Buying used heavy equipment can be an effective way of getting the fleet you need at a price that makes sense for your business. While hunting for deals can be fun, the experienced used equipment buyer knows that there are many pitfalls that are easy to fall into and that it is helpful to take a structured approach when buying used machinery.
Our objective with this guide is to cover some of the best practices when it comes to buying used heavy equipment in 2021. We’ll cover not only the basics around getting the right machine at the right price but also some of the big shifts and new platforms that have really changed the game and modernized the buying process. Spoiler alert: due to the global Covid-19 pandemic, the industry has seen unprecedented growth in the number of equipment transactions taking place 100% online.
Why buy used equipment?
There’s this falsehood out in the industry that the companies who are buying used simply “don’t have the money” to buy new. This couldn’t be further from the truth. The reality is that buying used equipment can be a smart financial decision that can yield tremendous ROI (return on investment) when done right.
Top 5 advantages of buying used equipment
1. Lower cost to purchase
Simply put, used equipment with low hours from late model years are just as capable as new equipment but can be acquired at a fraction of the price. This makes sense as buying new equipment through your local dealer means that you are getting a machine in mint condition directly off the factory floor and paying top dollar. Larger fleet owners are often able to negotiate special volume discounts and preferential terms on these new machine purchases but incentives can be limited for the small to mid size fleet owner.
2. No immediate depreciation
When you buy new, the average piece of equipment will depreciate anywhere from 20-40% within its first year of operation. This depreciation curve flattens out however over the life of the asset. By buying used, you are getting a machine that will depreciate at a much slower rate.
3. Holds resale value longer
Since used equipment is purchased on the flatter part of the depreciation curve, if maintained well, it can command a resale value only slightly lower than the price paid for it. Of course, market conditions also play a role as well.
4. Immediate availability
Whether you buy used equipment from a dealer, an auction or through a private party, you can often get that machine onto your job site in anywhere from a few days to a couple of weeks. When you buy equipment new, you’re often subject to long lead times from the factory which means you might have to plan many months ahead of time. Furthermore, if there are surprise delays, you might have to scramble at the last minute to get a rental machine onto the jobsite until your new asset is ready for delivery.
5. Lower insurance costs
When insuring heavy equipment, most companies elect to insure for replacement value instead of cash value. Replacement value means that in the event of a total loss, the insurance company will pay out the amount necessary to make you whole again. In other words, get you another machine that is similar to what you had before the total loss. Cash value means that in the event of a total loss, the insurance company will pay out the depreciated value of the machine (which is often not enough to replace the machine you lost). Since the replacement value for a new machine is much higher, insurance premiums tend to cost a lot more relative to the premiums for a used machine.
Top 5 drawbacks of buying used equipment
1. Initial maintenance needs
When you take delivery of a used machine, there are often some imperfections or maintenance needs that you need to take care of prior to putting the machine into service. If your maintenance technician is busy this can increase the amount of time it takes before you can put the machine to use. Being strategic here is very important and knowing what work the machine needs immediately vs. what work can be safely deferred to a later date is key.
2. Older technology
When you buy a used machine, you’re typically not going to get all the latest bells and whistles that you saw at CONEXPO or on Youtube. While this might be an issue for some contractors who are trying to maximize every last bit of productivity they are getting per working hour, for the vast majority of outfits, this isn’t a big deal. Besides, having a skilled and experienced operator is typically the most important factor to overall productivity. Additionally, for the vast majority of equipment manufacturers, technology improves in an evolutionary manner and it is rare to see major step function changes across two contiguous model years.
3. No manufacturer warranty
One of the biggest benefits of buying equipment new is that you have the peace of mind of a manufacturer-provided limited warranty. If something isn’t right with your machine, your local dealer will do what it takes to make things right. When buying used, there may or may not be any warranty left on the machine. As a result, the buyer of the equipment is taking on more risk. Some ways of mitigating this risk include doing things like having a mechanic inspect the machine before purchase, reviewing maintenance records and learning more about the previous owner’s fleet management practices. Additionally, for those who need peace of mind, it is possible to purchase a 3rd party aftermarket warranty from vendors such as ADI Agency.
4. Limited selection
If you’re in a bit of a time crunch and need a machine right away, buying used means you have to pick from whatever is available on the market at that given time. This means that you might need to compromise on certain features and options that would have been nice to have but simply cannot be found in used inventory on the market. This can be even more challenging when trying to source specialty equipment where the used market can often be extremely supply constrained.
5. Limited machine history
Buying a machine new means that you have complete and perfect history of the life of that machine. It’s brand new off the factory floor! When you buy a machine used, however, it can be hard to obtain maintenance records or information about the provenance. As stated earlier, the best way to mitigate the risks of not having complete information is by getting a 3rd party mechanical inspection prior to purchase.
How to buy used equipment in ten easy steps
Step 1: Determine your needs
Before you buy a piece of used heavy equipment, it is important to determine what your needs are. Are you buying for a specific project? If so, think through what the worksite conditions are. If it’s in a cold weather region, you probably need an enclosed cab instead of an open cab. If it’s in a hot climate, you probably need to ensure that there is working A/C to prevent operator fatigue. Depending on the type of terrain, you might be looking for a tracked machine instead of a wheeled machine. Think through the likelihood of any seasonal weather hazards cropping up as well. For example, is there a chance you might have to deal with heavy rains or a tropical storm? Are there any specific attachments that you might need?
In addition to analyzing worksite conditions for a specific project, it’s also important to think about how the used piece of equipment fits in with the rest of your existing fleet. Does it add a new capability or will it help you increase the overall agility of your operations? Having larger machines can boost productivity but can also result in additional ownership costs from fuel burn and maintenance needs. Smaller machines are easier to transport and burn less fuel but might not be as productive. Figuring this out is very much a balancing act but once you have a sense of the type and size of equipment you are looking for, you’re ready to move on to the next step.
Step 2: Determine your budget
Once you know what your needs are and the type of equipment you’re going to be hunting for, you need to determine what your budget is. Are you looking to invest in a machine that will give you many years of use or are you trying to spend as little as possible to get a job done and then offload the piece of equipment immediately? Given how large the used equipment market is, there is often a machine for every budget range. Just remember that the purchase price is not your total cost of ownership. Think about how many hours you plan to keep the machine for and what the resale value might be. Think about the fuel and maintenance costs as well. Last but not least, talk to your accountant to understand whether there are any tax benefits due to accelerated depreciation allowances in a given tax year.
Step 3: Search online and offline
There is no shortage of places to search for used heavy equipment inventory but not all channels are created equal.
Your local Cat, John Deere or independent dealer will typically have a number of used pieces of equipment for sale. These machines tend to be late model year and low machine hours as they are typically machines that come off lease, are recent trade-ins or are being rolled out of the rental fleet. Often these machines are sold as “certified” which means that they might come with an extended warranty from the manufacturer. Buying from a dealer helps reduce the risk of buying used but the price you pay can be anywhere from 10-20% higher than comparable machines being sold through other channels.
In Person Auctions
There are several auction companies that specialize in used heavy equipment and host regional auctions every few months. Ritchie Brothers is the dominant auction company in North America but there are many others as well. Due to the Covid-19 pandemic, many in person auctions were shut down in order to reduce the risk of spreading the virus. One thing to keep in mind about in person auctions is that there is limited information about the machine and there might not be inspection reports available. This increases the risk of buying a machine that has maintenance issues or problems and it is very much buyer beware.
Print Magazines and Classifieds
Machinery Trader is an industry standard classifieds publication that has been around for decades. Every couple of weeks, a new Machinery Trader magazine is published consisting of inventory from many local dealers and brokers in your region. While this can be a great place to hunt, just remember that this is only a subset of the market as running ads in Machinery Trader is quite expensive and not everyone with a machine for sale is advertising it there. It’s also worth noting that the magazines are static, so you won’t know whether a machine has been sold or is still available.
IronPlanet was acquired by Ritchie Brothers in 2017 and continues to be one of the largest online auction hosts for heavy equipment. Some of the equipment for sale on IronPlanet come with detailed inspection reports as well as their IronClad Guarantee (their version of a limited warranty). One of the big drawbacks of IronPlanet however is that many of the machine auctions have a reserve price so it can be a frustrating shopping experience.
In addition to running paper classifieds, Machinery Trader also hosts a website consisting of ads for used equipment. This can be a great place to search for specific makes and models of machines that you are targeting but the pricing can be all over the map. Some of the machines posted for sale on Machinery Trader are in rental fleets and the sale price is often just inflated as there is no urgency for the seller to actually find a buyer for the piece of equipment. Additionally, the equipment on Machinery Trader almost never comes with an inspection report or detailed photos so you’ll have to do the hard work of picking up the phone and talking to the seller to try and get the information you need to make an informed buying decision.
While it might seem a bit unorthodox, Craigslist actually has a pretty active heavy equipment section and can be a great place to find local equipment for sale. As one of the most cost efficient sites to advertise on, you’ll find inventory from local dealers, brokers and private parties. One thing to be aware of however is that the information provided on Craigslist listings can be somewhat limited. Be sure to ask the seller for additional information such as detailed photos, inspection reports and maintenance records.
Similar to Craigslist, Facebook Marketplace also has a great assortment of used heavy equipment for sale. One thing to keep in mind however is that, new listings are quick to fall deep in your feed. So if there is a machine you are interested in, make sure to save a link to the listing or write down all the pertinent information.
Broker and Consignment Websites
Every region in the country has a number of expert equipment brokers and consignment companies who offer a turn key experience for sellers of heavy equipment. They take care of everything when it comes to marketing used equipment for sale and ensure that the transaction process is smooth for both buyers and sellers. These companies may or may not have a website but many of the tech enabled companies are starting to do a good job putting their inventory online. One key consideration is trust. Not all brokers or consignment operators are created equal and it is important to separate the good eggs from the bad ones. For example, our team at Boom & Bucket focuses on creating a best in class, trusted buyer experience by providing detailed information such as high resolution photos, videos and inspection reports with every machine for sale.
Step 4: Identify targets
After you’ve gone through your search process, you probably have anywhere from 3-5 machines shortlisted that meet your criteria and target budget. The next step is contacting the seller or the seller’s representative to express interest and get more information about the piece of equipment. Note that if you are buying at an auction, you won’t have this luxury.
Some questions to ask the seller include things like:
- Is the price firm?
- Is the machine demobilized at the moment and ready for an immediate sale?
- Are there maintenance records available? Having this information will help you understanding your total cost of ownership and potential ROI.
- Is there an inspection report available from a 3rd party mechanic?
- Under what conditions was the machine operated in previously?
- Is the current owner the first owner of the machine?
Step 5: Conduct due diligence
The most important step of buying a used piece of heavy equipment is conducting thorough due diligence so you can have confidence that you know what condition the machine is in. Note that the goal of this step isn’t to find a machine that is 100% free from any flaws or defects rather it’s to ensure you know what issues if any might be present.
The best way to conduct due diligence, is to ask for a 3rd party mechanical inspection report. Many sellers will not have this available which is a shame but you can enlist the services of an inspection company like InspectEquipment.com to go visit the machine on your behalf and give you a detailed report of the machine’s condition. Note that while sellers will be happy to provide you with photos and videos of a machine, there is no substitute for having an inspector you trust give you their expert opinion.
Step 6: Confirm price
Once you’ve conducted your due diligence (and hopefully reviewed a detailed inspection report), the next step is determining what price you want to pay for the used piece of equipment. The seller will have a list price that might be fair and firm but there is no harm in asking if they are willing to give you a bit of a discount.
You can use resources like MachineryTrader.com and catused.com to determine what price comparable machines are selling at. Be sure to find machines with a similar model year, options and machine hours. One thing to keep in mind is that using the prices of recent sales at auction is often not a great way of determining comparable values. This is because you have no way of knowing what the condition of the machines sold were. Remember that machines selling for cheap often have some significant maintenance needs at time of auction.
Step 7: Determine how to pay
Once you and the seller have agreed on a price, the next step is figuring out how you want to pay. Of course the easiest thing to do is to just pay cash. That being said, it might also make sense to talk to an equipment financing company to understand what options you might have to finance your purchase instead. Financing can have some advantages in terms of enabling you to retain more working capital in your business. Of course the big drawback is that you end up paying more for the machine given the interest that you have to pay.
Our team at Boom & Bucket has partnered with a network of lenders to provide our customers a quick and easy way of getting approved for financing on used equipment purchases. Just fill in an application in under two minutes and our partners will go to work shopping for the best loan deal for you.
Step 8: Transfer funds and receive bill of sale
The seller will provide you with bank wire instructions. Read these over carefully and then use your online banking website to transfer the necessary funds. If you are not comfortable using online banking, you can go into a local branch of your bank and get help executing the transfer. Once you have transferred funds, make sure to call or email the seller to let them know that the funds are on the way. Wire transfers typically take place same day although there are instances when they might be delayed for up to 24 hrs due to anti-fraud reviews conducted by your bank.
Once the seller confirms that they have received the funds, they will write up and issue you a bill of sale which is an official document that confirms that you are the new owner of the machine. If you’re using a 3rd party equipment transportation company, you’ll need to provide them with a copy of this document.
Step 9: Coordinate transport and receive equipment
If you’re picking up the machine yourself, coordinating transport is a pretty easy process. Just contact the seller and coordinate a time that works for both of you to move the machine. If you’re using a 3rd party equipment transport company however, there are a couple of extra steps involved. First, you’ll want to make sure that you have some detailed information handy about the machine. Information such as the make, model, dimensions and weight of the machine will be necessary to get pricing information from a heavy haul freight company. Other elements that will impact price include the distance between point of origin and destination as well as speed of delivery (i.e., need it moved in a few days vs. a few weeks). Next you’ll want to know what the loading conditions are at the seller’s yard. For example, is there a loading dock and is the machine currently operable. Third, you’ll want to contact a heavy haul freight broker company so that you can get a price quote. Our team at Boom & Bucket recommends Veritread.com as a quick and easy way to get a great price on your machine transportation. Regardless of your choice of transport company, make sure that they have insurance to cover the full replacement cost of your purchase as a precaution.
Step 10: Take delivery and put into service
Once the machine has been picked up and delivered to your yard or job site, you’re almost done. Before putting the machine into service however, it is important to do a quick visual inspection of the machine as well as conduct any maintenance work that is necessary (and that you should have been aware of after reviewing the inspection report prior to purchase). After you complete any required maintenance activities, make sure that your operator is comfortable operating the machine. If there are any machine functions, controls or capabilities that are new to you, make sure to go online to review information or look it up in the machine manual. If you use a fleet management system, now would also be a good time to get the machine cataloged and onboarded into the software.
If you need any help or having any questions about buying used equipment, our team at Boom & Bucket is happy to help. Whether you’re buying from us or buying from somewhere else, we’re happy to help shed light on do’s and don’ts around buying used heavy equipment. Feel free to contact us at firstname.lastname@example.org.