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Actual Direct Loss andSubstitute Personal Property
An Advantage for the Displaced Business
Robert Merryman, R/W-RACLisa Barnes, SR/WA, R/W-RAC
How Can This Be an Advantage?
• Business can receive payment for not moving an item it doesn’t want or need
• Business can receive payment for substituting a newer item at the replacement site
• The agency doesn’t pay more than it would to move the item
Where To Begin
• Relocation assistance begins with planning and advisory services
• Essential component of advisory services is the personal interview – determining needs and preferences
•Walk-through of displacement site provides opportunity to identify items the owner may not need or want to move
Interview and Walk-Through
• Ask questions
• Be interested
• Active listening
• Find out what they use – or don’t use – that stuff for
The Tire Store
The Tire Store
The Tire Store
The Tire Store
Direct Loss- The Idea
• The ability of a business to NOT move an item, but still receive a “moving payment” for the item
• Avoids moving things no longer needed by the business
•May result in a net saving for the agency
•Useful for many types of businesses
Regulatory Language
§24.301(g)(14)
Actual direct loss of tangible personal property incurred as a result of moving or discontinuing the business or farm operation. The payment shall consist of the lesser of:
Regulatory Language (cont.)§24.301(g)(14)
(i) The fair market value in place of the item, as is for continued use, less the proceeds from its sale.
(To be eligible for payment, the claimant must make a good faith effort to sell the personal property, unless the Agency determines that such effort is not necessary. When payment for property loss is claimed for goods held for sale, the fair market value shall be based on the cost of the goods to the business, not the potential selling prices.); or
Regulatory Language (cont.)
§24.301(g)(14)
(ii) The estimated cost of moving the item as is, but not including any allowance for storage; or for reconnecting a piece of equipment if the equipment is in storage or not being used at the acquired site. (See appendix A, §24.301(g)(14)(i) and (ii).) If the business or farm operation is discontinued, the estimated cost of moving the item shall be based on a moving distance of 50 miles.
Additional Regulatory Language
Appendix A
If the piece of equipment is operational at the acquired site, the estimated cost to reconnect the equipment shall be based on the cost to install the equipment as it currently exists, and shall not include the cost of code-required betterments or upgrades that may apply at the replacement site.
Additional Regulatory Language
Appendix A (cont.)
As prescribed in the regulation, the allowable in-place value estimate (§24.301(g)(14)(i)) and moving cost estimate (§24.301(g)(14)(ii)) must reflect only the “as is” condition and installation of the item at the displacement site.
Additional Regulatory Language
Appendix A (cont.)
The in-place value estimate may not include costs that reflect code or other requirements that were not in effect at the displacement site; or include installation costs for machinery or equipment that is not operable or not installed at the displacement site.
Things That Make It Hard To Use This Payment• “I never knew the business owner wanted to utilize the
option until it was too late.”
• “What is the FMV in-place for continued use? That number cannot be readily determined.”
• “I have moving bids that do not seem to match what I need.”
Help With the Tough Parts of the Payment
Awareness of the owner’s preference to use the payment
• Best practice: review the inventory with the business owner before move estimates are obtained and look for items that the owner does not want to move
• If we are aware of this early, we can easily obtain the numbers to calculate the payment
Help With the Tough Parts of the PaymentFair market value in place for continued use
• Large number of items or expensive items→ hire an M&E appraiser. Tell the appraiser the type of value you need
• Small number of items, or low cost items→ research on the web or by phone; add delivery, and may need to add set-up (installation).
• Retail inventory→ use the business records to document “wholesale cost”
Help With the Tough Parts of the PaymentObtaining move costs
• Review the rule and appendix before you begin
• Provide the mover written instructions as to the type of estimate you need
• For low cost or single items, you may prepare the estimate with assistance from the business owner
An Example from Used Machinery Sales LLC
• A999 Sheffield GrinderWorkpiece Capacity ( Swing x Length) 14" X 14 3/4"
Manufacturer Sheffield Schaudt
Model No. ZX12
Serial No. 119987
Year Mfg. 1999
Control Fanuc
Degree Of Angle/ Grinding Head 20 Degree
Grinding Wheel Diameter 20" Dia. X 5" Wide
Features/Accessories Process Gauging, Balance System,, Filtration and Lube Systems
Motor HP 15 HP
Condition Good
Comments Immediately Available
FOB Point Des Plaines, IL
Price $49,500
Another Option to Obtain Information
• Call the manufacturer if domestically manufactured
• Call a dealer if origin is foreign
• Information is often attached to the machine on a small steel plate
Moving Costs
•Machinery and equipment is best estimated by a specialty mover (“rigger” or “millwright” or “machinery mover”)
• These specialty movers can provide estimates of reinstallation
• You can prepare an Agency estimate of the move for low cost items
Payment Example 1 - The Drill Press• Facts: Drill press, installed; used very little in current
operation, owner wishes to sell
• More facts: you call manufacturer who informs you that the estimated re-sale value used is about $8,000; delivery cost is about $900 and initial set-up is about $2,000
• Your mover estimates that the cost to haul the drill press and set it up at the new location is about $1500
• The owner sells the drill press for $3500 by placing an ad in a trade publication
Calculation – The Drill Press(i) in-place value for continued use, as is: $8,000 + $900 + $2,000;
less sale proceeds of $3,500; apparent net loss is $7,400
(ii) moving cost including reinstallation but without any “upgrades” is $1500
Conclusion: Total cash to owner is $3,500 (from sale) + $1,500 (direct loss payment) for a total of $5,000.
Payment Example 2 - Retail Inventory• Facts: Bob’s Shirt Shop has accumulated surplus shirt
inventory for many years due to returns and discontinued items. There is no need to move these items to the new location, so Bob sells them for $1 each. • Facts: there are 500 un-needed shirts and he sells half of
them for the sale price of $1 each; the shirts have a wholesale cost to his business of $5 each. • Your mover estimates moving the shirts would be $1.50
each to pack and move• Bob donates the un-sold shirts to Goodwill
Calculation – Retail Inventory(i) in-place value for continued use, as is: $2,500; less sale proceeds of $250; apparent net loss is $2,250
(ii) moving cost for the un-needed shirts is $750
Conclusion: Total cash to owner is $250 (from sale) + $750 (direct loss payment) for a total of $1,000.
Use Direct Loss Instead of Fixed Payment• Example: Business has a large amount of equipment
but has not made a substantial profit for several years. The owner wishes to terminate the business.
• Option 1. A fixed payment between $1,000 - $40,000• Option 2. A Direct Loss payment - no maximum
amount, and business retains ability to claim a reestablishment payment and other moving costs
One More Thing
• An agency may also pay the cost incurred by the business in selling the items that will not be relocated. See §24.301(g)(15).
• Examples• Auction percentage for restaurant equipment sale• The cost of Bob’s advertising or employees to conduct sale of
shirts• Any other reasonable cost to sell an item
Substitute Personal Property – The Idea• Allows business to NOT move an item, but still receive a
“moving payment” for the item
• Provides option to business owners to use moving proceeds to purchase substitute equipment or other personal property
• Useful for growing businesses that may want to modernize or make operation more efficient
Regulatory Language
§24.301(g)(16)
If an item of personal property, which is used as part of a business or farm operation is not moved but is promptly replaced with a substitute item that performs a comparable function at the replacement site, the displaced person is entitled to the lesser of:
Regulatory Language (cont.)§24.301(g)(16)
(i) The cost of the substitute item, including installation costs of the replacement site, minus any proceeds from the sale or trade-in of the replaced item; or
(ii) The estimated cost of moving and reinstalling the replaced item but with no allowance for storage. At the Agency’s discretion the estimated cost for a low cost or uncomplicated move may be based on a single bid or estimate.
Things That Make It Hard To Use This Payment• “I didn’t really understand this payment myself, so I
couldn’t explain it to the business owner.”
• “The owner never told me she wanted to substitute any of the personal property – now I have a letting date to meet.”
• “How do I get someone to give me an estimate for code modifications for equipment that cannot be updated?”
Help With the Tough Parts of the PaymentUnderstanding the payment calculation and explaining it
• Review the regulations • Review other reference material – procedure manuals,
training manuals, etc.• Discuss with other relocation professionals• Be prepared for meeting with the business owner
Help With the Tough Parts of the PaymentAwareness of the owner’s preference to use the payment
• Best practice: look for items that the owner does not want to move during the walk-through and review the inventory with the business owner before move estimates are obtained
• If we are aware of this early, we will have adequate time to assist the owner with this option
Help With the Tough Parts of the PaymentObtaining moving estimates• Cost of moving and reinstalling replaced item includes code
modifications at the replacement site
• Personal property items may be legally non-conforming at the displacement site, but cannot be modified to meet code requirements at the replacement site
• Most movers should be able to provide this estimated cost as a hypothetical, i.e., if this item could be moved and modified the cost would be “x”
• May use a disclaimer
Payment Example – The Auto Lift
Facts:• Business is tire store leasing the site• Some auto lifts are in-ground, classified as real
property, and others are personal property owned by business• Business moves to replacement site and elects to install
all new lifts• The cost of one new auto lift, installed, is $8,900• The dealer will give the business a trade-in value of
$2,000• Estimated cost to move and install the old lift is $2,100
Payment Example – The Lift(i) Cost of substitute item, including installation costs $8,900
Less trade-in value $2,000
Net cost to business $6,900
(ii) Estimated cost to move and reinstall replaced item $2,100
Substitute personal property payment – lesser of (i) or (ii)
$2,100
Net cost to business after substitute personal property payment
$4,800
Advantages to Business and Agency• Business can use payment to upgrade outdated
equipment, modernize and streamline entire operation – not just one or two items
• Payment is limited by what agency would pay for cost to move, reinstall and make code modifications
• Represents a win/win situation
Questions
