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Conventional Church Appraisal Methodology Often Inadequate

Article:
(This archived article was published in 2014.  More recent data is found in the articles section of our web site). Church and other religious facilities are a special use property. Typically commercial church appraisers only use the cost and sales comparison approaches when doing a church appraisal. Since most churches are owned and not rented the income approach is rarely applied. As a result, unskilled church appraisers tend to completely ignore its income characteristics. While we agree that the income capitalization approach is not generally applicable to this property class, the financial strength of the congregation may be of critical importance for underwriting or marketing of the property. Ignoring issues centering on income, however, could reduce church appraisal reliability. A congregation could be facing complete membership and economic collapse but a church appraiser may not even ask questions about these issues because he or she is preoccupied only on the depreciated replacement cost or on comparable sales. A church facility may have a capacity for 500 congregants at a service but might only attract 75 on a typical weekend. Large facilities can be very expensive to heat, air condition and maintain. Economic concerns such as these, however, may be completely overlooked by the religious property appraiser focused on other issues. To a commercial real estate appraiser, it would be obvious that a 50% vacancy rate at an underutilized shopping center would have a severe impact on value; however, when a congregation is facing similar severe financial issues, it is rarely mentioned by most church appraisers. The value of a religious facility is impacted by many variables: size, condition, location and layout. These issues matter. A poor or outdated layout in a church with excessive operating expense can thwart the aspirations of a congregation. Issues of obsolescence in the buildings can be detected and may be reflected in the financial information or census data as reported over several years by its congregation. The congregation's financial statements may yield important clues to the functional utility of the building, strength of its location or market saturation issues. If a lending institution has a religious facility appraised that doesn't consider these issues, its collateral position may be undermined.

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