A Note About On-Line "Appraisals"

Many buyers and sellers see proper evaluation of an aircraft as confusing, complicated and completely unnecessary.  After all, who needs to spend money to find out what an aircraft is worth?  Anyone can pick up a copy of a published value guide or go on the Internet to see what an aircraft sells for – right?  The truth is, evaluating an aircraft really isn’t all that complicated, but it is important to make sure all factors are considered when undertaking the effort of determining an aircraft’s fair market value.  It is important for a buyer or seller to know what a specific aircraft is worth, and as an owner you certainly want to know and document the aircraft’s value for insurance and tax reasons. 

Before discussing the methods of evaluating an aircraft, let’s examine some of the most common mistakes people make.  Then, we will look at the key factors that should be considered in establishing an aircraft’s value followed by the evaluation of the most popular methods that are used in pricing an aircraft.

Of all the misconceptions that evaluators use, these are the most common.

Now let’s look at the factors that make up an aircraft’s value.  These are known as “value points”.  The most important ones include:

If any of these value points is overlooked, then the accuracy of the final result is going to be off.

  Now let’s turn our attention to the most popular methods of determining an aircraft’s value.  While each method has its own advantages or disadvantages, consider each method as it relates to two key items.  The value points collected and the data used to assess the value.  It is fair to say that if either the method or the data is questionable or incomplete, then the result will be much less than accurate.

First, let’s consider one of the most inaccurate methods of determining value.  What if a buyer and seller agree on a number and that number is not related to anything?  It “sounds” right.  There are few if any values points gathered, and there is certainly little if any data used.  You might think this a ridiculous way of buying and selling aircraft, but it happens quite often.  There is a saying that an aircraft is worth what someone will pay for it but that saying raises several questions.  Is this an informed buyer and/or seller?  Would someone else pay that same amount (all things being equal) and would this aircraft sell at that price in a reasonable amount of time?

Another method uses classified advertisements.  The use of a classified ad (while more accurate than picking a number out of the air) relies on the ad to use reliable data and capture all value points.  Unfortunately, the published figure is an “asking” price and does not reflect the actual selling price (which represents the fair market value).  Sellers and brokers who publish information about their aircraft tend to gloss over many of the key negative value points.  As a result, aircraft being submitted where this method has been used for evaluation will tend to be priced higher, resulting in an artificially inflated advertising environment.  Aircraft that are priced too high will tend to stay on the market longer and over time the actual selling price will need to be reduced to the current market value.  This process can take months and cost the aircraft owner additional interest, tie down or hangar fees, insurance, etc.  Pricing the aircraft in relation to its current market value will result in a faster sale.

The method most commonly used by banks, aircraft brokers, dealers, insurance companies and many websites relies on a published aircraft price guide.  The belief is that this information is accurate and reliable since it has been used for many years.  These guides are quick and fairly easy to use by just about anyone.  But let’s look at the two key factors - the data and value points.  When analyzing the guide’s data, the first questions that should be asked are – Where do these figures come from and how accurate are they?  The data comes from the book’s subscribers who complete a questionnaire periodically.   It is unclear how the publisher determines the reliability and accuracy of this data.  Many of the value points highlighted earlier are also not addressed in these publications.  However, the guides typically contain a tremendous amount of useful information such as engine TBO times, AD abstracts, aircraft performance data, and so forth.  These publications also provide some guidelines for evaluating aircraft using their data along with some examples.  Used correctly, it is possible to determine a “ballpark” value for a specific year make and model of aircraft.  However, it is important to note that several assumptions are made with these figures, and understanding those assumptions is important in using any published guide correctly.  In situations where the aircraft has damage history or missing logbooks for example, another method will be needed.  It should be noted that one of the largest publications clearly states in the front of the book that the guide cannot be used to appraise a specific aircraft as there are too many variables to consider and they recommend a professional appraisal.

One method that is gaining popularity and is available to just about anyone is on the Internet and was developed by the National Aircraft Appraisers Association.  Although many of the published guides offer an Internet or desktop software version, this tool (only available through a subscription to Trade-a-Plane’s web site) is unique for several reasons.  It uses a database that is derived from aircraft selling prices (fair market values) and it is verified by the NAAA to be accurate and correct.  It provides a range of values for a given aircraft – based on the detail provided by the user.  For example, you can simply ask the program to provide information for a 1978 Cessna 172. It will provide a range of values along with a set of assumptions and what it believes the value of that particular aircraft to be.  The value range simply means that two thirds of the 172s in that year will fall between the high and low values.  The more detail you provide the tool, the more accurate that figure will be.  It captures most of the important value points – including items such as damage history - and provides a good approximation of the aircraft’s fair market value.  The data is updated monthly instead of quarterly, as is the case with published guides.

Up until now, only methods which provide an estimate or market analysis of the aircraft's value have been discussed.  It is apparent that some of these methods will be more accurate than others.  However the most accurate method available takes into account all value points and uses data based on actual sales figures or current market value.  In this situation we are talking about having the aircraft professionally appraised.

If you read the fine print on any of the published guides and web sites there is usually a statement that indicates that the publication is only a guide and does not take all factors into account to determine a specific aircraft’s fair market value.  In those situations, when it is important to know the current market value for a specific aircraft, or to completely and accurately document an aircraft, an appraisal is required.  Appraisals and market analyses are typically and easily confused.  One way to quickly test if you are getting an appraisal or market analysis is to understand:

1)       Who is performing the evaluation? And,

2)       Is someone going to be physically looking at the aircraft and its documentation?

The person performing the appraisal is critical because they should be completely unbiased about the aircraft and should be certified by an agency to perform aircraft appraisals.  For example, real estate appraisals are not performed by the seller, the broker, the selling agent, or the banker.  Individuals who are close to the deal tend to weigh things in their favor or their customer’s favor.  After all, we are all human and we all have that tendency. 

The other critical component is to actually examine the aircraft, its documentation and systems.  This is the only way to accurately capture all value points and verify their condition.  Anything less means that the evaluator gathered information from someone else who may or may not have first hand knowledge about that aircraft, or the details could be obtained from someone who is most likely biased in some way.  In either case, you are getting a market analysis and not an appraisal.

When looking at professional organizations that have a track record in aircraft appraising, the one that stands out and has a good reputation in the industry is the National Aircraft Appraisers Association (NAAA). 

In summary, it all boils down to a couple decision points.  Who do you want to gather the data points and perform the analysis?  How detailed and accurate do you want the evaluation to be?  Do you want the results clearly documented?  If you are an owner, you may want to have the aircraft appraised for insurance reasons.  If the aircraft is severely damaged or destroyed, you will have a much stronger argument when discussing the value of your aircraft if you have an appraisal report in your possession.  If you are buying an aircraft you wouldn’t have the dealer or broker perform the pre-purchase inspection so why would you ask them to perform the appraisal?  The most intimidating customer for any merchant is one who is fully informed.  This is also true for aircraft purchases.  Regardless of the method you are most comfortable with, make sure you capture all value points and use up to date data for your evaluation.