Contractor-honed strategies for buying and selling used equipment (Part 2 of a Special Report)

This is Part 2 of a five-part series on used equipment. Click here to see the other parts of the series. Click here to download the full version of the Used Equipment Report.

Used equipment plays a significant role both its acquisition and disposal  in the business strategies of contractors. When it comes to selling used equipment, auctions are usually the most popular method, but most companies use a mix of strategies.

Right now, auctions account for probably 90 to 95 percent of our equipment disposals, says Bob Merritt, director of equipment and construction services operations support at AECOM. Without auctions, equipment disposal becomes a big job that includes taking care of the liens, title searches, marketing, legal paperwork and fielding the offers. After the sale, you still need to handle the shipping logistics. When you use an auction company, all this is taken care of for you.

But if you dont have a lot of equipment and youre not in a rush to sell it, there are other options. If you can afford to let it sit, youll probably get a better price, because youre not paying the fees and costs of the people selling it for you, Merritt says.

I think auctions are the best way, says Doug King, fleet manager at Sherwood Construction, a civil construction firm based in Wichita, Kansas. You get what the asset is worth on that day in that market. Our experience shows that, on average, we equal or better our appraised values selling through auctions. The key is getting your product in front of as many potential buyers as possible.

King cautions, though, that not all auctions are right for every contractor or piece of equipment. All auction companies have reputations and specific markets they attract, he says. I will use different companies depending on what asset I am selling to which target market.

Neither King nor Merritt is a fan of brokered sales. I dont see any increase in our income, but we still have to put out time to show the equipment, store and insure the asset along with handling the fund transfers and commissions and deal with the haulers when they come to pick it up, King says.

For most of its sales, Sherwood uses an online auction service, Purple Wave, with no reserves or holdbacks, King says. They allow us to sell the equipment at our locations, saving freight, fuel, jumpstarts and all the other issues. When we do use onsite auctions, it might be for a specific or specialized item that sells better in a certain location or region.

The transportation savings you get by using internet auctions for difficult, oversized pieces can make the net return better, but only if the unit can be marketed and advertised to get the attention it needs, Samford says.

King also works closely with specialty contractors for private sales. We have a couple of companies that we sell specific types of equipment to. An example is mixer trucks, where we have a relationship and trust with a company and buyer, he says.

If you have the patience and are attuned to the market needs, private sales have advantages, says Jack Bailey, owner of JBR Incorporated, a commercial construction company in Fredericksburg, Virginia. Bailey will occasionally use auctions, but says it depends on the marketability of the items and how quickly I want it disposed of.

Private sales allow the seller to have the final say on the price, says Samford, an option that he loses with unreserved auctions. And from a buyers perspective, if you can personally inspect and run a piece of equipment at a private sale, youre more likely to spot any telltale flaws or problems that an online buyer might not see, he says.

Auction companies sometimes deal with what Bailey calls an overabundance of junk. When a contractor comes along with a well-maintained machine, the auction houses are often eager for it since it will bring better than average money, he says.

The disposal option Bailey likes least are buybacks. From my experience, these provide the least favorable return on investment, he says.

Others see some advantages in buybacks, depending on their business model.

Many joint-venture projects are negotiating guaranteed buybacks on iron acquisition because they have a known term when they will be ready to dispose of assets at the jobs end, and it allows them to clearly identify the project ownership costs going into the project, says Samford.

One strategy Merritt has deployed is buying a new piece of equipment for a specific job through a rental-purchase option. The rental payments get charged to the job, and at the end of the project, the company will buy out the contract of the now used equipment and put it into the regular fleet for other projects. This only works if the prices are right, he says, but it has the advantage of letting the job pay for the first few years of the equipment. After that, you have a price-depreciated piece of yellow iron without the costs or risks involved in buying used because you know its condition and value.

Nobody we talked to, even the large companies that spend millions on new equipment every year, say they rule out buying used equipment.

At Sherwood, King will buy used equipment from a variety of sources: auctions, OEM dealers, independent dealers and private sales. There are a lot of good reasons behind each option, he says. I have found that with the internet bidder participation in auctions, the chances to get a bargain on something is long gone. Its good if youre selling, not so good if buying. All other things being equal, King says he likes buying through a trusted OEM dealer.

Merritt also says he feels more confident in buying used equipment from a dealer. I usually go through my OEM people, because I know I can deal with them. If there is an issue, you can go back to them and they can do something for you.

A lot of our support pieces are used, says Bailey. Good deals are hard to find, so you must be patient and ready to make a decision quickly. Our philosophy is no matter what the market conditions, somewhere, someone needs to sell something.