Purchasing used agricultural equipment can be a great way to save some cash while still updating the metal in your equipment shed. Most used ag equipment is also still in solid shape given that the livelihood of any farmer or rancher is greatly dependent upon having reliable, functional equipment. Now that you’ve found that combine or tractor upgrade that you’ve been hunting for, how do you know you’re not being taken advantage of on the listing price?
Find the Depreciated Value
Just like cars and motorcycles, ag equipment will gradually lose value from the first that it’s driven off the lot. While the speed with which each component will depreciate varies, it’s important to factor in that depreciation when you’re negotiating a fair price. The Extension and Outreach department at Iowa State University has compiled some great estimated salvage percentages for ag equipment that can give you a leg up when it comes to determining a fair buying or selling price. While the end-of-life salvage percentage isn’t what you would look at to determine a fair sale price, it can help you determine that price using the scenario below.
For example, using the above mentioned tables let’s figure out a fair depreciated value for a 180-PTO horsepower diesel tractor with a current new list price of $150,000. Assuming that the tractor has 600 hours of annual use and an anticipated usage lifetime of 12 years, we get this simple equation to calculate the salvage value based on the percentages provided in the Iowa State study: $150,000 x 27% = $40,500
Now that we know the anticipated salvage value we can calculate the lifetime depreciation: $150,000 – $40,500 = $109,500 in total depreciated value over 12 years. This means you can expect an average of $9,125 of estimated depreciated value per year for a similar piece of equipment. So, a good starting point for a used, 5-year-old version of the 180-PTO horsepower diesel tractor we started our story with would be: $150,000 – (5 x $9,125) = $104,375.
While major advancements may cushion or increase depreciation speed of any agricultural equipment, this is a great way to start getting a better idea of how much negotiation room there may be with a listed piece of machinery. There are also a number of other costs of ownership that need to be factored in, such as taxes and fees (which we look at below), maintenance, and insurance, but the above formulas can help ensure that you’re not flying blind when listing or inquiring about equipment for sale.
Taxes, Insurance and Housing (TIH)
Some of the most common costs all equipment purchasers must factor in are taxes, insurance and housing, or TIH. Unlike the multi-step equation we looked at to factor in depreciation, TIH is calculated much more simply as a basic 1% of the total purchase price. So, using the example above of the 5-year-old 180-PTO horsepower diesel tractor, the TIH each year can be calculated as: $104,375 x 1% = $1,043/yr.
While the cost of TIH isn’t likely something that you’ll be able to use as a negotiating point with the seller, it’s important to know at least part of the total cost that you’ll incur with the purchase of your new metal.
Regardless of your chosen research method when it comes to buying and selling used agricultural equipment, the most important thing you can do is just that: research. Seasoned farmers and ranchers often have a great deal of experience in negotiation and know what to look for when it comes to wear and tear on various implements, but using the information above can help avoid sticker shock – or ending up with a costly money pit. For more helpful information, check out our how-to on buying and selling used farm equipment.