CEMC December 2017 Newsletter
Big Data’s Implications for the Future of Asset Valuations
The reality is that substantial risk hinges on accurate assessments of not only FMV (Fair Market Value) but crucial liquidation values including FLV (Forced Liquidation Value) and OLV (Orderly Liquidation Value). The question is: how can financial institutions—from captive finance companies working on behalf of manufacturers to independent lenders large and small—mitigate those valuation risks? The answer is big data, or rather, is powered by big data.
Data sets and the technological infrastructure and systems behind them are a crucial component of many of the business systems powering companies worldwide, but big data takes information processing to another level. The massive stores of data to which the term refers include both structured data within database frameworks and unstructured data that is more difficult to access and mine. The manner in which it is organized and analyzed to reveal patterns, trends, associations, and conclusions can bring an unfathomable volume of market and asset data to users in real time.
From the standpoints of both efficiency and accuracy, industry-specific data repositories and the tools that query them intelligently and dynamically are light years ahead of listing information databases, posted and sold auction results, and even appraisal services. The collection of data is massive, representing billions of equipment transactions occurring on a global scale. Its accuracy can be managed with tools and systems that clean and organize it into formats accessible to established and customizable queries.
When it comes to equipment valuations and overall market trends, a substantial volume of carefully sourced, cleaned, and organized data ensures not only accuracy, but relevance. As the volume of quality data increases, it becomes more robust in its representation of individual assets. “When data stores include list prices and after-sale information from retail and auction equipment markets for thousands of like year-make-model assets, and that data can be queried in real time, it becomes easier to assess the value of a specific machine based on any number of variables,” explains Scott Lubischer of Sandhills Publishing, the tech company behind leading brands like Machinery Trader, CraneTrader, TractorHouse, Truck Paper, RentalYard, and AuctionTime. “Our asset valuation software—FleetEvaluator—is modeled precisely around these capabilities.”
“Listing data is an important part of the equation, but it’s not the only important part,” explains Lubischer. “Our data is sourced from various points in the sales process (including after the sale), organized and cataloged, and weighted against key health-of-the-market indicators.” The application of algorithmic weights that account for events, conditions, and circumstances strongly impacting markets creates a predictability component crucial to accurate valuations. “Those values are then tested against actual market events every week,” adds Lubischer, “which means that in addition to being leaps and bounds ahead of listing information alone, the accuracy of FleetEvaluator’s market data and asset valuations is constantly advancing.”
The result? Lenders can perform a data analysis for a specific piece of equipment instantly, through software that can even be integrated into an institution’s current financial systems and processes. Accurate asset values and market trend assessments let lenders know where they stand on every asset, enabling them to substantially mitigate risk—all the while saving time and resources.