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Auction action guide
Increasing volatility in the used machinery market has created an auction season unlike anything you have seen in the past, with some pieces of equipment like low-hour, high-horsepower tractors breaking price records on an almost-daily basis. At the same time, values on other iron like round balers and combines have softened appreciably in recent months, offering opportunities to get a good buy this winter. On the following pages, we will guide you through this uncertain marketplace with insider information on how to size up realistic equipment values, inspect iron before the sale, and negotiate a confident final bid in person or online.
Used equipment values, in general, have been on the rise, noticeably so for over seven years now. Looking through 23-plus years of auction prices on all types of equipment sold throughout North America, it's safe to say we've seen an unprecedented run.
But there are still good deals out there.
One of the softer spots in the used equipment market the last few years has been round balers.
There's just not the buyers' heat surrounding good-condition used round balers like you see with good used tractors, tillage items, gravity wagons, and grain carts, to name just a few hot spots.
Baler values are definitely down from a few years ago.
To illustrate the point, the calculator pricing tool on www.machinerypete.com crunches both average auction prices as well as average dealer advertised prices. Calculator data goes back 17 years on any particular make or model for over 70 different categories.
Check out the charts below showing auction vs. dealer prices. See on the John Deere and New Holland baler models how the average auction price has fallen quite a bit, while the average dealer advertised prices have remained flat over the same period.
Auction price levels are very sensitive and responsive to the bigger economic reality. When folks feel like buying — whether it be due to strong farm income, high commodity prices, rising price of new equipment, or scarcity of good used equipment — prices go up. When folks don't feel like buying, prices go down.
Another segment of the used market that has drifted into the soft category over the past three years has been combines.
The underlying reason is due to growing inventory on dealers' used lots. Fewer buyers are chasing more available late-model used combines, and that equals falling values.
Values did perk back up from August to December 2012, and the calculator tool shows this trend. Here are two examples:
• Deere 9870 STS combines dropped nearly 24% in terms of average auction price from 2009 to 2012, while average dealer advertised price fell only 2%.
• The John Deere 9770 STS combines saw a slightly lower drop of 18% in auction price, while dealer advertised prices dropped only 3.6%.
Case IH bids
On the Case IH side, there was a larger corresponding drop in dealer advertised prices. Here are two examples.
• Case IH 8120 combines dipped 13.3% on the average auction side from 2010 to 2012, while average dealer advertised price fell 9.0%.
• Case IH 2388 combine auction prices fell 31.5%, while dealer advertised prices fell by half to 15%.
There have been lots of new record price marks set at auction over the past several years on all types of used equipment.
But there are still buys out there. There always will be on the auction market. You just have to be plugged into good, reliable data to know a good deal when it's right in front of you.
A tractor jockey's auction observations
By Tharran Gaines
Ater 30 years of buying and selling across 30 states, Roger Abby has developed a sixth sense about used iron. Since the vast majority of what he buys goes to equipment dealers, Abby has to buy it right so the dealer can make a profit.
One of his greatest assets is his relationship with auctioneers. “If a farmer is interested in a piece of equipment at a sale, I'd recommend that he visit with the auctioneer ahead of time. Let him know you're interested in that piece of equipment so he can keep an eye out for you during bidding,” Abby advises.
Abby says he sizes up equipment on farm auctions just by looking around. He notices the state of repair of the farm buildings on the place as an indicator of how the equipment was serviced. He examines all the other equipment at the sale even if he's not interested in buying anything except for the tractor or combine.
“If I can see that a machine came from a good home where everything else has been kept up, I'm willing to pay more,” he relates.
Abby also studies the value and the reliability record of a unit. Machinery Pete's Auction Price Guide is one source, for example. “When I see three of something bring the same kind of money, then I know that trend is going to hold for a while,” he says. “On the other hand, don't take the values from consignment sales and use those as a reference point at an auction. They're not a true reflection of the market, because you don't know if the item sold or whether you're bidding against the owner.”
Another trick he uses is to study sale descriptions of similar tractors. “If those descriptions say their engines were rebuilt at 3,000 hours or 4,000 hours, you can suspect that particular model may have an issue with reliability,” he says.
“Don't be shy about bidding, either,” he continues. “A lot of people say, ‘I don't want to start the bidding too high.’ But if you make the first bid and bid strong after that, it shows you're serious about buying, and that can sometimes bluff others who thought about bidding.”
Other times, Abby says he bids through a prearranged signal so nobody even knows he's bidding. Otherwise, people who know him will figure it's worth more “because Roger is bidding, and he plans to make money on it.”
Online auction advice
By Dave Mowitz
Online auctions have evolved to the point that roughly one quarter of all farm equipment is sold in cyberspace. As secure as such sales have become, you're still smart to do some homework before buying online.
Richard and Derek Wieman have purchased machinery online from Georgia to Arizona with few mishaps. The secret to their success is to get a detailed description of the machine. Then talk to the seller — whether it be the auctioneer conducting the sale or the individual selling the machine at auction or private treaty — say the father-and-son team with Wieman Auctions (wiemanauction.com) of Marion, South Dakota. “You can sense a lot about equipment from a conversation as opposed to email,” Derek says. “The right questions can reveal much about the machine, particularly if it's a tractor or combine.”
Four topics to cover during that conversation should include:
• Condition description. “Terms like good or fair are very subjective,” Derek says. “So ask if the engine smokes or if the transmission is tough to shift. Seek out details and pry into the vehicle's operation.”
• Maintenance and repair records. “If it's a late-model tractor, there's a good chance records are available,” Richard says.
• Previous owner. “Never assume the seller worked the tractor. By talking to the owner, you know its history,” Richard says.
• Miscellaneous details. Besides engine hours, get the machine's serial number, tire size, and its accessories.
By Dave Mowitz
There is a lot you can tell about the future use of a tractor by following this presale inspection created with advice from auctioneers and tractor jockies alike.
• Ask for service records, since they reveal how well a machine was cared for (or not) and any major work it required in the past. If records are not available, ask where the tractor was serviced, and then inquire with that dealership's service manager about work performed on the tractor.
• Be leery of tractors that have been given a new coat of paint, because it could disguise a problem. Minor paint repairs are OK; they show that some care went into making the machine look good for sale.
• Start the tractor, letting it idle until the oil gets hot. Observe oil pressure at operating temperature.
• Listen to the running engine. It should operate evenly with no rumblings or knockings. At full speed there should be a constant sound from the exhaust. If operation is ragged, the injectors or valves could be faulty. Continuous black smoke could indicate a fuel pump problem. If you see continuous white smoke, turn off the tractor, remove the radiator cap, and start the engine again to check for gas bubbles, which may indicate a coolant leak.
• Check the radiator fluid looking for scale, rust, and contamination. If oil is present, this could mean the cylinder liners or head gasket need work.
• Inspect the crankcase breather for caked oil or for a flow of black smoke or presence of oil or water with the engine running. The latter issue signals that piston rings may be worn.
• Check to see if the paint around the head gasket area is original. If not, that means the gasket was replaced and the tractor required major work in the past.
• If possible, drain off a sample of the hydraulic or transmission oil in a clear glass. Hold it up to the light to check for filings and contamination.
• Check the transmission by driving the tractor in all gears, or at least rock the machine back and forth. Listen for noise in every gear and see that each gear engages smoothly.
An appraiser's insights on iron
By Tharran Gaines
Larry Perdue has made a career of knowing what used iron is worth. An accredited senior appraiser and director of Asset Appraisal Corporation in Edmond, Oklahoma, Perdue says the true value of equipment today is much different than it was just two to three years ago. High-horsepower tractor values alone have jumped 10% to 25% in just the past year.
So when you're trying to determine your top bid, Perdue says just finding out what a similar machine sold for — whether it was by a dealer or at an auction — is not always a true reflection of the value.
“The first thing you have to do is identify what you are valuing,” he says. “Unlike the Kelley Blue Book, which lets you add in all the options on a car and obtain a value, the value of a tractor is usually the base price. So you have to add in all the options it may have, like wheel weights, electronics, extra lights, additional hydraulic spools, and transmission options. Those all add to the original cost and the retained value.”
The important thing to know is whether you're comparing apples to apples or fair market value to forced liquidation value. “There are a lot of people who do appraisals, and there are a number of ways you can get what I call an unresearched value,” Perdue says. “But as a certified appraiser, if I give you an appraisal, I actually assume the liability to ensure that the equipment is worth what I said it was.”