Gas stations are one of the most common types of commercial real estate. Gas stations are also one of the most difficult to appraise. There are a handful of ways in which to appraise a gas station. One such way is by gathering comparable sales and valuation analysis of similar commercial properties and applying it to your gas station. It also may involve a different analysis including income, going concern, construction cost and equipment.
Gas stations of the early 20th century were vehicle oriented facilities offering gas, oil, repairs, and accessories. These early gas stations were often decorated with domed roofs and columned fronts. By the 1950’s gas stations evolved into the current standard which is functional, two-bay concrete block stations with pumps in front of the store. Later, gas sales and car repair became separate functions of gas stations. In the 70’s and 80’s gas stations were increasingly sided on large lots near highway onramps. With these new changes, older gas stations began abandoning gas sales in favor of service-oriented facilities. Improving on the standard, the trend in recent years has been to develop convenience stores or C-Stores that offer little in car service but more of an array of small, on-the-go amenities like food, drinks(i.e. AM PM, Extra Mile). According to national petroleum news, between 1994 and 2000, sales volume in C-Stores grew by 86 percent, versus a lower growth rate of 46 percent in the retail gas industry as a whole. With a variety of different type of gas stations, an appraiser must be able to value any one of these.
The sales comparison approach is the most useful method when analyzing the older two-bay gas stations. This approach is most effective because the value is in the land and comparisons are generally made on the basis of price paid per square feet of land. Some of the important differences between a subject property and a comparable property that has sold in the past 6 months may be such things as traffic volume, exposure, access, competition and the actual contribution of the building. It would also be helpful to know comparable properties tank capacity and whether or not contamination has occurred.
The cost approach is applicable in the valuation of a recently constructed gas station. When implementing the cost approach, a majority of the cost is incurred for equipment and allocation of the value to different components (i.e. personal property and real estate).
A third analysis considers the value of the going concern for a particular site. A gas station might have value beyond that reflected in its real estate and equipment. The valuation of the going concern is made by analyzing historical data and perspective income along with current operating costs.
Lastly, the income capitalization approach is not favorable but can be applied to the appraisal of gas stations. The goal is to make comparisons from rental agreements of other gas stations to derive a net income for a subject property. Gas station leases are often accompanied by strict vendor agreements that require current tenants to buy petroleum products exclusively from the landlord. Most of the time, such real estate leases are part of a larger relationship making rental information and the capitalization approach less useful when appraising gas stations.
The number one priority of an appraiser when appraising a gas station is to determine the correct analysis approach for the current subject site. It is also important that the appraiser and the client be clear as to which method of valuation will be used and what exactly is to be valued. The appraisal of gas stations can become intricate and convoluted if the right approach is not carefully taken.
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