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The Religious Facility Appraisal – Part III
In our third segment of The Religious Facility Appraisal series we will take a look at the most common value approach used for religious facilities, The Cost Approach. Due to the fact that religious facilities are special-use properties, they are often appraised by the Cost Approach. In this approach, a replacement cost new is developed. Cost data can be found in valuation services or you can use actual cost information. From the replacement cost new, the appraiser then estimates accrued depreciation. Obtaining dependable depreciation information for religious facilities is required for a reliable value estimate.
The most dependable technique for finding accrued depreciation is to use market data. In this technique, the appraiser extracts the depreciation from comparable sales. Since new religious facilities sell infrequently, the available sales can be good indicators of accrued depreciation. For example, if you had a sale with an estimated cost of the improvements new of $150,000 and a current contributory value of the improvements of $90,000 this would represent $60,000 of physical depreciation. If the sale was 10 year olds it would represent a total depreciation of 40% and a depreciation rate of 4% per year. Extracting physical depreciation rates from several sales usually can provide an accurate yearly depreciation rate that can be applied to the subject. It may also be possible to use the age/life method of depreciation, which involves dividing the estimated effective age by the estimated economic life.
Other forms of depreciation to consider in this approach are functional and external obsolescence. Functional obsolescence is not usually found in religious facilities. These facilities are usually constructed for their intended use and their design meets the requirements of the membership. It is more common to have external obsolescence in a religious facility. External obsolescence in religious facilities can be caused by economic conditions, environmental concerns, and population demographics. Adding the functional and external obsolescence to the physical deterioration equals the total accrued depreciation.
When the total accrued depreciation is subtracted from the replacement cost new, the result is the depreciated value of the improvements. This denotes the contributory value of the improvements to the total property value. Finally, the land value estimate would be added to the depreciated value of the improvements to provide the value of the subject property.
Overall, the Cost Approach can be a reliable indicator of value for a religious facility. The Cost Approach eliminates a lot of the issues found in The Sales Comparison Approach including the variances in design, age, and quality. The next segment in this series will see if it is reasonable to use the Income Approach to value a Religious Facility.
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.