One of the most misunderstood and misused elements of an aircraft transaction is the appraisal.

WHY SHOULD I HAVE AN AIRCRAFT APPRAISED?

Properly prepared, an appraisal should provide far more than a bottom line value. A good appraisal should thoroughly detail all aspects of an aircraft and supply sound evidence as to how the value was determined. Unsubstantiated value determinations should be looked upon very skeptically. The benefits of having an aircraft appraised are different for each user. For example, a buyer will want to know different information than a seller and the information a lender requires is different than that required by an attorney. Most commonly, appraisals are used by:

• Buyers. A buyer will not only want to know what to offer for the airplane but will typically want to have a third-party opinion of the airplane’s quality and condition prior to entering into an agreement.
• Sellers. An appraisal commissioned by the seller will help that person determine a realistic asking price for the aircraft. A buyer will also be more likely to believe the data from an unbiased appraisal than unsubstantiated information provided by the seller.
• Lenders. Just as appraisals are required by lenders for home loans, many lenders will require one for an aircraft purchase. And, because many lenders are unfamiliar with aircraft valuation, a certified appraisal will help a loan committee validate its decision to provide funds.
• Attorneys. Divorces, partnership dissolutions, bankruptcy, damage claims, and estate planning are situations that frequently require professional appraisals.
• Insurance Agents. Is the aircraft properly covered? With values rapidly falling on older aircraft many insurers are realizing that their client’s coverage far exceeds actual value.

WHAT SHOULD I KNOW BEFORE CHOOSING AN APPRAISER?

Unlike the real estate industry, no government standards must be met before someone can claim to be an aircraft appraiser. This leads to the unfortunate reality that buyers of appraisal services cannot assume that an “appraiser” will act on their best interests. Many folks claim to be “appraisers,” but few use reliable data and have completed a course of study in aircraft valuation. At a minimum, you should ask an appraiser the following questions before retaining their services:

• Have you received any formal appraisal training specific to aircraft? The National Aircraft Appraisers Association (NAAA) and the American Society of Appraisers (ASA) are the only two recognized aircraft appraiser training and certification organizations.
• Do you receive any continuing education?
• Do you subscribe to a code of ethics? Both NAAA and ASA mandate adherence to a strict code of ethics.
• How is your market data developed? Sound market data is based primarily on actual sales and other statistical data. Many “appraisers” data is based unreliable information such as asking prices and broker/dealer opinion.
• How often is your market data updated? Anything less than monthly does not meet industry standards.
• Have you appraised an aircraft of my type before? Don’t let an appraiser experienced in nothing larger than a single-engine piston aircraft appraise your corporate jet (and vice versa).
• Do you have experience in the aviation industry? Believe it or not, many “appraisers” have a very limited working knowledge of aircraft and their components. To properly evaluate an aircraft, an appraiser should have extensive operational experience in the aviation world.
• Do your appraisals meet USPAP standards? USPAP, the acronym for Uniform Standards of Professional Appraisal Practice, is the nationally recognized standard for appraisers of all disciplines. USPAP-endorsed appraisers must meet additional training, currency, and ethical standards.
• Do you appraise aircraft you represent for sale? Appraisers are often aircraft brokers and dealers — and that’s OK — as long as they don’t provide Certified Appraisals for aircraft they represent for sale. This practice is a clear conflict of interest and violates all ethical standards.
• What level of detail can I expect? A quality appraiser will prepare an in-depth report that describes everything seen during the on-site evaluation. If you only receive several pages of data, your appraiser either didn’t conduct a satisfactory inspection or is not reporting information that may be important to you.

WHAT IS INVOLVED IN AN AIRCRAFT APPRAISAL?

Aircraft are complex assets. A professional appraiser must understand the multitude of points that influence overall value. This goes way beyond year, make, model, and total time information. It must, at the very least, also include:

• A thorough analysis of aircraft records to determine consistency, quality, and completeness of maintenance.
• Damage history investigation (each damage event is different — applying a “standard deduction” typically results in an erroneous value determination).
• Engine, airframe and avionics modifications (not all modifications positively affect aircraft value).
• Appearance and quality of paint and interior furnishings.
• Comparisons of other similar aircraft.

WHAT TYPE OF APPRAISAL IS RIGHT FOR ME?

Current Market Value Appraisals combine on-site appraisal inspections with real-time market data. Current Market Value Appraisals are ideal If the appraisal will be used for legal proceedings, to support a loan, help set your asking price, or determine an initial offer.

Retrospective Appraisals determine the value of an aircraft for a specific date in the past. Particularly useful for legal proceedings, Retrospective Appraisals can accurately determine the value for a particular aircraft for up to 20 years prior.

Prospective Appraisals are used to determine the projected value of an aircraft for a specific date in the future. Do you need to forecast the future sales value of your aircraft for planning purposes? A Prospective Value Appraisal, using historical and forecast data, can accurately approximate values for up to five years.

Diminution in Value or Damage Assessment Appraisals determine how a specific event, such as an accident or incident, negatively impact aircraft value. Typically used for legal proceedings or insurance claims, Diminution in Value and Damage Assessment Appraisals can provide compelling evidence for the real value of the aircraft before the damage event occurred.

Market Analysis & Desktop Appraisals provide a broad overview of value. Since they do not gather information on-site, their level of detail, objectivity, and accuracy suffer. As such, Market Analysis and Desktop Appraisals are not normally accepted by financial institutions or for legal proceedings. However, when only a “ball park” figure is needed and the client understands their limitations, a Market Analysis or Desktop Appraisal may be appropriate.