Medical facilities, specifically hospitals, may be one of the more difficult special use properties to conduct a valuation for. Because there are many aspects to consider when appraising hospitals, it can become an exceptionally long, tedious process that requires an abundance of research and investigation. Hospitals encompass three different asset classes that are typically taken into matter when performing these appraisals. They include hospital real property, hospital tangible property, and hospital intangible property. Hospital real property is the land and building, itself. Hospital tangible property refers to fixtures, furniture, and equipment; and hospital intangible property indicates business value (Hospital Appraisal Services).
Most hospitals operate as non-profit organizations, including taxable units and exempt taxable units (Exempt Hospitals). In order to develop a proper aggregate value, thorough analysis of all aspects is of the upmost importance, and appraisers do so by utilizing two of the three most commonly accepted approaches. These approaches are the Cost Approach, The Income Capitalization Approach (Exempt Hospitals).
Under the Cost Approach, assessors will gather common information including building size both as a whole and per story (square footage), the number of stories, exterior and interior design, number of uses and practices that the property allows for, as well as the construction class and construction. Once the appropriate data is collected, the hospital is then appraised as though vacant, construction costs of improvements and depreciations are approximated and deducted, and then the costs of depreciation and improvements of the land value are added. This long process is great at appraising hospitals’ physical characteristics, but falls short when valuating elements such as effective age and overall condition of the property (Exempt Hospitals).
When valuing property using the Income Capitalization Approach, historical data of revenue and expenses is extracted to find an estimate. The profitability of a hospital reflects a standardized pattern, under this method, and the property is then given a value (Exempt Hospitals). Intangible factors such as trade names, patents, franchises, an assembled work force, and working capital are also considered (Exempt Hospitals). Although these entities are great at determining value based on the hospital’s success, they are only specific to the hospital’s management and maintenance alone. It’s easy to see that using this approach is a difficult way to estimate value because although a hospital’s net income insinuates it’s success, it doesn’t take into consideration the property as a tangible entity.
Hospital appraisals are probably one of the most complicated of all special use properties to perform and to do so accurately. Unlike many other related properties, hospitals are valued under social, economic, governmental, and environmental conditions (Hospital Appraisal Services), which makes establishing an appropriate property value a complex and arguable task.
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