By Dian Kohoutek, CPPA

June 8, 2023

When it comes to valuing assets for loan or financing purposes, businesses often face a crucial decision: whether to utilize vendor appraisal services or independent appraisal services. Each option has its own set of advantages and disadvantages, and understanding these can help businesses make informed decisions. It’s important to consider the preferences of banks and financial companies, as they play a significant role in the appraisal process. In this blog, we will explore the pros and cons of vendor appraisal services and independent appraisal services, and shed light on which option financial institutions tend to prefer.

Vendor Appraisal Services:

Vendor appraisal services are provided by the manufacturers or suppliers of the assets being appraised. Here are some key points to consider:

Pros:

Expertise and Product Knowledge: Vendors possess in-depth knowledge of their own products, enabling them to accurately appraise their assets.

Convenient and Streamlined Process: Vendor appraisal services are often integrated into the purchase or financing process, making it more convenient and efficient for businesses.

Potential Cost Savings: In some cases, vendors may offer appraisal services at a reduced cost or even as part of the overall purchase package.

Cons:

Potential Bias: Since the vendors have a vested interest in the sale of their assets, there is a possibility of biased appraisals that favor higher asset values.

Limited Independence: Vendor appraisal services may lack the objectivity and impartiality associated with independent appraisers, as they have a direct relationship with the assets being appraised.

Credibility Concerns: Some banks and financial companies may view vendor appraisals as less reliable due to potential conflicts of interest and a perceived lack of impartiality.

Independent Appraisal Services:

Independent appraisal services involve hiring a third-party appraiser who has no direct affiliation with the vendor or the asset being appraised. Consider the following aspects:

Pros:

Objectivity and Impartiality: Independent appraisers offer an unbiased assessment of the asset’s value, providing greater credibility and transparency in the appraisal process.

Expertise and Market Knowledge: Independent appraisers specialize in valuation and have a broader understanding of market trends, enabling them to provide accurate and reliable assessments.

Preferences of Banks and Financial Companies:

While preferences may vary among different financial institutions, many banks and financial companies tend to favor independent appraisal services. They prioritize unbiased and objective assessments to mitigate risks associated with potential conflicts of interest. Independent appraisals provide a higher level of assurance, enabling lenders to make informed lending decisions based on reliable asset valuations.

Cons:

Higher Costs: Independent appraisal services typically come at a higher cost compared to vendor appraisal services, as businesses need to pay for the expertise and impartiality provided by the third-party appraiser.

Longer Turnaround Time: Engaging an independent appraiser may result in longer appraisal timelines, potentially delaying loan or financing processes.

Limited Product-Specific Knowledge: Independent appraisers may lack the detailed knowledge of specific products that vendors possess, potentially leading to a broader assessment rather than a granular evaluation.

At the end, choosing between vendor appraisal services and independent appraisal services involves weighing the pros and cons of each option. While vendor appraisals offer convenience and product-specific expertise, independent appraisals provide objectivity and credibility. Financial institutions often lean towards independent appraisals due to their perceived reliability and adherence to industry standards. Ultimately, businesses should carefully evaluate their specific needs, the nature of the assets being appraised, and the requirements of the lender or financial institution to determine the most appropriate appraisal.