This article was written by Mike Simmons, President of Plane Data, Inc. and originally published in the February 2002 edition of The Avaition Consumer.
One of the most heated debates in ownership circles— involving both veteran owners and wannabes—is how to determine a fair market value for a used airplane. Evaluating an airplane to set a sales price, or assessing one for sale to calculate the fair market value, can be confusing and complicated. Many buyers and sellers forego a formal appraisal, considering it a completely unnecessary expense. 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 you consider all of the factors when trying to determine an airplane’s fair market value. Whether you’re buying, selling or putting a value on the airplane for insurance or tax reasons, you’ll want to be able to assess and document the airplane’s worth in such a way that others will accept that value.
Remember that something is worth only what someone will pay for it. While the airplane may be darn near irreplaceable to you, the insurance company may not agree. In addition, owners tend to put a monetary value on the emotional attachment they have with the airplane—something buyers and insurers are loathe to pay for.
Of all the misconceptions that evaluators use, the most common are putting the wrong value on the avionics package, “rating” the airplane’s overall condition or paint and interior and putting a value on installation labor and routine maintenance.
Sellers like to point out that certain gear is brand new or recently installed. The fact is, as far as the fair market value of an airplane goes, this just doesn’t matter much. That GPScomm or Stormscope is only new if it’s in the box on the avionics shop’s shelf. If it’s in the aircraft, it’s used. Just like driving a new car off the lot, avionics gear loses value once it’s installed.
New boxes will increase the overall value of the avionics package by some amount, but not its retail price and certainly not by the installed price. Don’t take my word for it. Ask the avionics shop if they’ll take it out and credit you with the full installed price or even buy the gear for full retail. Don’t be surprised when they laugh.
The age of the avionics is another thing owners sometimes try to put a value on, particularly when the airplane has just had an extensive panel rework. In addition, a newer radio is more likely to be current generation, which is worth more than an older model.
However, the vintage of the gear is less important than its condition, particularly for something like a navcomm. The market value for a KX155 and related nav head will hold up regardless of its age—presuming it works properly and looks clean and presentable. If you don’t believe it, check any source and see how many list the year of manufacture. It usually doesn’t matter.
By far one of the most subjective statements an owner can make is to describe the aircraft overall—or just its paint or interior—as an 8 or 9. The problem lies in making that determination. Some people may consider 5 to be average, based on the year, make and model and go from there. But a Cessna 172 rolling off the line is average for a 2002 model, yet few owners would want to describe their brand new airplane as a 5. Most owners would call it a 10. Comparing the airplane to “average” may work better for old airplanes, where the range of conditions might be broader. “Average” as it applies to a business jet is not necessarily average for a Cessna 172 that’s been knocked around for 30 years. At the very best, “average” is a confusing description.
One way to get around that is to describe the aircraft as excellent, very good, good or poor. The National Aircraft Appraisers Association actually defines each term in specific ways, but also includes average.
Aeroprice defines each term, but sets average as an 8, which really turns it into a scale of 6 to 10 instead of 1 to 10.
In the end, this remains a very subjective process and pitting one price guide against the other probably won’t make it any less confusing nor will it give you a more accurate evaluation. Advice: gather all the appraisal points and make the best estimate possible.
Simply put, this has no market value. Although someone who just dropped $15,000 installing a Garmin 530 in a Bonanza might want to recoup part of the cost, a buyer isn’t going to want to subsidize the seller’s choice of avionics shops. This issue has come to the forefront in recent years as advances in avionics have led many owners to refurbish panels with moving maps and GPScomms. Those installations are typically highly labor intensive and include “cleaning up” the 25-year-old wiring behind the panel.
The marketplace presumes that the owner keeps the aircraft in an airworthy condition. Therefore, buyers place no additional value in routine maintenance or repairs that have been performed. Yet sellers are quick to note such attributes as “extensive” annuals or major repairs just done.
These may have some value inasmuch as it improves the general overall condition of the airplane, but the seller’s implication that the asking price should be raised dollar-for-dollar is simply indefensible.
That said, there may be a time-related value associated with annual inspections. It depends on the type, but generally, an aircraft that has just gone through an annual will command a slightly higher value or at least more sales appeal than one that’s just a month away from being out of annual—all other things being equal. Don’t let a fresh annual substitute for a thorough pre-buy inspection, no matter who did the annual.
A recent paint job or interior refurbishment can help make the airplane show better to a prospective buyer, but that may not translate to a higher sales price. Market value is likely to go up some, depending on quality of work and the appearance of the finished product, but probably not in proportion to the amount the owner spent.
Some buyers are leery of just-painted airplanes, reasoning that sellers will slap a ribbon on a pig and try to find it a date for the dance. Not only can new cosmetics be an attempt to hide flaws, but the quality of work varies widely, whether paint or interior. In addition, trendy or unusual paint jobs may be harder to sell, because beauty is in the eye of the beholder. The shortcoming of ratings is that they apply ûonly to like model years, thus a factory new û182 is still only average in a model grouping.
The factors that really affect the value of the airplane go deeper than stains on the carpet, worn yokes or a spotty radio. The real value lies in the airframe’s structure, the engine, and evidence that the airplane has been well cared for.
The airplane’s damage history is important, as is the documentation of the damage and how it was repaired. This is more than just an understanding of what it cost someone to fix a particular damage event. The buyer’s perception of the damage event is what drives the value of damaged and repaired aircraft.
Although most first-time buyers shy away from damage history, veteran owners don’t seem to mind as much if the repair was done properly, is well documented and the price is adjusted accordingly. It’s not at all uncommon to find a retractable with a gear-up landing in its history. A sophisticated buyer may not be troubled by that, although a patient or picky one might be. Some brokers say older damage seems to affect the price less than newer damage, all other things equal. But it’s more accurate to say that the extent of the damage has more impact on a buyer’s perception of market value.
The overall condition of the airframe should not be confused with the condition of the paint. The condition of the airframe deals with items such as fit and finish of the panels, surface corrosion, dents and dings and landing gear.
It’s quite possible to have a terrible airframe and a great paint job. Conversely, it’s also possible to have a poor paint job but an airframe that’s in excellent condition for its age.
The panel can represent a huge portion of the airplane’s value. The make and model of all avionics are important, as is the suitability of the package to the airplane itself. To take it to extremes, buyers may not be too willing to pay a premium price for a Cessna 152 equipped with a Garmin 430/530 combination.
At the same time, high-end airplanes equipped with a bare minimum of avionics may be harder to sell—or will sell at a discounted price. Many 1970s-vintage high-performance retractables are on the market with the original avionics package—antique by today’s standards—augmented by one of the Garmin GPScomms. While that’s a good addition that adds capability and appeal, the seller shouldn’t expect to be paid a huge premium for it.
The engine and propeller are other factors that have a big influence on the airplane’s value. This includes the time since overhaul, but also the type of overhaul that was performed. Having an engine overhauled by the factory versus one that is field overhauled to FAA service limits can make a big difference in this value point.
Some sellers aim to trade airplanes at the time the overhaul is due. This presents a dilemma in that the seller wants to save money, but still have a zero-time engine to advertise. Many buyers, however, would rather buy an airplane with a runout engine and overhaul it their way.
In addition, buyers will ask for recent compression readings and possibly the results of oil analysis. Good numbers there pay off in adding to the airplane’s appeal.
Maintenance and Mods
A buyer typically assumes certain things about a prospective purchase and it’s up to the seller to provide documentation or reduce the price accordingly. The airplane should be within its annual inspection period, with all logbooks and related documentation in order.
Generally speaking, the buyer will expect that all ADs have been complied with, as well as most if not all service bulletins. Sometimes sellers will offer a fresh annual upon purchase, but potential buyers should be wary of taking advantage of the offer, especially if it leads them to forego a pre-purchase inspection. Under no circumstance should you consider buying an airframe without an independent pre-purchase inspection.
Engine and airframe modifications, whether through supplemental type certificates or field approvals, may have a bearing on the value. Major changes, such as re-engining, usually add value. Minor changes such as speed mods may do little to the value.
In any event, all paperwork should be in order. The original installation instructions for any STCs can be a big plus because they help future mechanics maintain the airplane properly.
Putting an actual dollar value on an airplane needs to consider all of these points, but just how they’re weighed depends in part on the method used to calculate the airplane’s value. It also depends what source you use to come up with a base value for the year, make and model airplane.
The actual assessment should consider all of the appropriate value points and use reliable data to pinpoint the value. It’s fair to say that if either the method or the data is questionable or incomplete, then the result will be much less than accurate.
Many times an airplane will be sold because a buyer and seller agree on a number that isn’t objectively related to anything; it just sounds right. The starting point may be how much the seller paid four years earlier, with adjustments estimated to take into account engine times or avionics. You might think this a ridiculous way of buying and selling aircraft, but it happens quite often.
Another method uses classified advertisements to set the starting point. The use of a classified ad, while more accurate than picking a number out of the air, relies on the ad to have accurate data and to capture all value points. However, the published figure is an asking price and probably will not reflect the actual selling price.
Sellers and brokers who publish ads about their aircraft tend to gloss over any key value points that are negative. As a result, the aircraft tend to be priced higher, resulting in artificially inflated prices in the advertising environment. Aircraft that are priced too high tend to stay on the market longer, and over time the asking price will need to be reduced to the fair market value.
This process can take months and cost the aircraft owner additional interest, tie down or hangar fees and insurance. Pricing the aircraft close to its fair market value will usually result in a faster sale.
A method most commonly used by banks, aircraft brokers, dealers, insurance companies and web-based pricing tools relies on a published aircraft price guide, typically the Aircraft Bluebook Price Digest. The belief is that this information is accurate and reliable since it has been used for many years. These guides are fairly easy to use by just about anyone.
However, consider the two key factors—the data and value points. When analyzing the guide’s data, it’s generally not clear where the figures come from and how accurate they are.
Usually the data comes from the book’s subscribers, who complete a questionnaire periodically. It’s unclear how the publisher determines the reliability and accuracy of this data. In addition, some of the key value points are not addressed in these publications so they provide a basic framework for evaluation only, not an accurate appraisal of a specific aircraft.
However, the guides typically contain a tremendous amount of useful information, such as engine TBOs, AD abstracts and aircraft performance/weight data. These publications also provide some guidelines for evaluating aircraft using their data along with some examples.
Used correctly, it’s possible to determine a ballpark value for a specific year, make and model of aircraft, but it’s 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.
If you read the fine print on any of the published guides and web sites, there’s 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. It’s apparent that some of these market analyses 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 fair market value. In this situation, we’re talking about having the aircraft professionally appraised.
When having an appraisal done, the most critical element is the person doing the appraisal. He or she should be unbiased about the aircraft and should be certified by an agency to perform aircraft appraisals. Individuals who are close to the deal tend to weigh things in their favor or their customer’s favor.
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’re getting a market analysis and not an appraisal. The Professional Aircraft Appraisal Organization (PAAO) leads the pack in appraising aircraft. The IRS, U.S. Customs Service and other state and federal agencies accept PAAO Certified Appraisal reports due to their reputation for detail and accuracy. Through its network of appraisers, any aircraft in the U. S. can be examined and appraised in a relatively short amount of time, usually in just a few days.
If you’re 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 hand.
Market appraisals can be accurate enough to open a dialog between buyer and seller. For many people, that’s enough.
But regardless of the method you choose, make sure you capture all value points and use up to date data for your evaluation.