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Customer convenience is an essential variable in gas service station valuation. The article suggests that convenience can be best understood in terms of barriers, and attempts to identify the various types of barriers encountered in undertaking a refueling operation. Understanding convenience as the absence of barriers provides a basis for systematically analyzing and quantifying convenience and projecting gas sales volumes. It also provides a more objective basis for making adjustments to comparable data.
Estimating likely gas sales volume is the single most important step in the valuation of gas service stations. Gas stations are commonly sold as going concerns and rarely as real estate only or as leased investments. According to The Appraisal of Real Estate, going-concern value is:
The value created by a proven property operation; it includes the incremental value associated with the business concern, which is distinct from the value of the real estate. Going-concern value includes an intangible enhancement of value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This assemblage creates an economically viable business that is expected to continue.1
For gas stations, the profitability of the going concern is normally a fairly direct function of gas sales volume. Other income streams, such as those from the convenience store or a car wash, are often a fairly direct function of gas sales: the more gas volume, the greater the volume of convenience store sales and car washes. (Of course, other factors are relevant as well. For example, having a gas station in a tourist-dominated location often translates into more convenience store sales, such as of sunglasses, tanning lotion, and tee-shirts. But by far the most critical variable in gas station valuation is the volume of gasoline sales, and all other sales center on this variable.) Because of the overriding importance of gas volumes to profitability, gas station going concerns often sell as a multiple of gas volume, either actual or potential.
Gas sales volume can be estimated with straightforward appraisal techniques, using comparable data. The appraiser begins by gathering data on the gas sales volume of similar stations (volume comparables), and then adjusting those comparable volumes to reflect their differences with the subject's gas sales volume. The...