What is a Discount for Ownership?

The American Society of Appraisers‘ Valuing Machinery and Equipment textbook defines discount for ownership as 

The loss in value of a property that occurs directly after a product is purchased, therefore going from a condition of “new” to that of “used.” In some cases, the product might not even have been used; the fact that it is being sold by a secondary owner is sufficient for such a discount to apply, even if the product is still new and in its original condition. This discount is commonly seen in the depreciation of new cars.

Many of us are familiar with what is sometimes referred to as the “drive off the lot” depreciation. It is the principle that the second you drive a new car off the dealership’s lot, it immediately loses 10% (or more) of its value. The car itself is almost new, and only has a very slight difference in condition because of your minute of driving, but since you are not the new car dealer, it has a lower perceived value. Why would someone pay as much for the car from you, when they could go back to the dealer and buy the same vehicle, know that it was definitely in new condition, know that it had the full warranty, and know that the dealer backed the purchase.

The same theory applies to many types of equipment. A few years ago at the team at Federal Equipment in Cleveland gave a tour during the Equipment Valuation Conference held by the American Society of Appraisers. One of the discussion points for stainless steel pharmaceutical equipment was related to what is now referred to as a discount for ownership. The president of Federal Equipment explained a secondary buyer would be concerned about how the original buyer might have treated a piece of equipment. Maybe it was dropped during delivery or may it sat too long outside in bad weather. Consequently, even though the item was supposedly brand new, and might still be in the original shrinkwrap and on the original delivery pallet, the secondary buyer would expect a discount as high as 50% off of the new price.

Similar discounts are seen in most equipment, although the amount of the “discount” can vary from category to category. 

If you need help to determine the value of a piece of pharmaceutical equipment, construction equipment, healthcare equipment, or equipment from many other industries, fill out our contact form or call our office at 888-473-6237.