The Value of Buying Used Equipment
No one takes a light approach to buying a piece of heavy construction equipment — nor should they. The right piece of equipment for any construction business requires a significant amount of due diligence before putting out thousands — sometimes even hundreds of thousands — of dollars to acquire the best machine for the job.
By critically looking at the benefits that construction equipment brings to a company, it’s easier to categorize the value of the machinery and the options available for securing it. There’s an old saying: “If you own it, you control it.” And that may be true, but the circumstances of what the equipment is needed for often dictate how the user looks at ownership. It also dictates whether to own a new piece of equipment or to buy used machinery.
Traditionally, there are three avenues available for securing heavy machinery for commercial construction. Renting is popular for short-term and job-specific needs. Leasing is an option for intermediate uses where the machine is necessary for an indeterminate period and the costs can be absorbed in the project, then returned when the term expires. Outright ownership is still the most common means of controlling equipment and usually has the highest rate of return in the commercial construction business.
While choosing between renting and leasing machinery, the decision is normally made on a case-by-case basis. However, the decision to purchase and own a piece of construction equipment depends on a longer vision of what value it brings to the company. Every construction business’s works to increase their profits while keeping overhead and maintenance low. With this comes an attachment of value to each piece of equipment, and that stems from the benefit it provides for the job it’s required to do.
In every economy and in every type of construction business, controlling the spiraling costs associated with buying and maintaining equipment is a critical part of remaining profitable. Too often, the decision to purchase equipment is seen as a difficult dilemma. It’s a question of paying a premium price for a new machine and absorbing the cost of a reasonable reassurance for trouble-free longevity or dealing with the perception of long-term, additional servicing and repair costs after buying used equipment.
Unfortunately, reductive thinking like this easily can lead to paying too much for a new machine when far less expensive pieces of construction equipment are for sale. These used pieces are often just as serviceable as new machines and are available at a fraction of the cost. Taking the time to research and evaluate a used machine in comparison to a new one is part of proper purchasing diligence. When it comes to used commercial heavy equipment, knowing how to shop wisely will allow a proper choice in selecting a second-hand machine that will deliver a lifetime of reliable service at a much more affordable price than a new one.
There are many pieces of used construction equipment for sale in Arkansas alone, never mind the massive used heavy machinery market across the country and internationally. Shopping for and selecting the best value in used equipment, whether it be a recognized Cat® product or another brand, is a time-consuming process that can be overwhelming when weighing the benefits of buying used over new.
It doesn’t have to be, though. Understanding factors that influence the price of Cat used construction equipment for sale makes the choice of new versus used much easier. Here are the most important factors that determine the value of used heavy machinery.
Benefits of Buying Used Equipment
If you’re considering purchasing a new piece of equipment, the first thing you need to decide is whether you’re looking for something new or used. Determining which option is best for you depends on several factors, including price, condition, features, model and more. Before you go shopping, consider some of the advantages of buying used equipment:
- Lower upfront cost: The biggest and most obvious benefit of buying used machinery is the low upfront cost. Large equipment is expensive, especially if you need to buy several pieces. The best way to cut the cost is by purchasing used items. Any used piece of machinery will be noticeably less expensive than its brand new counterpart, even if it’s still in perfect condition. Also, when the price of the item is lower, so is the sales tax.
- Avoid initial depreciation: As soon as you take new equipment off the dealer’s lot, the resale value quickly decreases. Generally, the rate of depreciation is highest in the first year. Then, as the years go by, the depreciation rate slows down significantly. When you buy used, you don’t have to worry about that initial depreciation. If you ever want to resell the piece of equipment, the depreciation rate will have already slowed down, so you won’t lose as much money as you would if you had bought it new.
- Lower insurance costs: When you buy a used piece of equipment, its value is lower than it would be if you bought it new. Since the machine is not worth as much, the insurance premiums will be considerably less. If you buy new equipment, there’s a chance you might have to overpay for insurance premiums — this is because many insurance companies asses the replacement cost as the value of a new machine, even if it depreciates at a normal rate.
- Environmental sustainability: The benefits of buying used equipment don’t stop at the price. Buying used machinery is also better for the environment. Producing heavy machinery takes a significant amount of energy, so it’s important to use these machines as long as possible. When you buy a used product, you decrease the demand for new ones. As the demand decreases, fewer new machines are made — reducing energy consumption and environmental impact.
Top 11 Factors to Determine Used Machinery Value
1. Purchase Price
Most people think the number one reason to buy used construction equipment is to save money. Without a doubt, the price tag on a used piece of machinery is going to be less than a comparable new one. The cost of a new machine could equal or exceed the cost of two or more used pieces of equipment, depending on availability and demand. The savings in buying used may also be transferred to purchasing a higher caliber of machine that would be out of reach if brand new.
Used equipment often has exactly the same features as new machines fresh off the production line. Little really changes from year to year in the benefits that construction equipment offers aside from advances in technology. A five-year-old machine may have some updated computerization features for ease of operation, but it still does the same job at a greatly reduced price. The benefits of new bells and whistles need careful weighing against what truly dictates the value of construction equipment — actual return on investment.
2. Return On Investment
Return on Investment, or ROI as it’s called in accounting and financial terms, is the actual value delivered by the piece of machinery in relation to the expense output. This is a complicated calculation and, like buying a piece of used construction equipment, is not a precise science.
One of the chief concerns in buying equipment is the amount of capital required. A used machine costing half the price of a new one doesn’t just take up half the cash outlay. It compounds the amount when interest on the financing is absorbed as well as removing the purchasing power that money may have towards acquiring other equipment or servicing other debt. Growing a business forward depends greatly on available cash reserves, and having too much cash invested in new equipment can be crippling.
Calculate the return on investment by considering the maintenance and repair costs a used machine may need compared to the warranty-covered benefit of new equipment. But beware of false economies when taking into consideration the loss in value that new equipment takes in its first year from depreciation.
Like all mechanical commodities, heavy construction machinery suffers a significant rate of depreciation. That’s usually in its first year and can run from a minimum of 20 percent all the way up to 40 percent. This is inevitable in the construction equipment business and is something that adds great value to purchasing a used machine.
Be aware that depreciation schedules for used construction equipment aren’t linear. That means resale values won’t depreciate at the same rate over the same time period. After the initial 20 to 40 percent hit on depreciation, heavy equipment values remain relatively stable for years out. A 10-year-old machine may retain the same value as one that’s half its age, and so forth.
When buying a machine that’s used, it may provide years of service at a much greater return on initial investment than a new one and retain its value for years to come. That’s provided, of course, on other factors like the machine’s maintenance condition and the law of supply and demand. Additionally, you can finance your machine through Riggs CAT in order to balance out your equipment needs!
4. Supply & Demand
Just like all commodities in all markets, the law of supply and demand affects used construction equipment prices. As demand goes up or supply goes down, prices rise as businesses compete for available machines. Conversely, as the demand drops and the supply inflates, prices will come down.
This affects the used equipment market as well as the sales of new machines. Much of the supply and demand forces are determined by region, and it pays to shop beyond a local market at times. Be careful in going outside local purchases as the warranty and service support may not be available.
5. Market Conditions and Economic Climate
The economic climate and local market conditions have the greatest impact on supply and demand, therefore they also affect the price of used construction equipment. When the economy is in a downturn, businesses are very aware of their bottom line and guard it closely. Usually, they’re resistant to paying higher prices for equipment and will delay purchases until favorable times.
They’ll wait for prices to drop or negotiate harder for a lower price. At the same time, the need for equipment drops, which also affects the sales price for used and new equipment. Many companies are willing to sell their under-utilized machinery, making it a buyer’s market, and smart shoppers can get some excellent value when purchasing construction equipment during down times.
Market conditions aren’t solely dictated by the overall economy. Different industries like farming and forestry go through cycles and are seasonal. During peaks in their industries, demand for equipment will be higher and the price for machinery will rise.
Factors that drive supply and demand, economic climate and market conditions are beyond the control of buyers and sellers — however, there are ways to lessen the impact. When demand is high in one industry or location, it’s often lower in another. Taking advantage of favorable conditions can be a smart move in buying construction machinery, especially used equipment.
6. Stable Resale Value
Extending the benefits of buying already depreciated construction equipment, there is holding pattern to resale value. Many machines that are purchased in a near-new state and are maintained that way hold their value for years to come. Occasionally, premium used machines sell for more than their initial purchase price.
One of the best ways to protect the resale value is meticulous maintenance. Documenting the maintenance is exceptionally important in verifying the servicing and repair record, and asking to see these records is a critical part of due diligence when buying used equipment.
These service records don’t just apply at the time of one resale purchase. Stable resale value will extend through the entire life of a machine as long as the proof of regular maintenance is available for inspection as the equipment passes from owner to owner.
Another major factor in determining the value of used construction equipment is the manufacturer. Used Cat construction equipment for sale in Arkansas generally commands a greater resale price than other manufacturers, including the other major brands.
Many construction business owners will only buy one or two particular makes of equipment, and brand loyalty reflects in annual sales in used machinery as well as in new equipment. This holds true in Arkansas, across the country and around the world. Equipment owners are often willing to pay more for a brand name that they’ve had good results with and are satisfied with the brand’s performance and retention of value.
Brand loyalty significantly reflects in used equipment sales. The name often implies built-in quality and reliability. That is something purchasers of Cat brand products know all too well. In some cases, lesser-known makes of equipment are able to perform the same job just as efficiently and economically. However, the name recognition of Cat lines of heavy machinery will command a higher price and retain value for a long time.
It’s no surprise the manufacturer’s reputation plays a key role in determining the price of used construction equipment. One of the many reasons why Cat construction equipment for sale in Arkansas holds its value so well is because of the company’s Certified Rebuild program. Thanks to Cat’s modular components that can easily be rebuilt, remanufactured or replaced, Cat machines have a built-in second life that continues to deliver productivity for many years.
8. Seller’s Reputation
Who the dealer or handler of used construction equipment is plays another prominent role in setting the machinery’s value. Reputable dealers stand behind their inventory, including the used equipment they’re offering for sale. Transparency in the equipment’s history, including who the previous owners were along with service records, brings a valuable peace of mind to the market.
A reputable used Cat equipment dealer will allow pending purchasers to fully inspect the machinery, including allowing third-party testing and trial operation. Reputable dealers will also add value by backing up everything they sell with some level of warranty support and return policy.
Reputation extends to the equipment’s former owner as well. The construction industry can be a small family at times, and the reputation of who previously owned the equipment carries much weight in assuring a prospective buyer that the machine was properly operated, serviced and cared for.
On the other hand, equipment once held by a questionable owner may see its value degraded. The perception of poor maintenance and rough handling sends a risk message along with its asking price. This almost always results in a lower price or longer sale.
9. Equipment Age
One of the first things that comes to a buyer’s mind is the age of the used construction equipment. What year was it built in? How old is it? How long has it been around? These are all the same valid question, but the answer is not truly in calendar numbers — it’s in hours of operation.
The amount of use is the primary consideration in evaluating price in relationship to the machinery’s physical age. After discounting depreciation, two identical pieces of equipment of the same age can vary widely on their asking price and actual value. They might both be old, but the unit with the lowest number of operating hours will command a higher price, especially if it’s well maintained.
While age is a factor in determining machinery value, it’s not as important as the machinery’s mechanical condition and appearance.
The condition of used construction equipment really is the main factor that dictates the machinery’s price. Any piece of equipment, regardless of age or hours, will not fetch a high price and give a good return on investment if it’s in poor overall condition.
Older equipment that’s been well maintained, well handled and lightly used can sell for a high amount and still deliver excellent value to the buyer. Equipment that’s been recently painted, repaired or even just cleaned will appear much better than neglected and abused machinery.
Equipment that has detailed maintenance and service records that show the machinery’s history and ownership also support the value, especially in older models. Many aging machines have years of life still ahead and sellers who know this will be completely accommodating to let prospective buyers inspect and test the equipment.
11. Ability to Inspect and Test Equipment
For many buyers, the ability to personally inspect and test a piece of construction equipment can make a huge difference in the amount they’re willing to pay for it. If they can see for themselves exactly what they’re getting, see proof of its condition and are able to operate it in the task they need it for, they’re usually willing to pay a higher price for the satisfaction of being reassured of its value.
Personal interaction between the buyer and the seller or seller’s agent instills more confidence in the buyer. Every reputable seller will give a customer full and complete access to the machine and will even assist in the demonstration.
Due diligence in determining value in buying used construction equipment requires an in-depth knowledge of the particular equipment and the purpose it’s being purchased for. Part of the due diligence process is a thorough physical inspection and test of the machinery. Here are the general points to check when buying used construction equipment.
- Check the pre-consumed operating hours. All heavy construction machinery will have a clock that records hours of use.
- Study the maintenance records. Ensure the servicing has been regular and corresponds with the recorded hours.
- Examine for evidence of wear. Visual signs such as dents and welds are not as important as costly wear to the undercarriage, hydraulics, engine and transmission.
- Inspect the cab. The condition of the operator’s compartment tells a lot about how the machinery’s been operated.
- Tracks and tires. These are expensive items and, if in good condition, they’re a sign of good value.
- Check the fluids. Engine oil, hydraulic oil, transmission fluid, coolant and fuel all have tell-tale signatures to a trained eye.
- Analyze the exhaust. Black, white and blue smoke are all indicators of trouble.
- Try before you buy. Nothing beats a hands-on operation of used construction equipment.
Assessing the value of used construction equipment for sale and weighing the benefits of buying used machinery over new doesn’t have to be a time-consuming and overwhelming process if you let the professionals at Riggs CAT help you along.
Top Quality Used Construction Equipment for Arkansas and the Mid-South
Proudly serving the equipment needs of Arkansas since 1927, Riggs CAT is your authorized Cat dealership for the entire state.
When it comes to buying equipment, you have choices. If your operating budget needs to make every dollar count, rely on Riggs CAT to offer cost-effective options to buying a new machine — that alternative may be to buy used. We offer a wide variety of machines in our used equipment inventory, and our highly trained staff will gladly search for work tools and attachments to complement and add to the versatility of your choice.
We Offer Used Cat Equipment for Sale and Dependable Allied Machines
Our extensive inventory includes late-model, low-hour used Cat construction equipment for sale, as well as high-performing equipment from leading Allied manufacturers such as Case, John Deere and many others. Whether your need is a Cat or a non-Cat machine, we offer small and large dozers, skid steer loaders, mini and large hydraulic excavators, track loaders, motor graders and more.
With eight locations across Arkansas, Riggs CAT promises you excellent service after the sale and the support only a certified Cat dealer can offer.
Reliable Used Equipment in Peak Operating Condition
At Riggs CAT, we understand that purchasing used equipment can sometimes be a risky proposition. You can’t always be sure what you’re getting in return for your hard-earned dollars.
Whether you choose to buy our used Cat construction equipment for sale or another leading brand, you’ll never have to worry about quality. Every machine on our lot is put through a multi-point inspection assuring you of the best of the best in pre-owned equipment.
Our goal is to take the mystery out of buying used equipment so you can make your purchase with a high degree of confidence.
Flexible Financing Options for Every Budget
In addition to providing finance options for brand-new equipment, we can also help you finance your used equipment purchase. By working directly with Cat Financial, we can establish an affordable financing arrangement that enables you to buy used Cat construction equipment without taking a big bite out of your budget.
We also work with other reputable lenders to provide the best possible financing options for our clients.
Take a Closer Look at Our Current Used Equipment Inventory
You can stop by any of our eight locations across Arkansas and visit the used equipment lot to see our machines in person. If you can’t find the exact piece of used equipment that meets your needs, just let us know. We’ll tap into our extensive network to locate it quickly. Riggs CAT is also ready to buy your used equipment, so call us today for a quote on your machine.
Take a minute to browse our used equipment inventory online. Whether you need to buy — or sell — used construction, paving, landscaping, forestry or material-handling equipment, simply contact us if you have any questions.