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Appraising Childcare Centers and Schools

by Administrator on Jan 2, 2014 Special-Purpose Appraisal 1104 Views

Like most of the articles that I have written for the appraisalarticles.com website this one is also intended to provide only a brief discussion of this complex topic.  If you are working on an appraisal assignment like one on a private school and you have questions, you can contact me by email and I will respond to your questions (free of charge) and possibly I can even help you out.  If not, you won't lose much by dropping me a line.

There are no mysteries to completing childcare / school appraisal assignments. Both are special purpose or special use properties that exist in limited markets.

It's important that readers of your appraisal report understand that a childcare center or school building appraisal is a real property appraisal that it does not include a business entity nor any personal property (FF&E).  In fact many private schools are run as not for profit entities.

KNOW YOUR MARKET
Each appraiser who becomes involved in childcare / school appraisals needs to become familiar with their own market.  There is no way an appraiser can form an opinion of the market value of a childcare center or private school if he or she is not familiar with the supply and demand factors affecting it. 

In Clark County, Nevada there are about 400 public schools and only about 100 private schools, about 22,000 students are served in private schools are about 315,000 public school students, so only about 6.7% of students are being educated in private schools.

Many states or boards of education publish documents that discuss financial information that is presented for per student comparison.  There may be a figure like $ 8,100 per student that relates to the annual cost of operations, or $ 18,000 per student that relates to building construction costs.  Any information that you can glean from the cost of asset construction or schools operations supplied by public records will likely help you when valuing a private school.

SALES APPROACH
The sales comparison approach is a challenge for appraisers analyzing childcare centers and schools since, unless you are in a very large market, few sales are likely transacted in any given year.  Appraisers generally have to research comparable school sales over a broader geographic area and over more time than is typically necessary in their efforts to establish a reasonable per unit sales price range and reconcile a value opinion.  But it is important to have a value opinion established via the sales approach since without it there would be no check on the cost approach.

Remember to make sure that the comparable sales that you use were sold as real property only that they did not include FF&E or a business entity.  Sales can vary between about $ 150 per square foot and $ 400 per square foot depending on a number of factors.  It's important to consider differences in; location, effective age, floor-area-ratio, construction quality, condition and non-realty items.  I try to rely on the local market sales and bolster my data with out of market sales.

THE INCOME APPROACH
Market specific rental rates and capitalization rates are simply unavailable for some special purpose property types and childcare centers and schools are among that group.  If you are lucky enough to acquire a lease on a childcare center or school it is unlikely that you will be able to establish evidence that it is a market rate given a lack of market evidence.

I like to supply the non-market based capitalization rate information that I do find available via research (Realtyrates.com and / or PwC) in my income approach even though I can't use it to form an opinion of value, at times it can be helpful to my client.

RELY ON THE COST APPROACH
Since the cost approach will likely be the most important aspect of your childcare / school appraisal report I would suggest that you spend more time in your report explaining its development, providing detail in a cost approach table and providing detail in the land sales section of the report.

Beyond cost manual information there are other cost sources for school construction available on the Internet, and I am in favor of providing multiple sources of data whenever possible.  As 2014 begins there are sources that indicate new construction costs for elementary schools with non-union labor at around $ 150 per square foot excluding land.  Of course costs vary significantly from one location to another, so data of this type is only helpful to establish reasonableness.

Don't forget to consider sprinkler systems, elevators and other special features and the cost of site improvements like playgrounds, tennis courts, pools, fences, parking, gated entries and landscaping.

It's important that readers of your appraisal report understand that a childcare center or school building appraisal is a real property appraisal that it does not include a business entity nor any personal property.  In fact many private schools are run as not-for-profit entities.

For more appraisal information contact the author, Glenn Rigdon, MA, MRICS, ASA a Las Vegas / Henderson Nevada appraiser via email or via his business website Horizon Village Appraisal (http://www.horizonvillageappraisal.com), or you can also click on “Contact Us” on the home page of this website.


 

Article source: http://www.appraisalarticles.com/Real-Property-Appraisal/Real-Property-Appraisal/Special-Purpose-Appraisal//4412-Appraising-Childcare-Centers-and-Schools.html

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