When it’s time to buy a piece of equipment, pallet and sawmill companies may look to used machinery sold at auctions. It can be a proverbial match made in heaven as businesses that shut down for various reasons look to liquidate equipment assets.
Used machinery, whether purchased at auction or directly from the seller, obviously is going to cost less than buying new from a manufacturer or distributor. However, at least part of the consideration of the lower price is the fact that the equipment is less valuable: it’s used, it has wear and tear, how much life does it have left, do any components need to be refurbished or replaced, etc. You might compare it to the type of evaluation you would make in buying a used car: what’s the mileage, the color of the exhaust smoke, the condition of the tires, are there any fluid leaks, and so on.
Nevertheless, auctions present opportunities to acquire used equipment at good prices.
(As an aside, see the Auction Calendar on page 74 in this month’s issue. There are numerous pallet and sawmill machinery auctions planned in the near future.)
Loren Beachy, CEO of Bright Star Auction, recently shared with Pallet Enterprise some tips for navigating auctions.
Used equipment purchases often provide immediate tax advantages through Section 179 deductions and depreciation benefits, noted Loren. Many businesses can deduct the full purchase price of qualifying used equipment in the year of acquisition rather than depreciating it over time. He recommended consulting with your tax professional for specific guidance.
There may be associated expenses, costs directly related to acquiring and placing used equipment into service. They include inspection fees, transportation, rigging, and installation. Such expenses typically qualify as deductible business expenses or can be capitalized into the equipment’s basis. Travel expenses incurred specifically for equipment inspection or acquisition may also qualify for business expense deductions.
“The strategic timing of equipment purchases near fiscal year-end can optimize tax benefits, potentially reducing your current-year tax liability significantly,” said Loren. “At Bright Star, we often see increased auction activity in the fourth quarter as businesses leverage these advantages.”
So how much money can a buyer at an auction expect to save compared to buying new machinery or buying used equipment directly from a seller? That’s going to vary quite a bit, noted Loren, but be prepared to bid because you may find a deal.
“What makes auctions particularly valuable is their transparency,” he added. “You’re never left wondering if you could have negotiated a better price elsewhere. The market speaks directly through the bidding process.”
What about buying a used machine directly from a seller?
There’s an advantage to buying the used equipment at auction, observed Loren. The primary advantage is “market validation,” he said.
“When you win at auction, you gain confidence in your investment because someone else was willing to pay nearly the same amount — confirmation that you’ve paid fair market value rather than an arbitrary price.”
Auctions also have another benefit compared to buying directly from a seller: immediacy and timeline certainty. If you offer a seller less than his stated price, they may not respond immediately. They may want to think it over. They may hold firm. They may come back with a counteroffer. There may be some negotiation involved.
“Rather than waiting indefinitely for a private seller to accept your offer or negotiate terms, auctions have defined end dates,” noted Loren. “This predictability allows businesses to plan equipment acquisition, installation, and implementation with precision.”
We might add, buying new equipment from a manufacturer or distributor can present a similar problem: how long are you going to have to wait until the machine is built and delivered?
In the age of the Internet, some auctions now are held online. You don’t have to travel to some remote location to make your bid. Do online or in-person auctions have any advantages over the other? What are the pros and cons of each?
It should go without saying, attending an auction allows you the benefit of looking at the equipment and inspecting it before making a bid. “You can inspect components, check for wear, and truly understand what you’re purchasing,” said Loren. That’s an “irreplaceable benefit.”
“That said, well-executed online auctions have revolutionized the industry by providing comprehensive digital catalogs with detailed specifications, high-resolution photography, and even video demonstrations,” said Loren. Conducting auctions online eliminates travel expenses – and time – for potential buyers who ultimately may not have a winning bid.
For online auctions, Loren recommends doing some homework on the auction company itself and verifying their reputation. “Look for those with a proven history of accurate representation and transparent business practices.”
Even for an online auction, reputable companies normally provide opportunities for interested buyers to schedule in-person previews before bidding begins, added Loren. Bright Star provides those kinds of opportunities.
Perhaps the most important question for any potential buyer is: how can they have an accurate assessment of the condition of a machine and how well it might have been maintained?
“Equipment condition verification is a critical concern for buyers,” acknowledged Loren. Bright Star has representatives who usually inspect each piece of equipment before listing it for auction, often observing it in operation to verify its functionality. “We obtain as much documentation on equipment history and condition as possible, which we share transparently with potential buyers.”
For machines or equipment that represents a significant capital investment, Bright Star encourages and facilitates inspections. “We regularly coordinate site access for manufacturer representatives or third-party inspectors working on a buyer’s behalf,” said Loren. An inspection by a qualified person who can accurately assess and evaluate a machine’s condition certainly is valuable.
“The reputation of the auction company should serve as your first indicator of equipment condition reliability,” added Loren. “Established auction houses prioritize accuracy in their listings because their business depends on buyer satisfaction and return business.
Buyers should be aware of additional expenses they will incur. The buyer pays a premium for the auction company’s commission. The amount of the commission depends on the company’s policies and the auction format.
Transportation logistics are another significant consideration. Depending on the size of the equipment and location, specialized trucking services may be required, with those costs varying based on distance and complexity.
If the machinery is installed, professional rigging services for removal, loading, and eventual reinstallation also can add substantial costs. Get prices from qualified riggers before the auction so you can incorporate these expenses into your maximum bid calculations.
Check your tax obligations, including potential sales tax, which varies by jurisdiction and business status. In some cases, tax exemptions may apply for business purchases.
How should you prepare for an auction? Loren suggests three steps.
First, thoroughly evaluate the equipment to ensure it meets your specifications and operational requirements. “It can be risky to bid on equipment you haven’t properly vetted,” he said.
Second, prepare the necessary financial logistics before the auction. Verify acceptable payment methods and secure any necessary financing in advance. This will enable you to act decisively during bidding and fulfill payment obligations promptly if you have the winning bid.
Finally, as noted above, determine your complete acquisition costs. For installed equipment particularly, consult with qualified riggers to determine removal, transportation, and reinstallation expenses. These additional costs should be factored into your maximum bid strategy to avoid budget surprises after winning.
