Valuation of Churches

Special Use Property Valuation: Churches

Churches are special-use properties that are built for a very specific purpose, by a particular congregation. Just as in any other type of property, there are several reasons a congregation may want a church appraised. Some typical reasons include financing, new construction, a potential sale or purchase, and insurance purposes. Churches are not usually sold on a regular basis. However, if the useful life of the building has ended or the congregation’s membership has increased, an appraisal of the church may be in order. I will highlight some of the similarities and differences in appraising churches a opposed to conventional properties.

The valuation of church property includes many of the same basic features you would expect to see in the valuation of residential of commercial properties. An appraiser will consider square footage, number of bathroom, seating capacity, kitchen area, and any recreational space. In addition the overall quality of the building material, including flooring and other amenities, will be evaluated. After the basic features are evaluated, the method of valuations used really depends on its intended use. For example, if the appraisal if for financing by federally insured institutions, there needs to be a determination of value in exchange (market value) instead relying solely on the cost approach.. This standard was created by the implementations of the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

Although churches are used as a place of worship, in some cases they may have alternative uses. Yet, in general most appraisers will use the cost approach in the valuation of churches. This is because these types of properties are often hard to appraise using the sales comparison approach due to lake of comparison, and they are not income generating properties. There are three step in the cost approach in order to arrive at a value. First, estimate the value of the land as if it were vacant and able to be put to its highest and best use. Second, estimate and add the current costs of constructing the site improvements. Last, deduct the amount of depreciation resulting from physical deterioration, functional obsolescence, and external obsolescence.

Another concept to analyze is the highest and best use of the church. This can be determined by many factors including the need for a church in the area, parking available, seating capacity, as well as demographic trends for the neighborhood. For a church that is currently operating some additional characteristic to be aware of are the leadership of the church, the governing body, as well as the ages of its members. An appraiser can analyze the overall trend in the market for churches to see if the church is serving its members to the fullest as well as expanding. Additional facilities such as workout facilities, schools, and day care centers, add value to the highest and best use of the site as a church.

Special use properties can sometimes be difficult to value because they pose challenges to the appraiser that many conventional properties do not. Each church will be unique so there is no standard of way of valuating them. Appraisers should consult with local appraisers to get a better understanding of appraisal in that area, as well as any additional features that may affect value. However, by applying the cost approach method and the theory of highest and best use, an appraiser will have the tools to value any special purpose property.

Rattermann, Mark. The Student Handbook to the Appraisal of Real Estate. Chicago, IL: Appraisal Institute, 2009. Print.

"Religious Facility Appraisal Experts." Religous Facility Appraisal Experts. Web. 07 Oct. 2010. .

"Cost Approach in Appraising Real Estate." Propex US Online Public Real Estate Listing Service. Web. 08 Oct. 2010. .