown. Have a dealer research the serial number to learn all you can about the history.
Where has the machine worked? If it’s been in southern pine, those contractors do not get paid as much per ton, so they must have higher production to be profitable. The general opinion in the industry is that equipment from the South has been worked harder than similar machines from further north that work more often in hardwood. Hardwood loggers are typically paid more, so they do not have to produce as much as their southern counterparts. This does not reflect on the quality of the contractor but rather on the demands of the job.
How does the cab look? Often, if a cab is in poor condition, it can reflect how the rest of the machine may have been cared for. The cab can be clean, but look closely for signs of neglect.
Do you know how to judge an undercarriage if you are looking at a tracked machine?
Does the owner owe anything against the machine? I’m reminded of a situation in which a good contractor had a buddy who wanted to sell him his late model skidder. It was a great deal for the buyer, and since he had bought timber from the seller before, he simply wired money into his account and took ownership of the machine. As it turned out, the buyer did not know his friend as well as he thought.
Unfortunately, that friend who sold the skidder was killed in an accident shortly after they made the deal. About six months later, this contractor received a call from a finance company that had loaned the deceased seller money to buy the skidder new. The finance company was still owed $150,000. This buyer had no paperwork. He had a money trail, but it was not identified for the purpose of the exchange. This did not matter because the lien with the finance company had never been paid off and the company had ironclad paperwork showing it had a right to the money, or the machine. The buyer ended up having to pay a second time.
If possible, check out the seller’s other equipment and observe how it is operated.
Does the seller have references?
Do you know what the engine and pumps should sound like and how to determine if they’re functioning at full capacity?
If the hours are over 8,000, then the machine owner may have had to replace or rebuild some major components. If he has not, be aware that pumps and engines have a greater chance for failure at this stage. They may run another 8,000 hours, but the possibility of a major failure is greater with these higher hours.
In a nutshell, inspecting a piece of equipment is not very different from inspecting a used car or truck or a pre-owned house. If you do not feel confident in your ability to determine the condition of a used machine, don’t hesitate to seek a pro. When I buy a used car, I take it to a mechanic whom I have known for years so he can check it out. When I have purchased a house, I was required to have it inspected by a certified inspector who knew what to look for. Likewise, engaging a qualified serviceman can provide you with greater piece of mind that the machine is in the condition represented.
‘Fair Market Value’
In the case of a late model, low hour machine, the seller bears a much higher risk of not getting fair market value because the seller is competing with new equipment. To help a buyer justify investing in a low hour, late model machine, the price will have to be substantially lower than a new unit.
For example, let’s say you bought a new skidder in 2016 for $300,000—can you believe the cost of new equipment?!— and after putting 1,400 hours on it over 18 months, you were put on quota and can no longer justify the payment and are motivated to sell. You might calculate the value by considering that a new unit is selling for $325,000. Most people would consider that 1,400 hours is maybe 10% of the useful life, so offering your 2016 for $260,000 would seem reasonable. However, your 2016 no longer has warranty, and the 2018 can be offered with lower interest rates and longer terms than a 2016, so the monthly payment on the 2018 will be very close to the payment on the 2016, and it will have new warranty.
The only way you can compete with new equipment is to drop your price low enough so that a buyer can see clear value in the older model over the new one. The critical point here is that if you plan to invest in a new piece of equipment, you should have a clear plan on how long you intend to own this machine. If your plans are to depreciate the machine over four years and sell/trade before maintenance costs start building up, then you must recognize that if market conditions or your own business conditions change unexpectedly, you will face unplanned financial pain in selling a machine too soon. So be a Boy Scout and be prepared. The point is that selling a late model machine is more painful to the seller than if he was able to get greater utilization than just a couple years.
Always remember that you are buying a used machine. No matter how much research you do, or how many mechanics you have check it out, it has been run on a job you did not supervise by someone who did not work for you, so there is always a risk that something unforeseen might be wrong and it won’t show up until you have put it to work. This singular fact about used equipment is why you always hear the phrase ‘Let The Buyer Beware!’ In the end, the buyer bears the responsibility of knowing what he has purchased.
If you take your time, ask questions, do your research, and are not afraid to ask for professional advice, you greatly increase your chances of finding great value in a machine that will serve you well.