The Religious Facility Appraisal – Part IV
In our fourth and final segment of The Religious Facility Appraisal series we will look at the reliability of using the Income Approach in the valuation of Religious Facilities. Religious facilities are not frequently leased on the open market, making it difficult to retrieve accurate income data. Additionally, religious facilities are not usually purchased as income-producing properties; therefore, the Income Capitalization Approach is not typically used in finding the market value of a religious facility. Although the Income Approach is not usually used to find the market value of a religious facility, it is possible to use the Income Approach as a test of feasibility/reasonableness. Religious facilities produce income from their membership in order to cover their expenses. This income stream can be used to help determine financing for a lending institution.
A possible mortgage loan amount can be estimated analyzing this income stream based on the current market conditions. Financing is based on the ongoing market conditions, which can be applied to the religious facilities current or proposed income stream in order to estimate a reasonable loan amount. The appraiser can then use current loan-to-value ratios to determine a probable value estimate. It is important not to consider this an actual value estimate, but instead a check for values determined in the Sales Comparison and Cost Approaches. Additionally, this method can be helpful for lenders hoping to determine a suitable loan amount.
This series on The Religious Facility Appraisal has shown that all three of value approaches can be applicable to religious facilities. Due to the special-use characteristics of the religious facility the Cost Approach is often time the most reliable indicator of value. Additionally, the Sales Comparison Approach is a viable value approach but can have some weaknesses due to the wide variance in characteristics of religious facilities. The Sale Comparison Approach requires well thought out and market supported adjustments to account for commonly found differences in the age/condition and quality/features of religious facilities. Finally, it is uncommon to be able to use The Income Approach to produce a reliable value for a Religious Facility but the approach can sometimes be used as additional support for the other two approaches. The Income approach may also be used to help a lending institution determine a loan amount. This concludes our series on Religious Facilities. For more explanation of appraisal methodology, visit our website at www.commercial-appraisers.com.