What an Aircraft Appraisal Covers and How It Changes Your Loan Terms

What is an aircraft appraisal, and what does it cover?

An aircraft appraisal is an independent written opinion of what an aircraft is worth, based on market evidence and the aircraft's own condition and records. It is not an inspection of airworthiness. It tells a lender, a buyer or an owner what value to assume, and for what purpose.

JSSI, an aircraft maintenance program and appraisal provider, describes two common levels. A desktop appraisal is remote and quicker, and covers market activity and listing trends, maintenance status and upcoming costs, a review of the aircraft records, a fair market value opinion and a residual value forecast. An on-site appraisal includes all of that plus a hands-on inspection, a full logbook review and a thorough condition assessment. JSSI says both produce a report that complies with USPAP (the Uniform Standards of Professional Appraisal Practice) and the standards of the American Society of Appraisers (ASA), and that USPAP compliance is required by the lending industry.

AOPA has described the same split from the buyer's side: a desktop appraisal will work for most newer airplanes, while older or non-current airplanes usually need a full appraisal with an inspection, which it said could run $2,000 or more. Treat any price as a rough guide, because fees vary by appraiser, aircraft type and scope.

Do lenders always require an appraisal?

No. Requirements depend on the lender, the aircraft and the loan size. AOPA Aviation Finance says that in most cases a description of your aircraft, the avionics, any special equipment and the engine and airframe time is enough. It adds that full appraisals are typically requested on aircraft over $1 million, that new aircraft normally do not require an appraisal, and that loans over $250,000 require a copy of the pre-buy inspection.

That is one lender's published practice, not a rule for the market. Banks, specialty lenders and lessors set their own policies, and a Part 135 or flight school fleet deal may be treated differently from a single private aircraft. Ask each lender at the start which report type it accepts, who may perform it, and who orders and pays for it. Some lenders insist on choosing the appraiser or accept only those on an approved list.

How does the value affect how much a lender will lend?

The value acts as a ceiling. AOPA Aviation Finance says lenders base financing on either the purchase price or the appraised value, whichever is lower. AOPA also says it compares an aircraft's specification sheet against industry benchmarks such as Vref or the Aircraft Bluebook.

Lenders also tend to be cautious in how they count value. AOPA says a lender's valuation is typically more conservative than the seller's, that only 50 percent credit is usually given for the retail value of installed avionics, and that installation labor is not given any considered value. A recent avionics panel is therefore worth less to your loan than it cost you.

These numbers are hypothetical and only show the math. At the same 80 percent advance rate, the purchase price alone would have supported a $400,000 loan with $100,000 down. The $50,000 gap between price and appraisal moves straight into the down payment. See aircraft loan down payment requirements for how advance rates differ by aircraft class.

What is the difference between fair market value and liquidation value?

They answer different questions. The ASA's Machinery and Technical Specialties Committee defines fair market value as an opinion, expressed in money, at which property would change hands between willing parties. The same committee defines orderly liquidation value as an opinion of the gross amount, expressed in money, that typically could be realized from a liquidation sale. HeliValue$, an appraisal publisher, also describes a net orderly liquidation value, which it defines as the estimated amount left after sale costs such as brokerage, insurance and the time value of money in a forced as-is sale.

Why this matters: an appraisal report states which value it is giving. A lender protecting itself against default may care about what the aircraft would bring in a distressed sale, not what a motivated buyer would pay in a normal one. Always read the report's stated premise of value, and ask your lender which one it uses to set the advance. Some vendors publish rule-of-thumb discounts for liquidation values, but those are not a standard, so rely on the figures in your own report.

What drives the number in an appraisal?

Appraisers weigh market evidence together with the specific airframe. VREF lists six things that can hurt a valuation:

• Records and pedigree. Incomplete or disorganized logbooks can significantly reduce value.
• Airframe condition. Age, environmental exposure and corrosion lower value; hangar storage and routine care help.
• Engine condition. Flying past the manufacturer's recommended TBO, or selling with a run-out engine, hurts. Overhauled, rebuilt and remanufactured engines are valued differently.
• Avionics and interior. Dated panels and cabins reduce value through functional obsolescence.
• Damage history. Document repairs with photos and shop records. VREF says damage does not automatically cut value by a set percentage.
• Maintenance. Gaps in maintenance history weaken a valuation.

Age and engine time also drive lender policy directly. Our guide on financing a used aircraft covers how lenders treat them.

What if the appraisal comes in low?

You have four realistic options, and they are not mutually exclusive.

1. Renegotiate the price. AOPA has noted that an airplane that appraises on the low side can give a buyer leverage with the seller.
2. Add cash. Cover the gap between the price and the lending basis, as in the example above.
3. Challenge the inputs. Check the comparable sales, the engine time and the equipment list for mistakes. An appraiser can correct facts, not preferences.
4. Get a second opinion. AOPA Aviation Finance describes engaging a third-party appraiser to break an impasse between a lender's valuation and the seller's price, and notes that such an appraiser's credentials need to be acceptable to the lender. Lending policies may still require extra support before a lender will accept a higher number.

Do not assume a low appraisal ends the deal. The cost is usually in the down payment and the terms, not a flat no.

How can you prepare so the appraisal helps you?

• Organize logbooks, work orders and damage history, and digitize them. Complete records are the single easiest value protector.
• Prepare a current equipment list with install dates and invoices for avionics.
• Know the engine times, overhaul status and any upcoming inspections, and keep maintenance program enrollment papers to hand.
• Confirm with the lender, before you order, who may appraise, which report type it needs and which premise of value it uses.
• Order early. A full appraisal that needs a physical inspection adds scheduling time to closing.

The same documents feed your loan application. Our checklist, what to prepare before applying for aircraft financing, lists the rest. A pre-buy inspection is a separate exercise from an appraisal, and it looks at airworthiness and condition rather than value.

How do you plan a loan around an appraisal?

Treat the appraised value, not the asking price, as the number your financing depends on. Run the loan at the lower value in the aircraft loan calculator to see the payment and cash required, and read about acquisition loans for how lenders structure them. If you are still comparing ownership routes, aircraft lease vs buy shows how value risk differs under a lease.

Terms vary by lender and this article is general information, not individual advice. Confirm legal and tax points with your own advisors. When you are ready to gather your documents for lenders, you can start a deal file with JetFinex.

Frequently asked questions

Do I need an appraisal to finance an aircraft?

Not always. AOPA Aviation Finance says a description of the aircraft, avionics, special equipment and engine and airframe time is enough in most cases, that full appraisals are typically requested on aircraft over $1 million, and that new aircraft normally do not need one. Other lenders set their own rules, so ask early.

What is the difference between a desktop and an on-site appraisal?

A desktop appraisal is done remotely from market data and records. An on-site appraisal adds a hands-on inspection, a full logbook review and a condition assessment, per JSSI. AOPA has noted that older airplanes usually need the fuller version.

What happens if the appraisal comes in below the purchase price?

Because lenders typically finance on the lower of price or appraised value, the loan amount usually shrinks and you cover the difference with cash. AOPA also notes a low appraisal can give a buyer leverage to negotiate the price.

What is the difference between fair market value and orderly liquidation value?

The American Society of Appraisers defines fair market value as an opinion of the money at which property would change hands between willing parties. Orderly liquidation value is the gross amount that typically could be realized from a liquidation sale. The liquidation figure is generally lower.

Do lenders give credit for new avionics?

Partly. AOPA Aviation Finance says lenders usually credit only 50 percent of the retail value of installed avionics and give no considered value to installation labor.

Sources

• AOPA Aviation Finance, FAQs
• AOPA Aviation Finance, Valuations
• AOPA Pilot, Finance (2016)
• AOPA Aviation Finance, Demystifying the aircraft loan process
• JSSI, Aircraft appraisals and inspections
• HeliValue$, What premise of value: FMV, OLV and NOLV
• VREF, 6 things that could hurt your aircraft valuation

This guide is educational and is not tax, legal or investment advice. See our editorial standards and disclosures. Spot an error? Tell us.