Two Marine Appraisers. Two Different Values.

Understanding where competing vessel valuation opinions begin to diverge

By George Beck, MBA, ASA, NAMS-CMS

Two appraisers can inspect the same vessel, research the same general market and still arrive at different opinions of value.

Sometimes the difference is relatively small.

Sometimes it isn't.

When that happens in litigation, the obvious question is: How did they get so far apart?

The answer usually isn't found on the page containing the final number.

You have to work backward.

Which sales did each appraiser rely on? Which ones did they reject? How did they account for differences in machinery, condition, equipment and age? Were they even answering the same valuation question?

A comparable-sales grid can look like a table full of numbers. In reality, it tells a story about how the appraiser viewed the vessel and its market.

And when two valuation opinions conflict, that's often a very good place to start looking for the reason.

START WITH THE ASSIGNMENT, NOT THE COMPARABLES

Before comparing two appraisal reports, I would first make sure the appraisers were actually asked the same question.

That sounds obvious. It isn't always.

The definition of value matters. So does the effective date.

An opinion of fair market value as of the date of a casualty is not necessarily comparable to an opinion developed under a different value premise or effective date.

The assumed condition of the vessel can matter just as much.

One appraiser may be valuing the vessel as she existed immediately before a casualty. Another may be working from information that reflects her condition months earlier—or after significant damage occurred.

Small differences in the assignment can create large differences in the conclusion.

Before asking why two values are different, make sure the appraisers valued the same thing, under the same assumptions, as of the same date.

THE COMPARABLE THAT LOOKS RIGHT MAY NOT BE RIGHT

Commercial vessels don't fit neatly into boxes.

Two vessels may have the same length, similar horsepower and comparable build dates and still occupy very different positions in the market.

One may have recently overhauled machinery. The other may be approaching major engine work.

One may carry equipment that makes her attractive to a particular group of operators. The other may have a more limited configuration.

Condition differs. Certificates differ. Geography matters.

Even the vessel's employment history and intended service can affect how buyers view her.

That's why selecting comparable sales requires more than finding vessels that look similar on paper.

The question isn't simply:

Which vessels resemble the subject?

It's:

Which transactions tell us something meaningful about how the market would view the subject vessel?

Those aren't always the same vessels.

SOMETIMES THE DISAGREEMENT STARTS WITH WHAT ISN'T IN THE GRID

When reviewing competing appraisals, it's natural to focus on the sales each appraiser selected.

I would also look at the sales they didn't select.

Suppose several potentially relevant vessels changed hands around the valuation date. One appraiser uses three of them. Another appraiser uses a different group.

Why?

There may be perfectly reasonable explanations.

A sale that initially appears comparable may involve a vessel with significantly different machinery, condition or capabilities. It may have occurred in a different market. The transaction itself may have circumstances that make it less useful.

But those decisions should make sense.

If an apparently relevant transaction was excluded, an attorney reviewing the appraisal should be able to understand why.

Sometimes the most revealing question isn't “Why did you use this comparable?”

It's “Why didn't you use that one?”

THEN COME THE ADJUSTMENTS

Finding a useful comparable doesn't mean you've found an identical vessel.

You probably haven't.

Adjustments are how an appraiser accounts for meaningful differences between the comparable and the subject.

This is where professional judgment becomes particularly visible.

Age may require consideration. Machinery hours and overhaul history may matter. Equipment, condition, configuration and capabilities can all influence the analysis.

The important question isn't whether an adjustment appears in a column.

It's whether the appraiser can explain it.

If one vessel is adjusted upward because of machinery condition, what evidence supports that conclusion?

If another is adjusted because of equipment or capabilities, why does that difference matter in this particular market?

An adjustment shouldn't exist simply because two vessels aren't identical. The difference should be something the market recognizes.

VALUATION INSIGHT

The strongest adjustment isn't necessarily the one calculated to the most decimal places. It's the one the appraiser can connect to market evidence and explain clearly.

CONDITION CAN MOVE THE ANALYSIS QUICKLY

Condition is one of the areas where competing opinions can begin to separate.

A well-maintained commercial vessel with documented machinery work may not belong at the same point in the market as an otherwise similar vessel carrying substantial deferred maintenance.

But “good condition” and “poor condition” aren't very useful conclusions by themselves.

What did the appraiser actually observe?

Were recent surveys available? Were repair records reviewed? Was machinery history documented? Was the vessel inspected?

If an appraisal relies on a significant condition adjustment, I want to understand the evidence behind it.

This becomes even more important in retrospective assignments, where the appraiser may be trying to determine the vessel's condition on a date months or years earlier.

In those situations, the quality of the historical record can have a direct effect on the strength of the valuation opinion.

ASKING PRICES CAN BE USEFUL—BUT THEY AREN'T SALES

Marine markets aren't always deep.

For certain vessel types, an appraiser may have relatively few recent arm's-length sales to work with. Current listings can provide useful market context.

But an asking price and a completed transaction aren't the same thing.

A listing tells us what a seller is asking. It may also tell us something about what is available in the market.

It doesn't necessarily tell us what a willing buyer will ultimately pay.

The vessel may have been listed for months. The asking price may have changed. Offers may have been made and rejected.

Or the vessel may ultimately sell for a very different number.

That doesn't make listings useless. Far from it.

It means they need to be treated for what they are.

If a valuation opinion relies heavily on asking prices, that's something I would want to understand when reviewing the report.

FOLLOW THE APPRAISER FROM THE EVIDENCE TO THE NUMBER

A good appraisal should allow the reader to follow the analysis.

You may disagree with the conclusion. Another appraiser may reach a different one.

But you should still be able to understand the path.

What was the assignment?

What market did the appraiser examine?

Why were particular transactions selected?

What differences mattered?

How were those differences treated?

And how did all of that lead to the final opinion?

If there's a large jump somewhere between the evidence and the conclusion, that's where I'd spend some time.

The final number gets the attention.

The reasoning that produced it is usually more interesting.

WHEN TWO APPRAISERS DISAGREE

A difference in opinion doesn't automatically mean one appraisal is wrong.

Valuation involves professional judgment, particularly in markets where identical assets rarely trade and the available sales evidence is limited.

Two appraisers may reasonably give different weight to the same information.

But a material difference should still be explainable.

Perhaps they defined the market differently. Maybe they selected different comparables. One may have placed greater weight on condition or machinery history.

Or perhaps the disagreement began much earlier, with the assignment itself.

That's why I wouldn't start by arguing over the final values.

I'd put the reports side by side and work backward.

Find the first place the analyses begin to separate.

That's often where the real disagreement lives.

QUESTIONS WORTH ASKING WHEN REVIEWING A MARINE APPRAISAL

When a vessel's value becomes important in a legal matter, a few questions can reveal quite a bit:

Did the appraiser use the correct definition of value and effective date?

Why were those particular comparable sales selected?

Were other relevant transactions considered and rejected? Why?

What adjustments had the greatest effect on the conclusion, and what supports them?

How did the appraiser account for vessel condition and machinery history?

How much of the analysis relies on completed sales versus asking prices?

And perhaps most importantly:

Can you follow the appraiser's reasoning from the market evidence to the final opinion?

If you can't, that's worth examining.