The Appraisal of Churches and Religious Facilities

In this article the authors present alternatives to the typical appraisal method for valuing religious facilities. Such alternatives are necessary to comply with current regulatory requirements. The alternative methods include applications of an expanded cost approach with extracted depreciation, a typical direct sales comparison approach with some suggestions for developing adjustments, and emerging feasibility approach or test of reasonableness, which approximates an income approach. Clearly, as the traditional uses of churches expand to include such facilities as day care centers, counseling centers, and gymnasiums, appraisers must be flexible in their valuation approaches.

With the advent of the Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the valuation of churches and religious facilities for financing purposes by federally insured institutions must include reference to a market value (value in exchange). This concept is contrary to typical church and religious facility valuation procedures, which have relied solely on the cost approach. In this article, a method for developing market value estimates for churches and religious facilities is presented.

The appraisal of religious facilities has evolved to account for the changing needs such facilities seek to fulfill. The old adage that churches and religious facilities are special-use properties and thus should be valued solely by the cost approach no longer applies. The focus of this discussion, therefore, is the three conventional approaches.

Individuals or congregations may require an appraisal of a church facility for new construction or additions, financing, a potential sale or purchase, insurance purposes, or asset valuation related to any number of financial decisions. While churches and religious facilities are not generally sold unless there is a compelling reason to do so, conditions such as changing neighborhoods, churches that have outgrown their facility, facilities whose physical life has generally ended, or facilities whose membership has deteriorated to the point that they can no longer be supported may make such a sale necessary. Usually, however, the appraisal of churches and religious facilities is influenced primarily by financing considerations. This factor becomes relevant as a result of an emerging valuation/feasibility approach that associates the income generated by a facility (or potentially generated) with the maximum loan available.

Churches, by definition, are special-use properties--built for specific purpose, by a particular congregation, most often as a place...