Billboard Basics 2016

The question many appraisers ask is "are billboard / outdoor advertising sign structures a real property improvement or are they personal property?"  Since structures are attached to the land many people logically conclude that they are a real property improvement, but they are often not deemed real property.

Billboards in some states are considered real property and in other states they are considered personal property.  In Nevada NRS 361.013 defines a "Billboard" as "a sign that directs attention to a business, commodity, service, entertainment or attraction that is sold, offered or exists at a location other than the premises on which the sign is located" and state law indicates that signs are personal property.

The real property versus personal property issues becomes an important distinction when the appraisal requested is for the purpose of determining just compensation for an outdoor advertising (OA) sign taking.   

In my opinion the hardest part about appraising outdoor advertising signs (usually billboards) for appraisers is collecting the data necessary to complete a sales approach comparison and an income approach analysis.  The data is not easily found, it's not often on the local MLS or the local commercial property listing sites and some appraisers want the appraisal assignments but they have no idea where to find the information they need.

Importantly outdoor advertising signs are located on either leased land or on fee owned land.  Often appraisal requests are focused on sign site values because most sign site owners are not in the sign business and they don't own the structure or lease the sign faces.

Appraisers consider the sales approach, income approach and the cost approach when analyzing a real property interest like a sign site, but since the improved portion of an outdoor advertising sign is often deemed personal property, that includes a business entity, sign structure appraisals typically consider the "going concern."  Thus an outdoor advertising sign includes a real property element and a business element that erects, leases and maintains the structure and the faces. 

The permit or license that allows a billboard to be located on a site is also an important factor to consider during the appraisal process and since it is part of the business element since permits / licenses restrict or allow any number of approved sign sites.  Areas that strictly restrict the number of signs effectively increase the relative value of any signs already approved.

Long term sign site leases are usually established for sign sites, many are 10 to 30 years or more in duration and have automatic increases that are sometimes tied to the consumer price index (CPI).  The risk of loss associated with a sign site is significantly higher than that associated with a bricks and mortar building.  Most have cancellation provisions that can end the lease with notice in 30 to 180 days.  Appraisers assess the risk of loss associated with the income stream and they conclude a capitalization rate.

The income generated from leasing faces is usually short-term in nature and in Las Vegas a 1-year leasing term is typical for faces.  Depending on demand a OA(outdoor advertising) sign can have its one or multiple faces continually renewed or it can suffer from significant vacancy.  Thus there is more risk associated with the income derived from leasing faces, marketing faces and managing faces and the structure than noted for sign sites.  Discounting the net income anticipated from the sign's business entity is one of the most difficult parts of the OA sign appraisal process.

I suggest a reading by appraisers of "Billboard Appraisal: The Valuation of Off-Premise Advertising Signs" by Paul and Jeff Wright, September 2001 and visiting their website at www.signvalue.com.  It's one of the only places online where you can find asking prices and asking rental rates for signs in a number of states.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/Real-Property-Appraisal/Billboard-Outdoor-Advertising-Sign/4602-Billboard-Basics-2016.html