The Religious Facility Appraisal – Part II
In our second segment of The Religious Facility Appraisal we will take a look at several things that need to be considered when using The Sales Comparison Approach in the valuation of a religious facility. The development of the Sales Comparison Approach for a Religious Facility can be difficult due to several factors that may include the availability of comparable data, differences in use and design of comparable sales, and discrepancies in quality/features of comparable sales. However, there is still an open market for religious facilities, especially in larger metropolitan areas, that makes the Sales Comparison Approach a viable valuation option.
It is possible in some active markets to compare religious facilities on feature-by-feature basis; however, it is not typical to be able to use this approach due to the vast array of religious facilities with different uses, design, and quality. Therefore, one of the key elements of The Sales Comparison Approach for a religious facility is determining a valid unit of comparison. When the sale comparables are similar to the site in terms of quality, size, age and condition it is common to use a sale-price-per-seat as the unit of comparison. However, the varying characteristics of most religious facilities often make the use of a sale-price-per-seat unit problematic. If this is the case, it is often easier to use sale-price-per-square foot as the unit-value indicator. Additionally, due to varying land sizes between the subject and the comparables, it is often helpful to extract the land value estimate from each comparable sale. Extracting the land value eliminates the need for floor-area-ratio adjustments (which can vary significantly).
Two of the most important adjustments to consider are for quality/features and age/condition. The quality and features of a religious facility are often based on its membership, indicating there can be wide differences in quality and features between religious facilities within the same market. In order to accurately make an adjustment for quality/features it is necessary to compare the cost new of the sale to the cost new of the subject on a per-square-foot basis. This comparison can be used to derive a percentage adjustment for the comparable sale.
Another important adjustment to consider is an adjustment for age/condition. Religious Facilities are usually built for particular users with a long-term intended use; therefore, sales of newer, functional church facilities are not common due to their special-use characteristics. Due to the lack of newer religious facilities, the need for age and condition adjustments is common. One method for making this adjustment requires comparing a sale’s estimated total depreciation with the estimated total depreciation for the subject. This comparison can be used to derive a percentage adjustment for the comparable sale. While there is typically a need for several adjustments, adjustments for quality/features and age/condition are of upmost importance to accurately value a Religious Facility within the Sale Comparison Approach. The next segment in this series will take a look at what things should be considered when using the Cost Approach in the valuation of a Religious Facility.