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Church/Religious Property Appraisal and the Shortfalls of the Church Appraisal Process

Article:

(This archived article was published in 2012.  More recent data is found in the articles section of our web site). In the traditional commercial property appraisal the three approaches to value are the cost, income and sales comparison approach.  For properties that are not typically leased, like a religious facility, the income approach is generally not applied.

While we agree that the income approach is often not applicable for church appraisals, its exclusion from the appraisal may create additional risk factors for the lending institutions.  A typical appraiser may inspect the church religious property, look for some land and building sales and that's about it.  Since they are not performing an income approach on the church property they usually ignore the financial condition of the congregation.

A religious facility that can easily house 300 or 400 congregants but only has 75 members and has been losing members for many years is an obvious appraisal risk factor that should not be ignored.  Weak congregations would have a harder time properly maintaining a facility which could result in deferred maintenance that may not always be readily apparent.

Low congregation numbers could also be a potential indicator of a poor location or shifting demographics out of an area.  If a shopping center had a 30% vacancy factor it would be a major concern and risk factor in most appraisals.  A church appraiser that isn't asking about the census history or church financial history wouldn't even know it is a concern.

Church attendance has been dropping steadily over the years in Chicago, Illinois and across the nation.  One cannot automatically assume that another buyer for the church will just step up if it comes to market.  A well designed church in a good location is more likely to have  higher membership numbers than a poorly designed church in a poor location.  Evaluating the churches financial condition and census data can give a church appraiser clues to the marketability for this type of property.

 

J. Chie, Esquire

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