Used Equipment: Vetting the Value

December 6, 2011

Not all that long ago, shop owners looking for used fabrication machinery had two choices: equipment manufacturers and distributors with trade-ins, or friends and colleagues in the process of buying new.

Now, meet the new dealers on the street: the repo man and online sales.

Click photo to enlargeWhile traditional sources for used equipment remain strong – at least according to some in the industry – the recent economy also brought in machines from repossessions, foreclosures and bankruptcies. Technology also provided new sales outlets, including eBay®, Craigslist and online auctions.

The end result is a marketplace where equipment buyers can save a bundle or lose their shirts, depending on what they’re buying and how they approach the sale. It’s definitely a case of caveat emptor, but buyers doing their homework have a better chance of winding up in the black.

SAFE FILING

The nice thing about buying new equipment – besides that it’s, well, new – are all the things included, such as warranties, documentation and operating software.

Buy a used machine from some of these sources, and it could come with nothing. It might not run, and the seller might not even have clear title to sell it.

“The first thing you need to do is make sure there’s a clear title,” says John Kremer, installation coordinator with St. Cloud, Minn.-based Park Industries. “Somebody may own that equipment other than the person who’s trying to sell it. If a bank leased that piece of equipment, it owns the equipment, and not the person using it.”

Fortunately, there are a couple of ways to attempt to learn the true ownership of a machine. One, says Jeff Walerius, Park’s sales support manager, is to contact the equipment manufacturer directly. Another is to check if there’s a UCC filing on it.

UCC refers to the Uniform Commercial Code, a harmonized set of laws governing sales that the 50 states subscribe to in the interests of fostering commerce. One of the things the UCC provides is a financing statement that can be filed with a state or local jurisdiction, showing the names and addresses of the parties involved, along with a description of the collateral.

(Finding a UCC filing, however, isn’t necessarily a simple point-and-click Internet search. Individual states dictate how the documents are recorded, so finding the filing may take some time at the local courthouse.)

Bob Spears, who’s in machinery sales for Winston-Salem, N.C.-based Salem Stone, says that leasing companies are usually very good about having accurate paperwork, and someone buying used equipment that’s been repossessed as part of a lease is extremely likely to get something with a clear title.

That isn’t always the case, though.

“If the machine is being sold directly by Joe’s Granite, who knows know much Joe still owes on it and how many liens are on it,” Spears says. “Then you’d have to do the UCC search yourself.”

Leasing companies aren’t the only ones that can provide a reliable title, however. Bill O’Connor of St. Cloud, Minn.-based Granite Machine says buying from a reputable auction house should ensure that there’s proper UCC research.

“They have already done the legwork and can give you clear title because they’ve put a bond up,” he says. “If there’s a problem, they’re liable and you’re not.”

Another option, although less fool-proof, is to request both a bill of sale and a transfer of ownership, a process which is recognized in at least some states, says Wayne Kruschke of Potter, Wis.-based Stone Equipment Service.

“You put it down on paper, including what you paid for it, the companies involved and the location,” he says. “Everybody signs it, and it’s a legal document, which should give you something to stand on – although, if you end up with a fight on your hands, the legal fees may be more than the machine is worth.

“Buyer Beware is the best you can do,” Kruschke adds.