Eiffel Trading 101: Equipment and Material Valuation Practices
Equipment and material valuation on a construction project is extremely important to the health of the project budget. The budget will typically have two line items, one for purchasing the equipment or material at the beginning of the project and one for the salvage value at the end of the project. In construction finance there are three types of asset valuations: Fair Market Value (FMV), Orderly Liquidation Value (OLV) and Forced Liquidation Value (FLV). The manner in which you dispose of your assets at the end of the project can significantly impact your project’s profitability.
Fair Market Value
Fair Market Value (FMV) is the dollar value of the asset with normal exposure in the marketplace with a perceived fair price to both the buyer and the seller. The FMV does not have any time implications on when the asset would sell at the FMV rate. When selling your asset at the FMV rate, you have time to be a patient seller and need to know your asset will not fly off the shelf. It will take time to find the right person, at the right time, sometimes in the right geographical region, needing your exact asset to purchase it at the FMV rate.
Orderly Liquidation Value
Orderly Liquidation Value (OLV) is the dollar value of an asset at which the asset would change hands between a willing buyer and willing seller, with neither being obligated to buy or sell and both having reasonable knowledge of the asset and market conditions. OLV requires that there is adequate time to find the willing buyer who would agree to purchase the asset at the OLV price. The time implication on OLV is typically 90 days from needing to have the asset sold. At the OLV price, you will need to find the right person, at the right time, somewhat close geographically needing a similar asset to what you are selling.
Forced Liquidation Value
Forced Liquidation Value (FLV) is the dollar value of an asset that can be expected in a transaction with a single seller and multiple potential buyers. The FLV is when the Seller is under a short time constraint and geographical constraints to sell the asset. FLV of an asset is what your asset would fetch at an auction, as opposed to selling on a marketplace.
FMV and OLV will have a higher impact on the salvage value in your project budget than being forced to sell your assets at the FLV at an auction. By taking the time to properly market your assets (Smart Demobilization), you will do your project budget and your company a solid by maximizing the return for the salvaged assets. By liquidating your assets in a timely manner, you will in turn help the contractor who’s project is starting up by helping them procure their project assets at a used FMV or OLV, saving them from purchasing assets that are brand new. It’s a win-win for all parties involved!
Eiffel Trading was founded on the principal of helping the contractor maximize the return on project specific assets (access trestle, sheet pile, pile hammers, cranes, barges and any other construction assets). You can create a free listing and get your assets marketed at future availability dates, today! Click here to create your account or give us a call at 1-800-541-7998. You can also shoot us an email at email@example.com.
Andrew Norman is one of the co-founders of Eiffel Trading. His background is in Heavy-Civil and Marine Construction in Project Management and Procurement. While working in Project Management he noticed the need for a platform designed specifically for contractors needing to sell project specific assets.