Department of Building & Real Estate Economics,
Institution of Infrastructure,
Royal Institute of Technology (KTH),
Stockholm, Sweden
Master of Science Thesis No. 245
Guides for
The Appraisal of Religious Facilities
and
Real Estate Appraisal Process Modeling
Author
Supervisor
Akram Ahmed Elkhalifa
Berndt Lundgren
Stockholm, March 2004
Table of Contents
Dedication………………………………………………………………………………………...
Acknowledgement…………………………………………………………………………......
Abstract …….......…………………………………………………....…………………………..
Methodology……………………………………………………………………………………..
Thesis Structure………………………………………………………………………………..
Part One The Appraisal of Religious Facilities
Chapter 1
6
7
9
10
11
Religious Demography in Sweden
1.1
Background…………………………………………………………………………………
13
1.2
Religious Demography In Sweden……………………………………………………..
14
Chapter2
The Physical Facility and the Market for Religious Facilities
2.1
Religious Facilities Today……………………………………………………………….
16
2.2
Description of the Physical Facility……………………………………………………
17
2.3
The Market for Religious Facilities……………………………………………………
24
2.4
Highest and Best Use Analysis…………………………………………………………
25
2.5
Value in Use Versus Value in Exchange……………………………………………..
27
2.6
Valuation Principals Related to the Highest and Best Use Analysis……………
28
2.7
Highest and Best Use Analysis Case………………………………………………..
29
Chapter 3
Valuation Methods
3.1
Introduction…………………………………………………………………………………
31
3.2
Purposes of Religious Facilities Appraisals………………………………………....
31
3.3
Cost Approach……………………………………………………………………………..
32
3.4
3.3.1
Land Value………………………………………………………………………..
34
3.3.2
Cost New………………………………………………………………………….
35
3.3.3
Depreciation……………………………………………………………………...
38
Sales Comparison Approach…………………………………………………………….
3.4.1
Sales Comparison Approach Concept……………………………………….
41
3.4.2
Unit Of Comparison……………………………………………………………..
42
3.4.3
Adjustments………………………………………………………………………
43
3.4.4
Applying the Method Using the Area and Price/Seat Methods………..
45
3.5
Income Approach (Feasibility Approach-Test of Reasonableness) …………....
46
3.6
Applying the Market Analysis Concepts on the Feasibility Approach………….
48
3.7
The Relation Between the Demand for Religious Facilities
and the Population Growth in Sweden…………………………………………..........
50
Part Two Real Estate Appraisal Process Modeling
Chapter 4
Real Estate Appraisal Process Modeling
4.1 Process Definition…………………………………………………………………………
57
4.2 Why Modeling a Process? ………………………………………………………………
58
4.3 The Process of Real Estate Appraisal………………………………………………..
58
4.4 Modeling the Appraisal Process……………………………………………………….
61
Chapter 5
IDEF0 Models Principles
5.1
Introduction to IDEF0 Method…………………………………………………………..
63
5.2
Features of IDEF0 Models……………………………………………………………….
64
5.3
General IDEF0 Rules……………………………………………………………………...
65
5.4
AS-IS and TO-BE Models……………………………………………………………….
66
5.5
Benefits of Using IDEF0 Models……………………………………………………….
66
Chapter 6
IDEF0 Model for the Theoretic Appraisal Process
6.1
Overview…………………………………………………………………………………….
67
6.2
Inputs (I) …………………………………………………………………………………….
69
6.3
Controls (C)…………………………………………………………………………………
70
6.4
Outputs (O)………………………………………………………………………………….
71
6.5
Mechanisms (M)……………………………………………………………………………
72
6.6
IDEF0 Model for the Theoretic Appraisal Process………….………………….….
73
Chapter 7
The Appraisal Process at Svefa AB
7.1
Introduction to Svefa AB…………………………………………………………………
81
7.2
The Appraisal System at Svefa AB………………………………………………….…
82
7.3
Purposes of Svefa IDEF0 Model………………………………………………………..
83
7.4
The Appraisal Process at Svefa AB……………………………………………………
84
7.5
IDEF0 Model for the Appraisal Process at Svefa AB………………………………
85
7.6
How to Improve the Work at Svefa…………………………………………………….
90
Conclusion……………………………………………………………………..…....................
91
Appendices……………………………………………………………………………………….. 94
Appendix I
Tables……………………………………………………………………………..
94
Appendix II
Numerical Examples…………………………………………………………....
99
References………………………………………………………………………………………..
3
101
List of Figures
Figure
Fig
Fig
Fig
Fig
Fig
Title
P
(1)
(2)
(3)
(4)
(5)
Different layouts for the sanctuary…………………………………………………
Glazed Elevations…………………………………………………….........................
Organ of Edsbergskyrkan Sollentuna Parish,1972……………………………....
The choir of Söderledskyrkan, Farsta Parish, 1960…………………………….
Kitchen space in Edsbergskyrkan, Sollentuna Parish, 1972…………………...
19
20
21
22
23
Fig (6)
Fig (7)
Ven Kyrka Location and Photos……………………………………………………..
A possible overlap in the market area between a subject facility and other
competitive facilities…………………………………………………………………...
The Swedish population 1972-2002………………………………………………..
Number of the Swedish Church members 1972-2002………………………….
Number of immigrants in Sweden…………………………………………………...
30
Fig (8)
Fig (9)
Fig (10)
Fig
Fig
Fig
Fig
(11)
(12)
(13)
(14)
49
51
52
52
52
53
53
Fig (15)
Accumulated number of Immigrants in Sweden 1972-2002…………………..
The number of churches in Stockholm County 1972-2002……………………
The number of new churches in Stockholm County 1972-2002……………...
Number of new churches in Stockholm County
by the end of years 75, 80,85,90,95 and 2002…………………………………...
The Valuation Process…………………………..…………………………………….
Fig
Fig
Fig
Fig
Fig
(16)
(17)
(18)
(19)
(20)
Descriptive model of residential appraiser behavior……………………………
The main components of the IDEF0 model………………………………………..
The concept of top-level diagram decomposition……………………………….
The decomposition of the top level IDEF0 diagram into six steps…………...
IDEF0 Diagram A-0 “Estimate a Market Value of a Property”…….…………
62
64
65
68
74
Fig
Fig
Fig
Fig
Fig
(21)
(22)
(23)
(24)
(25)
IDEF0
IDEF0
IDEF0
IDEF0
IDEF0
Diagram
Diagram
Diagram
Diagram
Diagram
A0
A1
A2
A3
A4
“Estimate a Market Value of a Property”……………..….
“Identify the Valuation Task”……………………………….
“Plan the Appraisal Task”……………………………………
“Collect the Data”……………………………………………...
“Analyze the Data”…………………………………………….
75
76
77
78
79
Fig
Fig
Fig
Fig
Fig
(26)
(27)
(27)
(28)
(30)
IDEF0
IDEF0
IDEF0
IDEF0
IDEF0
Diagram
Diagram
Diagram
Diagram
Diagram
A5 “Apply the Valuation Methods”……………………………..
A-0“Estimate a Market Value of a Property” (Svefa Model)
A0 “Estimate a Market Value of a Property” (Svefa Model).
A1 “Getting the Task”…………………………………………….
A11 “Bid with Other Valuers”………………………………..….
80
86
87
88
89
54
60
List of Tables
Table
Table
Table
Table
Table
Table
Title
P
(1)
(2)
(3)
(4)
(5)
Religious structure among the Swedish population…………………………
Immigrants in Sweden…………………………………………………………….
The Swedish population 1972-2002…………………………………………..
Number of the Swedish Church members 1972-2002……………………..
Table (5): Number of churches in Stockholm County by centuries……..
94
94
95
96
96
Table (6)
Table (7)
Table (6): Number of churches in Stockholm County 1900-2001………
Number of new churches in Stockholm County by the end of years 75,
80,85,90,95 and 2002……………………………………………………………..
Number of new churches in Stockholm County 1972-2001………………
Property Taxation Codes in Sweden…………………………………………..
Taxation Codes for Special Purpose Properties in Sweden 800-890…..
96
Table (8)
Table (9)
Table (10)
List of Abbreviations
IT
SFV
IDEF0
SADT
ICAM
ICOM
SFF
SFI
ISO
CPM
Information Technology
Statens Fastighetsverket
Integration Definition for Function Modeling
Structured analysis and Design Techniques
Integrated Computer-Aided Manufacturing
Input, Control, Output, and Mechanism
Samfundet för fastighetsekonomi (the Swedish Society of Real
Estate Economics)
Svensk fastighetsindex (Swedish Property Index)
International Organization for Standardization
Critical Path Method
5
96
97
98
98
DEDICATION
To the soul of my eldest brother, Tarig,
May Allah grant him forgiveness and have mercy on him,
To my parents Ahmed and Niemat , my brothers Ayman and Hani, and my sister Rania,
To my dear fiancé Lena,
And
To all my friends,
I dedicate this effort
With my love
Akram
6
ACKNOWLEDGEMENTS
This Thesis was written in partial fulfillment of the requirements for the award of the
M.Sc. degree in Real Estate Management at the Royal Institute of Technology in
Stockholm. Many People contributed to the successful completion of my master thesis, I
would like to show my grateful thanks to all those who assisted me to accomplish this
work in one way or the other. First, great thanks for Allah for the gift of life, health,
patience and the strength to complete this thesis.
I am indebted to my supervisor, Berndt Lundgren, for the time the devoted for me and his
useful and interesting discussions. I learned a lot from him. I greatly appreciate his
support and guidance throughout my research.
I also wish to express my thanks to the golden staff at Svefa AB-Stockholm, for
providing me with the useful knowledge, information and ideas throughout my stay at
their office. I would like to thank them for facilitating my job their and ensure a friendly
environment. Special thanks go to Bengt Wedin, Jonas Åkerberg, Staffan Backman, Peter
Möller, and Peter Ljung. From them I learned how things are going one in reality.
Furthermore, I would like to thank Iréne Bond and Bo Wetterström from Sollentuna
Parish-Svenske Kyrkan for providing me with the useful information about the Swedish
church and the books that they made available for me. Also, let me thank Anette
Agervret, from Svenska Kyrkan information desk for providing me with the Swedish
Church statistics.
I also wish to express my unreserved gratitude to Peter Brokking, my program
coordinator, who didn’t hesitate in solving any problem that aroused in my way. His
support and help contributed significantly to the completion of my study.
Special debt of gratitude is owed to Dr. Mohammed Y.Shaddad at the department of
Architecture at the University of Khartoum for facilitating my journey to Sweden and for
his incredible encouragement. Thanks for all my teachers, colleagues, and students for
keeping in touch during my stay abroad.
7
I also want to acknowledge my colleagues and classmates, Stephen, Ahmed, Eddy, Nunu,
Guillermo, Regina, Veronika, Xia, Yan and Shweta, for the nice time that we spent
together and the chance they gave to me to interact with different personalities and
cultures.
No words seem to express my appreciation for my friends Ammar, Abdelbasit, Amir,
Yasir, Khalid, who supported and encouraged me throughout my way. Further gratitude
also goes to Maysara, Saif, Mohammed and their families who compensate me for being
away from my family. Thanks go to all my friends in Sudan Eihab, Ayman, Suliman,
Amjed, Haythem, and Al-Rasheed.
Last but not the least, heartfelt thanks for my parents for their lovely support and
encouragement to continue with my education. Hereby, I send warm thanks to my
brothers Ayman, Hani and my dear sister Rania for their support during my stay in
Sweden. Deep thanks go to my dear Lena, for here lovely support and her patience for
being away. Special thanks go to her family.
Let me thank all of you and may God bless you all.
Akram Elkhalifa
April 2004
Stockholm
8
Master of Science Thesis
Title:
Guides for the Appraisal of Religious Facilities and the Real Estate
Appraisal Process Modeling
Author:
Akram Ahmed Elkhalifa Elhassan
Department:
Building and Real Estate Economics,
Institution of Infrastructure,
The Royal Institute of Technology (KTH),
Stockholm-Sweden
Report Reference:
Master of Science Thesis No. 245
Supervisor:
Berndt Lundgren
Key Words:
Appraisal, Special purpose properties, Religious facilities,
Appraiser, Process modeling, IDEF0 Method, Svefa AB,
Abstract
Any change in demographics or the religious structure in any country causes the demand
for religious facilities to vary upon time and thus the value of these facilities. In this
thesis I tried to review the guides for the appraisal of religious facilities with some
concentration on Sweden. I tried to show the main characteristics of a today religious
facility with a focusing on churches. The applicability of the three approaches to value is
discussed to show the most appropriate method to be applied.
To help appraisers understanding the appraisal process, two models are built for this
purpose. I defined the terms appraisal, appraisal process and appraisal modeling
according to what the theory says. A description of the IDEF0 method is carried to show
its concept, rules and benefits. The first IDEF0 model shows the theoretic appraisal
process. The other model shows how the appraisers at a Swedish company (Svefa AB)
carry out the appraisal assignments. A comparison is achieved to show any differences
between these two models.
9
Methodology
The main data employed in this thesis has been obtained from different resources. I based
the discussion of the appraisal of religious facilities on the literature from books, articles,
reports and scientific papers. Most of the statistical data about population in Sweden and
the religious structure was collected from the official websites of the Swedish Statistics
Office (Statistiska Centralbyrån) and the Swedish Church (Svenska kyrkan). I used these
statistics to analyze the relation between the population growth in Sweden and the growth
of the Swedish Church membership. All the diagrams and graphs, which I employed in
the purpose of this analysis, are built by using the MS Excel Program.
Interviews with appraisers and acters in the field of real estate appraisal were the second
mechanism through which the work has been conducted. Valuation reports from a variety
of real estate valuation companies in Sweden contribute to the knowledge I come with in
this thesis. The proposed IDEF0 model for the theoretic appraisal process model is based
on the literature meanwhile; interviews with the appraisers at Svefa AB were the basis for
constructing the IDEF0 Model for Svefa.
Many computer programs and software are employed to clarify the problem, carry the
discussion, analyze and to come out with synthesis. Platinum BPwin 2.5, MS Excel,
AutoCAD 2000, and Smart Draw 6 contribute significantly to my thesis.
10
Thesis Structure
The thesis is divided into two parts. Part one will review the religious demography in
Sweden and the theoretical guides to be followed by appraisers when appraising a
religious facility. Chapter (1) reviews the religious demography in Sweden, how it
changes through time, and the main forces behind the change. Chapter (2) discusses the
general characteristics of religious facilities today and its physical description to give an
overview for the nature of the property to be appraised; the purpose of carrying out such
an appraisal is justified as well. This chapter also shows the forces behind the value of a
religious facility and the characteristics of the market for this type of property. Highest
and best use analysis is paramount to the appraisal of religious facilities. The analysis
criteria and its principles are discussed in this chapter as well. A sale of a Swedish church
in Ven is taken as an example for the highest and best use analysis conclusions. Chapter
(3) will show the general methods that are used in the appraisal of religious facilities, and
the applicability of each. The chapter highlights the main purposes of the appraisal of
religious facilities as well. This chapter includes an analysis for the relation between the
demand for religious facilities and the population growth in Sweden.
The appraisal of religious facilities, although some differences do exist, is a part of the
broad appraisal process. Part two will show how appraisers do their work by building
models for the appraisal process. The process definition, terms related to process
definition, and reasons behind building models for appraisal process are highlighted in
chapter (4). An introduction to the method, its features, rules, and benefits are discussed
in chapter (5). An attempt to build appraisal models is shown in chapters (6 & 7), the first
model will show the prescribed appraisal process as suggested by the theory. The second
one will show how appraisers in Svefa AB do their work in practice. The IDEF0 method*
is employed to build these models. Chapter (6) will show the proposed IDEF0 model for
the Theoretic appraisal process. An overview of Svefa AB is shown in chapter (7), which
shows the proposed IDEF0 model for the appraisal process in Svefa as well.
*
IDEF0 method (Integration Definition For Function Modeling) is a method used for modeling processes,
detailed description of the method is shown in chapter 5
11
Part One
The Appraisal of Religious Facilities
12
Chapter 1
Religious Demography In Sweden
1.1 Background
Special purpose property means a structure, which is uniquely adapted to the business
conducted upon it or use made of it and which cannot be converted to other uses without
the expenditure of substantial sum of money. It may also mean real property with respect
to the value of which some intangible element inheres, such as the owner's prestige.
According to this definition, religious facilities are considered special purpose properties.
Religious facilities include all the properties that are used by a congregation as a place for
worship or carry out its activities. Thus religious facilities include mosques, churches,
temples, chapels, and worship rooms.
Wide ranges of religions diversity do exist in Sweden, making it possible for any
religious group to have its own worship place. Due to many factors the religious structure
in Sweden experienced many changes through time; some groups are growing rapidly
and some are declining. The growth or contraction of religious groups results in
differences in demand for different types of religious facilities. The splitting or merging
of groups also affects the religious structure in a given area. These changes in the
religious structure affect the demand for different types of Religious facilities. Any
change in the demand for or supply of a special type of property calls for appraisal
assignments to be achieved. As demand for or supply of a given type of property
changes, property values change as well. Investors and actors in the market of that
property type need to know to which extend values change, thus appraisals are needed.
Appraisals are needed when a growing group is willing to expand or a declining group
wants to sell out one or more of its facilities. Therefore, knowing the main concepts of
the appraisal of religious facilities is required when appraisals are needed. The appraisal
of religious facilities has its own requirements, rules, and tools. All religious facilities are
considered special purpose properties, thus the appraisal of a religious facility may differ
significantly in practice than typical appraisal assignment.
13
1.2 Religious Demography in Sweden
Sweden has a total area of 173,732 square miles, and its population is an estimate of 8.9
million. Approximately 84 percent (7.5 million people) of the population belongs to the
Church of Sweden “svenska kyrkan”. The Constitution provides for freedom of religion,
and the Government generally respects this right in practice. The Government at all levels
strives to protect this right in full and does not tolerate its abuse, either by governmental
or private actors. The rights and freedoms enumerated in the Constitution include
freedom of worship, protection from compulsion to make known one's religious views,
and protection from compulsion to belong to a religious community. A church law was
formulated in 1686. Fundamental to it was the fact that Sweden was an evangelical nation
and that the Swedes should confess the evangelical faith. During the Enlightenment,
toward the end of the 18th century and the beginning of the 19th century, freedom of
religion increased in Sweden, but it was not until 1951 that full freedom of religion was
legally guaranteed. Today, everyone has the right to belong or not to belong to a church
or religious body, whether of Christian or non-Christian denomination. Only the monarch
and the minister responsible for ecclesiastical affairs are required to belong to the Church
of Sweden. It is possible to leave the Church of Sweden, and an increasing number of
persons do. In 1999 when the Church and the State separated, 33,299 persons left the
Church of Sweden, more than twice as many as in the previous years. The number
decreased somewhat in 2000, but in 2001 it again increased to a record high of 53,702.
At the parliamentary assembly in Västerås in 1544, Sweden was proclaimed an
evangelical (Lutheran) kingdom. The country maintained a state (Lutheran) church for
several hundred years, supported by a general "church tax," although the Government
routinely granted any request by a taxpayer for exemption from the tax. All churches of
all faiths receive state financial support. In 1995 after decades of discussion, the Church
of Sweden and the Government agreed to a formal separation. The separation came into
effect in 2000; however, the Church still is to receive some state support.
There are a relatively large number of smaller church bodies. Several are offshoots of
19th century revival movements in the Church of Sweden. Others, such as the Baptist
14
Union of Sweden and the Methodist Church of Sweden, trace their roots to British and
North American revival movements. The major religious communities and the Church of
Sweden are spread across the country. Large numbers of immigrants in recent decades
have led to the introduction of nontraditional religions in those communities populated by
immigrants.Table (1) gives a broader picture of the Swedish community religious
structure
Today about 11.5% of the population in Sweden are immigrants according to official
statistics, i.e. born in another country. This is a comparably high figure. The government
and the population has not, as in traditional immigration countries such as Australia or
USA, had centuries of immigration to adapt laws and mindset to the situation.
Immigration increased markedly with World War II. Soon 70,000 children were
evacuated from Finland of which 15,000 remained in Sweden. Until 1973 work-force
immigration dominated, peaking in the late 1960s. The largest immigrant groups are
Sweden-Finns and peoples from the former Yugoslavia representing both work-force
immigration and war refugees. Migration triggered by political crises include refugee
groups of Persians, Kurds, Palestinians, Vitnamese, Chileans , Iraqi, Somali, and
Hungarians.
This Immigration has a great impact on the religious structure in Sweden and the Swedish
scociety. A higher demand of religious facilities come as a result of the growth of new
religious groups in the country. Due to this Immigration, Catholic Church, Islamic
centers, and Baptist churches become a feature in many Swedish cities. As it will be
shown later, the growth of a given religious group has an important influence on the
value of a religious facility, therefore, an appraiser has to carefully analyze and
understand the demograhic forces behind the growth of religious groups. Table (2) shows
immigrants statistics in Sweden depending on foreign-born inhabitants statistics.
15
Chapter 2
The Physical Facility And The Market
For Religious Facilities
2.1 Religious facilities today
The simplest definition of a Religious Facility is the place at which people practice their
religion. Churches, by definition, are special-use properties built for specific purpose, by
a particular congregation, most often as a place of religious worship. Although in some
cases alternative uses do exist, churches typically are used most efficiently when used for
their intended purpose for their entire physical and economic lives. An alternative-use
analysis is thus a critical component of a religious facility appraisal.
No doubt that most of these facilities, nowadays, include other functions beside the
worship. The design and features of religious facilities changed through time from a
space for worship to a space that serves as multifunctional space. A religious facility may
serve as a school, day care center, care for elders, voting hall, library, and a community
center as well.
A recent phenomenon in the development of religious structures –in some countries such
as USA- is the addition of family centers. Therefore, it may include gyms, party rooms,
theatres, etc. Due to the fast development in the IT sector and communications some
religious groups who may own their own radio station directly from their facility require
special designs that accommodate all the requirements for videotape and/or audio record,
broadcasting, editing and storing programs. The presence of such features in a religious
facility makes its appraisal more complicated than it is for typical facilities. An appraiser
should account for these features which are an important factor that affects the value of a
facility since any religious group is willing to pay to acquire the facility that satisfy its
needs for the present and near future. Today, many facilities in USA are integrated with
the above features. In general, religious facilities will tend to follow the group’s needs,
desire and perceptions. In the real estate market some groups may be willing to
compromise their needs, desires and perceptions to obtain an older facility that may not
fully serve them –in terms of functional utility- but may appear as a bargain relative to
the alternative new construction.
16
2.2 Description of the Physical facility
Knowing the characteristics and physical elements of a religious facility to be appraised
is paramount to the valuation process. The appraiser should compare the subject facility
characteristics with the typical characteristics of religious facilities in the market to
determine its competitive situation in the whole market and then decide upon its value.
Knowing these characteristics also helps the appraiser to decide upon the elements on
which to draw more attention when he/she inspects the facility, selects similar facilities
and investigate the market. Because many religious facilities fulfill more than just a
worship service function, peripheral areas and activities are expanding. Many of the
following features may be present in a religious facility today. These features are
classified into two categories; features that fulfill the needs of a religious group itself and
features that fulfills the needs of the community.
Typical features (features that fulfill the needs of a religious group itself):
•
Sanctuary
•
Choir room
•
Chapel
•
Quiet room
•
Narthex
•
Cry room
•
Baptistery
•
Library
•
Mikva
•
Kitchen
•
Bell tower
•
Book store
•
Meeting rooms
•
Park
•
Administrative offices
Additional Features (feature for the community)
•
Class rooms
•
Restaurant
•
Gyms
•
Day care center
•
Theatre
•
Nursing home
•
Concert hall
•
Family life center
•
Community center
•
Game room
•
Media room/broadcasting studio
•
Dance-halls
17
The presence of these features or any other features in a religious facility depends on the
congregation needs and beliefs. Some congregations may have requirements other than
what has been mentioned above. The mega facility containing most of these features is
becoming more common; the reason is that many people want to belong to a religious
facility that parallels their life style. Therefore it is important that the appraiser has to
understand and analyze the needs of the group to which the facility belongs or the needs
of the potential buyers in the market.
Quality of construction is one of the factors that affect the value of any property. For
religious facilities this factor may differ significantly from one facility to another
depending on the financial situation of the religious group. Some of the facilities may
have been built with denoted labor or materials, which may not meet the local building
code and standards. Therefore a careful analysis helps the appraiser to identify the
facilities to be considered as comparables and set the basis for any adjustment needed
when estimating the value of the subject facilities.
Typical features:
In the following section a further description of the typical features of a religious facility
is done.
Sanctuary
The sanctuary is considered as the core space of any religious facility from which most of
its value comes because it is the main functional space. Beside any difference in the
design according to the unique requirements of different religious groups, sanctuaries can
be considered as quiet similar. In some religious facilities such as in the case of mosques,
the sanctuary should have a specific orientation. The sanctuary should be designed in a
way that enables it accommodate a large majority of the members of the group at one
time. The interior design of a sanctuary may have greater attention than other parts of a
facility do. Many aesthetically pleasant elements that make the space special and
dramatic may be added such as high –beamed ceiling, stained glass, paintings, carvings,
special lighting, and extensive overhead. A clear span is also common and desired by
many religious groups. The design of sanctuaries may have different layouts fig (1)
shows the most common ones. In these layouts the presence of a focal point to which an
audience or congregation to hear one or more speakers is realizable.
18
Fig (1): Different layouts for the sanctuary
For a sanctuary to be functional, it should seat the entire congregation. The designs of
seats may differ according to the religion and its activities, in some facilities no seats may
be required such as in mosques. An appraiser should decide upon whether to consider the
seats as part of the valuation or not according to its design (removable, fixed, portable)
and clearly state whether they are personal properties or fixtures.
Seating capacity should be complying with the local fire codes or building/zoning
ordinaries. An important point is to describe the property according to its maximum
seating capacity against the legally permissible capacity.
Factors to focus on when inspecting the facility’s sanctuary and identify comparables:
•
Number of Seats;
•
The maximum capacity of the Sanctuary;
•
Seats to area ratio (the ratio of sanctuary space or seating to the total area);
•
Quality of construction and finishing; and
•
Distinction between personal property and fixtures, which are part of the real
estate.
19
Stained glass
Most of the religious facilities include large areas of stained glass and decorative glass
items. Glass structure and decorative windows in religious facilities may be easily
removable; in some cases the removal cost can be prohibitively expensive, often
approaching the replacement cost. Therefore the nature of windows should be accurately
identified. Faceted glass and stained glass windows are generally valued separately on a
per square-meter basis and they are usually considered as fixtures.
Tibble kyrka, Täby Parish, 1978
Hägersten Kyrka, Hägersten Parish, 1961
Fig (2): Glazed Elevations
Organs
Most of the religious facilities have one or more organs in their sanctuaries depending on
the group beliefs. The organs may not be included in the value if they are simple
electronics ones, but if they are sufficiently attached to the facility or if their removal
causes serious injury to the real estate, the appraiser should consider them when
estimating the market value of the facility. An expert may be hired to determine its value.
20
Fig (3): Organ of Edsbergskyrkan Sollentuna Parish,1972
Sound system
A facility sound system should be valued as a apart of the real estate if the facility has a
custom-made speakers, amplifiers, microphones, mixers and other sound related items.If
any other media or broadcasting equipment such as monitors and antennas are considered
as part of the real estate, which normally isn’t the case, they should be valued by an
expert.
Rest rooms
To analyze the functionality of a religious facility, it is required to compare the number of
rest rooms the facility has and the fixtures in them with the standard required number.
Usually, at least one man’s and one woman’s fixture should be available for each 100
seats in the sanctuary.
21
Choir room
A choir room is a space through which vocal and/or instrumental music is incorporated
into the services provided by a facility. It incorporates a music library, dressing room,
and storage areas for gowns. Often, this space is part of the sanctuary.
Fig (4): The choir of Söderledskyrkan, Farsta Parish, 1960
Classrooms
When educational services are to be provided in a facility, the type of provided services
should be analyzed. Some facilities may provide educational services from preschool to
adult education. In some cases full collage campus may be integrated into the facility.
When inspecting the educational facilities the appraiser should determine whether they
comply with the local codes or not, this inspection covers cafeterias, sport facilities,
lockers, administrative offices, etc. Providing educational services in a facility calls for a
library to be present, the appraiser has to decide whether the furniture and equipment in
the library are considered personal property or fixtures.
22
Kitchen
Kitchen space may vary from a simple microwave to a complete commercial grade
restaurant setup. In some facilities snack bar, restaurant, or cafeteria may be found, some
may be profit centers and others are designed to serve the members.
Fig (5): Kitchen space in Edsbergskyrkan, Sollentuna Parish, 1972
Sport and entertainment facilities
Since religious facilities are designed to serve a community as well, some of the religious
facilities incorporate other special facilities to meet the needs of its congregation (i.e.
gyms, family centers, pools, indoor football halls, etc).
Parking
The appraiser should draw more attention to the parking spaces available for a facility
and determine whether it complies with the codes or not. The parking should be sufficient
to accommodate the largest likely seating. The number of parking spaces required for a
facility depends also on the type of the congregation; a facility whose members are
primarily families that attend four or five per car will have significant different
requirements from a facility that attracts singles. Some religious organizations may have
buses that bring in the congregants. Therefore, the appraiser should understand and
analyze all such factors that affect the parking space requirement for a facility. Normally
a shortage of parking spaces for a facility is considered as a problem, but it is not the case
if the congregants are able to solve it (i.e. a street parking, using or rent vacant space
nearby schools, offices or retail parking areas).
23
2.3 The market for religious facilities
The deep understanding and analysis of a market for a given type of a property is
paramount to the valuation process of a property belonging to that type. Knowing the
market characteristics of special class of property helps the appraiser identifying the
probable buyers/sellers and their preferences, thus determines the factors that affect the
value of the property. Defining the market area for a subject property is important to plot
the area in which demand and supply forces work and thus determine the value of the
property in that specific market given all the market forces behind its value. In reality, it
defining the market area is not that easy, as appears in theory. The basic knowledge that
an appraiser of a religious facility has to acquire is the knowledge about the presence and
existence of various religious groups (buyers/sellers) in the area in which the subject
facility is located. Through this knowledge the appraiser can plot the market area for that
facility. Generally, religious facilities tend to operate on a local basis. Other than a mega
facilities, most religious facilities function in and draw members from a very localized
market; individual practice their religion near their home and with individual whose
beliefs, socioeconomic standards, and values are similar. But some facilities that operate
on a regional, national and even international level may exist (i.e., Holy mosque in
Makka-KSA).
Some of the religious groups may have greater influence in some geographical areas than
other areas; this fact affects the demand side by making it different for a given facility
from one area to another. Therefore, an appraiser should know the group, to which the
facility is designed, the characteristics of the group, and other groups that the subject
facility may suit. The population growth in the market area of the facility in general and
the growth of the religious groups in specific are important to estimate the demand for
different kinds of facilities. In general, the need for a facility parallels areas of growth.
Additionally the desire for schools, day care, and other similar services has caused
individuals to mix their religious needs with their community needs. Obviously, religious
or ethnic factors do not influence value, but the existence of users does influence the
demand side of the equation and, therefore, value. If a value estimate for a religious
facility is based on the market preference of the religious group rather than its ethnic
24
values, the appraisal complies with the USPAP*. As indicated in the USPAP Advisory
Opinion 16 “If the appraiser can identify the market behavior of the religious members
and relate that behavior to the assignment, the appraiser is not in violation with
USPAP”. It is important to understand what is typical for an area in terms of religious
facilities in order to understand if a particular religious facility that is to be valued fits the
norms of predominant religious groups in the area. If the property deviates from the
market preference the appraiser has to consider that when appraising a facility. This
deviation may results in a value less than the values for similar properties in the market.
2.4 Highest and best use analysis
Highest and best use is often identified as the key concept supporting real estate use and
value decisions. Analysis of the highest and best use of the land as though vacant and of
the property as improved is essential in the valuation process. Highest and best use
analysis of a property is defined as “The reasonably and legal use of vacant land or an
improved property which is physically possible, appropriately supported, financially
feasible, and that results in the highest valueӠ. Through the highest and best use analysis
the appraiser interprets the market forces that affects the subject property and defines the
use or the uses on which the final opinion of value is based.
The highest and best use of a church is derived through consideration of, among other
factors, the potential need for a church in a particular area, the parking available, fixed
seating, the neighborhood characteristics, and per capita income trends. For an operating
church, the demand, the stability of leadership, and the ages and lifestyles of the members
are significant considerations as well. The overall trends in the current church market
indicate that churches are attempting to expand their functions to better serve their
members. Often, this entails full-service community center facilities such as schools, day
care centers, retirement facilities, and workout facilities, which are added to the
traditional church premises in many cases.
A highest and best use analysis is conducted for the land as though vacant and the
property as improved or the facility as proposed. In the flowing part a further discussion
* Uniform Standards of Professional Appraisal Practice
† The Appraisal of Real Estate 12th Edition
25
for highest and best use analysis for the land as though vacant and the property as
improved is carried out.
2.4.1 Land as Though Vacant
The highest and best use of the land as though vacant assumes that the property is either
vacant or can be made vacant by demolishing any improvements. The purpose of this
analysis is:
•
For vacant land, the analysis determines to what use the land should be put and
specifies the characteristics of the facility including its size, quality, structure, and
ancillary improvements.
•
For improved land, the analysis establishes the basis for land valuation in the cost
approach.
•
To help the appraiser identifying comparable properties.
2.4.2 Property as Improved
The highest and best use analysis of a property as improved serves as the basis for all
approaches to value by identifying that use which will yield the highest value.
There are two reasons to analyze the highest and best use of the property as improved:
•
To help identify potentially comparables properties, each improved property
should have the same highest and best use as the improved subject as though
vacant and as improved.
•
To decide which of the following options should be pursued:
-Maintain the improvement
-Cure items of deferred maintenance and retain the improvement.
-Modify the improvement (i.e., renovate, modernize, or convert)
-Demolish the improvement; in some cases it may not be possible to demolish the
property when it is subject to restrictions such as historic properties.
2.4.3 Criteria for the analysis
Whether vacant or improved, the highest and best use of a property must meet four
criteria.
26
•
Physically possible;
•
Financially feasible; and
•
Legally permissible;
•
Maximally productive.
Special considerations
In valuing a municipal facility, one must consider its benefits to the public that is often
not reflected in its financial performance. The public body served by the facility must
determine if the benefits produced by the facility are equal to the amount of money
invested in it. Otherwise, the use of the facility will be terminated and/or changed.
2.5 Value in Use Versus Value in Exchange
Paramount to the discussion of highest and best use is the issue of value in use versus
value in exchange. For most church facilities, these concepts are relatively intertwined. A
value in exchange has been found to exist for many church facilities. The fact that a
facility is a "going concern" and is operating economically tends to give credence to the
concept that the facility fulfills a need in the community. Whether an alternative need for
the facility exists or whether additional or different congregations could potentially use
this facility are important factors in the appraisal of a church or religious facility on a
value-in-exchange basis. Such alternative uses as centers for other religious groups,
training facilities, museums, schools and colleges, and, in some cases, business offices do
exist. Typically, however, the improvements are removed or altered, causing a different
highest and best use to become apparent. In particular, churches nearing the end of their
economic lives, located on expensive land or in desirable locations, and having other
potential uses are frequently purchased for land value.
In certain appraisal assignments, notably a value in use, a value other than that of highest
and best use may be called for. This value category is known as use value that is defined
as “The value a specific property has for a specific use”*. In this case the limited use
being valued must be clearly specified. The value in use is the frequent value category
that is achieved by the financial department in the Swedish Church, the valuations that
are carried for most of the Swedish Churches facilities is the value in use that is derived
through the cost approach. The main purpose of these valuations is to make an estimate
of the Swedish Church assets to create balance sheets and to be as a security for loans.
*The Appraisal of Real Estate 12th Edition
27
2.6 Valuation Principals Related to Highest and Best Use Analysis
Concepts of change, contribution, anticipation, and supply and demand are the main
concepts behind the highest and best use analysis. A further discussion about these
concepts will take place in the coming section to show how they work hand to hand in the
appraisal process.
2.6.1 The Principle of Change
The principle of change, which is inevitable and continuous in real estate markets, is
very evident in the case of special purpose properties that are no longer usable as they are
designed or intended. This concept is the main force behind highest and best use
decisions; demolish, restore, or change use. Changes in technology, standards,
requirements, and preferences may support the existence of a special purpose property
and its continuity to serve, the opposite hold as well. In the case of religious facilities,
this concept is a major determinant of value. Changes in demographic, religious structure,
policies, and standards are paramount to the existence of a religious facility. Therefore
the appraiser must carefully analysis any changes that may affect the presence of a
congregation in the community and determine any factors that may lead to the growth or
declination of that specific religious group.
2.6.2 The Principle of Contribution
The principle of contribution should always be considered in the highest and best use
analysis of special purpose properties. For instance, if a religious facility structure doesn’t
contribute relatively positive to the land value of that facility a demolishing decision may
be taken when analyzing the forces supporting the presence of the given religious facility.
In addition, the costs of restoration and, removal, or repair of deteriorated buildings
should be carefully analyzed to assess their contribution to the value of the property once
rehabilitated. Generally, restorations programs that cost more than their contribution are
not economical, but excessive restoration costs may be mitigated by available incentives
in the case of religious facilities.
28
2.6.3 The Principle of Anticipation
One of the great motivating principles in the restoration of real estate properties is the
principle of anticipation. The principle of anticipation applies to religious facilities as
value is created by the expectations of particular benefits to be derived in the future. The
value of a religious facility increases as anticipations of the growth of a religious group
take place. The anticipation of population growth also acts as a factor in the anticipation
principle.
2.6.4 The Principle of Supply and Demand
The principle of supply and demand causes real estate prices to vary according to the
supply of and demand for similar properties. The rarity of special purpose properties
contributes to the value of such properties. For instance, the rarity of historic properties
operates to enhance their value in contrast with properties that can easily be reproduced.
If the estimated demand for a religious facility is not enough to support its existence, the
highest and best use analysis may conclude that the facility is to be demolished or its use
to be converted. Supply and demand must be considered in the context of the appraised
religious facility’s market. Market demand varies from one locale to the next. If little
demand exists for a particular facility, there is a little value regardless of the supply. On
the other side the demand that exceeds the existing supply will drive the value up.
2.7 Highest and Best Use Analysis Case
To prove that religious facilities are subject to the highest and best use analysis, a
transformation of the use of a church belonging to the Swedish Church is taken as an
example. Allhegonakyrkan is one of two churches in Ven see fig (6). Ven is an island in
the south west of Sweden, belonging to Landskrona County, which is one of Skåne
municipalities, see fig (6). The population in Landskrona is about 40 000. Tycho Brahe
museum will be moving in and it will be opened by July 2004 after moving out all the
church furnishing and adding a new heating and electricity system. The new owners of
the building are Statens Fastighetsverket (SFV) and the Cultural Administration in
Landskrona (Landskrona Kulturförvaltning).
29
The change of Allhegonakyrkan from a worship place into a museum is coming as a
result of the declination of the Swedish church membership; see fig (6). Today, there are
many parishes and churches, which the Swedish church cannot keep anymore.
Allhegonakyrkan is one of these properties. Keeping the cultural value of the building
without major changes in its features was the main concept behind determining the most
appropriate use for the building. Tycho Brahe museum was considered as the best use for
the building because of its cultural role and the increasing demand for cultural facilities in
Sweden. “We at SFV think that this is a very good way to safeguard the church building
and put it for a promising object”, said Bo Jonsson, general director at SFV. This sale is
clear evidence that religious facilities are subject to the highest and best use analysis. It
proves that analysing the religious structure in the market area for the property may
conclude that the demand is not enough to support its existence as it is used.
Ven Location
Ven Kyrka
Ven Kyrka Front
Fig (6): Ven Kyrka Location and Photos
30
Chapter 3
Applying the Valuation Methods
3.1 Introduction
To make an appraisal, is to solve a problem. First, an appraiser must articulate the
problem clearly. Next, the facts relevant to the problem must be assembled and analyzed,
and the irrelevancies discarded. Finally, an appraiser must deduce from the analysis the
solution to the problem. A detailed description of the general appraisal process is carried
out in the second part of this thesis. One of the synthesis results from the data analysis is
the selection of the most reliable valuation methods to apply on the appraisal of religious
facilities. Generally, the purpose of the valuation is paramount to the selection of the
appropriate method to apply. The purpose of the valuation or the requirements of the
intended users may call for a special method to be used.
3.2 Purposes of Religious Facilities Appraisals
Although required with less frequency, appraisals on religious facilities are necessary
from time to time. Like any valuation assignment, the appraisal of a religious facility
must state clearly the purposes of the valuation that is done for the property. The
purposes of a religious facility appraisal can be one of the following:
Financing
Adding extensions to a property, building a new facility or buying a new one are
alternatives for a religious group that is expanding. Therefore valuation is essential to
determine which alternative should be selected. Moreover, lenders need to know the
value of the facility that they are going to finance in order to set the finance conditions.
Buying and selling
As religious groups grow /decline they need to buy/sell a facility, therefore an appraisal is
needed to determine the price at which a group can buy/sell a facility.
31
Insurance
It is important to know the value of any property for insurance purposes and especially
for those old ones, which may have a historical significance. The insurance companies
may ask for a specific category of value other than the market value to be estimated. The
appraisal assignments for insurance purposes are frequently achieved for special purpose
properties and properties that have a historical significance.
Splitting up the property
When an existing congregation is split into two or more smaller congregation, a valuation
of its facilities is needed to show how the property will be split up. Also, buyers/sellers
may only be willing to buy/sell a portion of an existing facility or they may share it with
others, in this case valuations are needed to show each owner portions in the property
Applicability of Approaches to Value on Religious Facilities
Generally, the cost approach is considered as the most reliable method due to the
characteristic of religious facilities that are infrequently sold in the market and since they
are not considered as income producing properties, the sales comparison and income
approaches are less reliable to derive a market value for a religious facility. But all of
these methods can be applied on the appraisal of religious facilities depending on the
availability of information to be used for each approach,
In the following section the applicability of different approaches to value on religious
facility is discussed more deeply.
3.3 Cost Approach
The basic premise of the cost method is that a property will sell at a price relative to a
newly constructed version of itself. As special purpose properties, religious facilities give
more weight to the cost approach in the appraisal process. The reason is that this type of
properties is infrequently sold in the market making this method the most appropriate one
to apply.
32
Nonetheless, applying this approach is more difficult on some special purpose properties
types such as historic properties; this is a result of many reasons such as:
1- The reproduction cost estimate for old buildings is difficult because the
constructions methods and materials of old buildings are no longer available.
2- History and extraordinary craftsmanship cannot be built into a replica.
3- Time distorts the relation between development cost and market value as building
technology changes.
4- Site value premised on highest and best use is not valid when historic buildings
cannot be demolished.
The core idea for this approach is that the value of a property will equal the land value
plus cost new after deducting the depreciation. The Value will be according to the
following formula
Vs = Ls + Cs − Dt
Where;
Vs: Property Value;
Ls: Land Value of the subject;
Cs: Cost New of the subject; and
Dt: Total Depreciation.
When appraising a facility using the cost approach, the appraiser has to determine the
land value of the subject property then the following step is to estimate the cost new of
the facility, by estimating the depreciation that should be conducted the appraiser can
make a reliable estimate of the facility value. It is important that all the assumptions for
the land value, depreciation and cost new should be based on actual and market supported
costs as much as possible, otherwise the whole valuation process can be flawed. In the
coming part a further discussion is carried out.
33
3.3.1 Land value
Estimating land value is the starting point in the application of the cost approach. When
land is improved with a religious facility, it can be valued as though vacant and the value
will be based on the highest and best use analysis conclusions. Because religious facilities
can be constructed in many different zoning classifications, it is important to recognize
that such groups may be competing with developers/buyers who have different specific
projects and best uses in mind.
Similar to the valuation of any of any site, the appraiser must take note of any adverse
influences and any externalities that affects the value of the subject facility site. For the
site of a religious facility, these influences can be different from those for residential and
commercial sites. Sites where loud noise exists (i.e., next to airports or rail lines) are
probably inappropriate for religious facilities use. Sites with a view or aesthetic qualities
are often desired.
Other adverse influences could include:
•
Poor accessibility to a busy arterial;
•
Heavy industry;
•
Pollution;
•
Inconsistent land uses;
•
Flood hazard areas;
•
Lack of residence in the area;
•
Areas of population decline; and
•
Areas with use/legal restrictions against religious facilities uses (houses
of
worship daycare, schools,…etc)
Positive attributes of sites for religious facilities include:
•
Proximity to traffic patterns (easy entry and exit or light-controlled access to
nominally busy streets);
•
Recognizable address (easy to find);
•
Topography that allows easy construction; and
•
Aesthetically pleasing environment.
34
3.3.2 Cost new
A distinction between the two terms of cost new is to be made; reproduction (replication)
cost new versus replacement cost. Reproduction cost new is defined as “The estimated
cost of constructing an exact duplicate of the existing improvements at today’s costs”*.
Replacement cost is defined as “The estimated cost of constructing, at current prices, a
building with equivalent utilityӠ. Using one of these two approaches in estimating cost
new depends on the property characteristics and its age. Using reproduction cost may be
misleading for old properties that are built in excessive building standards or with
unusual materials because building standards may have changed and labor and/or
materials are simply not available to reproduce the facility. For newer facilities such a
distinction may not be required where reproduction cost and replacement cost are often
the same. The purpose of the appraisal may determine which of the cost new approaches
to be used. As the appraisal for insurance purposes might specially request reproduction
or replacement cost.
The first step in the cost approach to be taken in the estimation of the cost new is a
careful inspection of the subject property. There are many sources of cost new, the most
common sources are actual cost and cost comparables.
Sources for Cost New
3.3.2.1 Actual cost
Actual cost is considered as the best indication of the total cost or cost new of a facility
assuming that the construction is relatively new and that no donated labor or materials
were available during the construction. When using this approach, it is important to
determine that all the cost components taken into consideration. The most important
components for the religious facilities are:
•
Site value
•
Site improvements
•
Landscaping
•
Direct costs which includes:
* The Appraisal of Religious Facilities
†
The Appraisal of Religious Facilities
35
-Materials, labor cost, permits, builder’s profits, and overheads.
-Architectural features such as domes
- Sound systems and video equipments
•
Indirect costs which include:
-Civil and structural engineering, professional fees, accounting, appraisal, legal fees,
financing fees, and interest on construction and permanent loans.
When applying this method it is important to ensure that the costs provided are of the
same date, otherwise adjustments are required for old prices and costs depending on cost
and price indices which show how are costs and prices changed during a given period of
time. The best providers of actual cost new are contractors and architects. The cost may
be provided as a lump sum, per-square-meter, or per seat basis. In some cases a very
detailed contractor’s breakdown is available.
3.3.2.2 Cost comparables
Typically, churches are built for a particular user with a long-term intended use. When
sales of large church facilities take place, one of the following events have thus generally
occurred.
•
The church has outgrown the facility or site;
•
The land values and neighborhood characteristics have changed, causing a change
in the highest and best use;
•
The facility has deteriorated to an extent that prevents it from fulfilling its
intended use; or
•
The demand for the facility has waned (i.e., the congregation has dissipated).
Similar to the concept of the sales comparison approach, the cost comparables method
indicates that the cost new of a facility will be derived from the cost new of similar
facilities. This method is used also as an excellent check on the reasonableness of other
methods of developing cost new. Because church properties are relatively scarce, their
sales are difficult to find. Nonetheless, especially in the larger cities, a relatively wellorganized market for the purchase and sale of churches does exist. Further, the
verification of sales is typically reliable and easy to obtain because church facilities are
nonprofit organizations.
36
Applying this approach implies that a careful analysis is needed to identify the facilities
that are similar to the subject; otherwise the whole valuation will be misleading.
Identifying similar properties to a religious facility is a challenging task since religious
facilities as special purpose properties are often custom-built and big differences in
designs, building standards and quality do exist. In active markets, similar church sales
can be compared on a feature-by-feature basis, using fixed seating, stained glass, special
features (e.g., baptistery, prayer rooms, arks), and other attributes. Usually, however,
features of churches cannot be compared because of the wide variety of their uses,
design, and quality. Cost will vary significantly depending mainly on:
•
Quality of construction
•
Ratio of sanctuary to total area
•
Ceiling heights
•
Percent of peripheral area (built area ratio)
•
Site improvements
The appraiser task is to pick the most similar facilities to the subject and carefully
analyze the data provided for each of the comparables such as items included in the cost,
additional features, and whether it is built by donated labor or materials.
Relying on cost comparables is conditional to:
•
Confirmation and reliability of comparables costs
•
Similarity of comparables
•
Similarities in sites characteristics
•
Similarity in construction time for comparables
According to this method the cost of a subject religious facility will be according to the
following formulas:
Cs = Cca * As (When using cost/area as a unit of comparison)
Where;
Cs: Cost new of subject facility;
Cca: Average cost of comparables per square meter; and
As: Area of subject facility.
37
Alternatively,
Cs = Ccs * Ss (When using cost/seat as a unit of comparison) Where;
Cs: Cost new of subject facility;
Ccs: Average cost of comparables per seat; and
Ss: Number of seats in the subject facility.
3.3.3 Depreciation
After estimating the land value and cost new for a subject religious facility, the next step
in the valuation process is to estimate the depreciation. Depreciation (deviation from the
ideal) is defined as “A loss in property value from any cause; the difference between
reproduction or replacement cost of an improvement on the effective date of the
appraisal and the market value of the improvement on the same date”*.
It is essential to identify and differentiate between long-lived and short-lived items in the
subject facility when estimating depreciation. The three forms of depreciation are:
•
Physical deterioration (deviation from a new condition);
•
Functional obsolescence (deviation from ideal design); and
•
External obsolescence (a determent to the property from external influence)
3.3.3.1 Physical deterioration (deviation from a new condition)
Religious facilities are often over used because they are opened to the public.
Determining the actual physical condition of any structure, particularly an old one, can
constitute real challenge; the opinion of a structure engineer will some times be required.
The threatened collapse of major structural elements may not be apparent to the untrained
observer.
The appraiser has to account for physical curable depreciation of both short-lived and
long-lived building components and items which prudent purchaser/owner would cure.
Extensive deferred maintenance may be unusual because, normally, religious group
members take pride in their facility and do not allow physical curable depreciation to
become unreasonable.
*
The Appraisal of Real Estate, 12th Edition
38
Short-lived components consist of items whose lives are less than the shell. Typically this
includes the roof, plumping and electrical fixtures, interior finishing, and painting. The
durability of short-lived items varies depending on location and the quality of the original
items. The long-lived component of the building-generally the shell-vary greatly
depending on the type of construction and the area of the country in which the facility
exists.
By comparing the effective (Physical) age of the shell with the estimated total physical or
total useful life, the total physical depreciation applicable to long-lived items can be
segregated. Determining the effective (physical) age and the total useful (physical) life of
a facility is central to the valuation process. The effective physical age is typically a
function of the maintenance, while the total physical or useful life is a function of the
quality of the construction and the durability of the shell components. As a conclusion,
physical deterioration is unattractive to buyers and causes a diminution in market value.
The cost of bringing the facility into a restored condition, not its age, is the appropriate
measure of physical deterioration.
3.3.3.2 Functional obsolescence
Design or functional obsolescence is defined as an impairment of functional capacity or
efficiency. Relative to religious facilities, functional obsolescence is often the inability of
a particular facility to properly fulfill the needs of a “typical” user/buyer in the market.
This may include a need for extensive seating or support facilities, more than one kitchen,
buildings that face a certain direction, parking spaces, etc. Most buyers of used religious
facilities have particular needs that are tied to their particular beliefs; these requirements
may not be available in the “used religious facilities market”, that is why so many groups
build exactly what they want and need in their own facility. The appraiser job is to
determine if the subject facility is “generally functional” to support the needs of potential
buyers in the market in which it exists. This will be carried out by a careful analysis of
the subject facility and the users/buyers requirements.
Usually, users/buyers of a facility that doesn’t provide them with the required functional
utility require a discount over physical deterioration to account for changes they will
make to the facility to fulfill their needs. The cost of bringing the facility into full
39
functionality is the appropriate measurement of functional obsolescence. Measuring
functional obsolescence is difficult when it is incurable (i.e., no additional space is
available). But it may be easier if the functional obsolescence is curable (i.e., availability
of space for more parking). By adding the functional obsolescence, the formula of Total
Depreciation will be:
Dt = Dp + Df
Where;
Dt: Total estimated depreciation;
Dp: Estimated physical depreciation; and
Df: Estimated depreciation due to functional obsolescence
By adding the Physical depreciation and Functional obsolescence, the formula for the
value of the subject property will be:
Vs = Ls + Cs − Dp − Df
Where;
Vs: Property Value;
Ls: Land Value of the subject; and
Cs: Cost new of subject facility.
3.3.3.3External obsolescence
The third form of depreciation is external obsolescence, which results from influences
outside the property itself. An example of such influences is the economic conditions in
the area in which the facility is located. Another influence can be the presence of other
types of properties that conflicts with the function of a religious facility. In some cases,
these typical and readily identifiable influences can be a factor with religious facilities,
but often a market based obsolescence factors come into play with these properties. It is
often difficult to differentiate if the depreciation in excess of physical deterioration is due
to the buyers preferences (functional) or due to economic (external). Nonetheless, the
measurement of depreciation in excess of physical deterioration must be accounted for
and typically can be extracted from market data. The aim of estimating depreciation due
to external influences is to integrate buyer perception of properties into the cost approach.
40
It is not that easy to estimate the external obsolescence when no comparables are
available, then the value estimate will be dependent on the appraiser judgment. In this
case the method will not be reliable. When external obsolescence is added to the formula
of total depreciation of a subject religious facility, the formula becomes as follow:
Dt = Dp + Df + De
Where;
Dt: Total estimated depreciation;
Dp: Estimated physical depreciation;
Df: Estimated depreciation due to functional obsolescence; and
De: Estimated depreciation due to external influences
When external obsolescence is added to the formula of a subject religious facility value,
the formula becomes as follow:
Vs = Ls + Cs − Dp − Df − De
3.4 The Sales Comparison Approach
3.4.1 The Sales Comparison Approach Concept
The second approach to value that can be applied in the appraisal of religious facilities is
the sales comparison approach. The main concept behind this approach is that the value
of the subject is derived from properties similar to the subject that are sold in the market.
This concept is based on the definition of market value “The most probable price, as of
specified date, or in terms equivalent to cash, or in other precisely revealed terms, for
which a specified property rights should sell after reasonable exposure in a competitive
market under all conditions requisite to a fair sale, with the buyer and seller each acting
prudently, knowledgeably, and for self interest, and assuming that neither is under undue
duress”*. Generally, this approach may be difficult to apply on the appraisal of specialpurpose properties than other types of properties because comparable sales are rare to
find. Some exceptions may be found in some types of special purpose properties such as
in the case of historic properties. For historic properties, this approach is considered as
the most reliable in the estimation of market value.
* The appraisal of Real Estate 12th Edition
41
Data about the subject property and comparable sales is to be available, valid, and
reliable to reach a reliable opinion of value. The appraiser needs to know the
characteristics of both the subject and the comparables. Usually, this is neglected because
it is time consuming. The level of inspection of the subject property and its comparables
depends on the fees that the client will pay for the assignment. In addition to the typical
information gathered in the sales comparison approach for any type of properties (i.e.,
date of sale, buyer/seller, conditions of the sale, land area, built area, total area zoning
…etc), the following items are relevant to religious facilities:
•
Sanctuary description and seating capacity
•
Ratio of total building area per seat.
•
Potential for expansion
•
Reasons for selling and buying
It is recommended that the land value to be extracted from each of the sales in order to be
able to compare the contributory to value of the improvements. By doing so, most
locational adjustments are eliminated by assuming that land value accounts for the quality
of the location and land-to-building ratios are accounted for, as are variances in sites and
value.
3.4.2 Units of comparison
To organize the data, an appraiser selects common denominator or units of comparison,
that apply to the appraised property and comparables and which will allow these
properties to be compared. The most common unit of comparison that is used for most
property types is the price per square meter. For some of the special properties where the
areas of the comparables may differ significantly, other units of comparison may be used.
For example a price per hole is used as a unit of comparison in the appraisal of golf
courses. In some cases the unit of comparison may the whole property as in historic
properties. For religious facilities, it is not uncommon to use the price per seat or per pew
as a unit of comparison.
42
3.4.3 Adjustments
After collecting all the required data about the subject and its comparables, the following
step is to analyze the sales and adjust their prices for any differences between the subject
and its comparables. As with most single purpose or special-use properties, the
comparability of the data is typically not as close as with more common types of
properties, making the adjustment process more important. To account for vastly
different physical facilities, amenities, quality, and location, it is necessary for the
appraiser to take a broader view of the comparability of the sales. Adjustments are to be
done for the conditions of the sale, financing terms, market conditions, size, quality,
building condition, and location.
3.4.3.1Conditions of the sale
Conditions of the sale tend to be unique in religious facilities; often when a group, that
needs to expand or contract its facility, finds “exactly what it needs”, it will be willing to
pay significantly more than anyone in the market. This condition of the sale is difficult to
determine and typically shows up as an aberrated sale price.
Because the process of building a new facility is difficult, expensive, and very time
consuming, the congregation may be willing to purchase an existing facility for
significantly more than its depreciated cost plus the value of its land. The sale price
should be adjusted by taking out the additional amount a congregation has paid in excess
of its land and depreciated value.
3.4.3.2Financing
Similar to the adjustment made for other property types, any religious facilities sale
should be adjusted for any differences in terms of financing. These terms include
insufficient down payments, a below market interest rate, and any specific terms for the
loan to buy the facility. The appraiser needs to investigate how each of the comparable
sales was financed and analyze the terms and the conditions of the loan to calculate cash
equivalency adjustments.
43
3.4.3.3 Market Conditions (time)
As special use properties, religious facilities are infrequently sold in the market, making
it difficult to find comparable sales over a reasonable period of time. According to this
fact and due to the change in the market conditions from time to time, adjustments for a
sale price is required. The sale prices should be adjusted for any changes in the market
conditions from the sale date to the valuation date.
3.4.3.4 Location
Improvements in a superior location often contribute more than a similar facility in an
undesirable location. By eliminating the land value from the sale, location is typically
accounted for in most cases. Adjustments for any differences in locational attributes are
required when the value is not eliminated from the sale price.
3.4.3.5 Size
Size adjustments for religious facilities can be a typical of the rule of thumb that larger
facilities generally sell for less per square meter than equally similar smaller facilities.
Frequently, this is not the case with religious facilities. In particular, it is not unusual for
very large and newer facilities, which are very ornate and include numerous peripheral
items, to sell for more per square meter than otherwise dramatic smaller facilities. This is
likely due to the propensity of buyers to only look for a facility in their needs range, plus
a little for growth. Thus it is unusual to make a size adjustment for a religious facility
sale. An exception to this would be a facility that is substantially overbuilt for a given
market and when it’s difficult to find comparables of the same size to the subject.
3.4.3.6 Quality
An appraiser should make adjustment in the sale price for any difference in the quality of
construction between the subject and its comparables. In this analysis, it is suggested that
the appraiser compares the subject’s cost new (actual or estimate) with the total cost for
the particular comparable sale. The appraiser task is to determine at what point a typical
buyer would not pay more for quality.
44
3.4.3.7 Age/ Condition (Total depreciation)
When selecting comparable sales for the subject property, it is important to pick the most
similar ones to the subject in terms of the building condition. But since this may be
difficult for religious facilities, some differences in conditions of the comparables may
probably exist. Adjustments are needed for any differences in the conditions of the
comparables. All physical depreciation, functional obsolescence, and external
obsolescence would be included. Therefore, this adjustment compares the contributory to
value of improvements of the sales to that of the subject.
The suggested adjustment for this factor is based on the following formula*:
(1 − Dts ) − (1 − Dtc )
(1 − Dtc )
Dtc − Dts
=
Where;
1 − Dtc
A=
A: Adjustment factor for the sale price;
Dts: Total depreciation of the subject facility; and
Dtc: Total depreciation of the comparable sale
3.4.4 Applying the Method Using the Area and Price/Seat Methods
After adjusting the sale prices to any dissimilarity between the subject and its
comparables and selecting a unit of comparison, the appraiser will be able to reach an
opinion of value for the subject facility based on the sales prices of its comparables. The
most common method that is used in the appraisal of religious facilities within the sales
comparison approach is the area method. This method implies that the market value of
the subject facility will be according to the following formula:
N
Vs = As * ∑
i =1
Pi / Ai
N
* Martin H. Aaron, John H. Wright. “The Appraisal of Religious Facilities.” Appraisal Institute, USA,
1997
45
Where;
Vs: Estimated value of the subject facility.
As: Area of the subject facility.
Pi: Price of comparable sale “i”.
Ai: Area of comparable sale “i”.
N: Number of comparables.
This formula says that the value of the subject will be the area of subject multiplied by
the average price from the comparable sale. Alternatively to this formula, which is based
on the area method, hereafter is another formula for the value of the subject facility,
which is based on the price per seat as a unit of comparison.
N
Vs = Ss * ∑
i =1
Pi / Si
N
Where;
Vs: Estimated value of the subject facility
Ss: Number of seats in the subject facility.
Pi: Price of comparable sale “i”.
Si: Number of seats in the comparable “i”.
N: Number of comparables.
3.5 Income Approach (Feasibility Approach-Test of Reasonableness)
Although churches and religious facilities do occasionally lease, it is relatively rare and
usually on a short-term base. Further, churches and religious facilities are not considered
income producing or investment-grade properties, and a typical income capitalization
approach thus is not applicable. A final and somewhat unique valuation technique for
church facilities appears to be evolving, however. This is the feasibility analysis or test of
reasonableness. Because churches and religious groups generate income only to meet
their expenses, it is obvious that the income stream is not available for valuation.
Appraisers have therefore considered the potential financing of a church facility a
possible method of analyzing its feasibility.
46
This method requires appraisers to first attempt to isolate the total nondiscretionary
income (i.e., general fund income) that a particular church could or does generate on a
stabilized basis. While most lenders do not include discretionary income in those funds
available for debt service, a potential mortgage loan amount can be estimated by applying
the market requirements to this income stream. The market dictates typical financing
conditions, and an approximate loan amount thus generally can be determined.
Appraisers have found that current underwriting criteria require a maximum mortgage
payment of 33% of total nondiscretionary income. Rates vary and approximate
commercial real estate long-term loan rates. Loan-to-value ratios between 60% and 70%
are now indicated, which is down from 70% to 80% in the recent past. When this loan
amount is compared to the typical loan-to-value ratios required by lenders and
underwriters, a potential value estimate can be determined.
It should be noted that this is not a value estimate, but is rather a feasibility test or test of
reasonableness for the values developed in the other two approaches. Current market
information is available in most areas on the approximate amount of tithes or
contributions made by congregations as well as the members' income levels. Thus,
reasonableness can be checked with respect to the income levels, and the resulting value
estimate should support the value estimates derived through both the cost approach and
the sales comparison approach (assuming stabilized occupancy and use).
Appraisers find it helpful to use several years' income to calculate a value for each of the
years with this analysis. To track trends in the growth or decline in membership and
correlate such trends with the income is also useful, and can indicate any changes that
may be occurring in income or membership. A value estimated using this analysis should
be tempered with an analysis of the deferred maintenance, reserves for replacement, and
the overall maintenance program of the facility. This type of analysis is of particular
interest to lenders, and is typically how the feasibility of making a loan to a church or
religious group is analyzed.
47
3.6 Applying Market Analysis Concepts on the Feasibility Approach
As discussed in the previous part, an appraiser can apply the income approach to check
for the value estimate concluded from the cost and comparable sales approach. The
appraiser has to make a cash flow analysis based on the members’ income and the
income that a facility can generate. The main sources for the income that a given facility
receives can by one of the following:
•
Fees paid by the members;
•
Gifts and denotations (from the members or other organizations);
•
Governmental aids
Whether nondiscretionary income is included in the analysis or not, the amount of
income a given facility receives depends mainly on the number of members joining that
facility; the amount of support a facility receives or any association in Sweden is
proportional to the number of members. Therefore the market analysis concepts can be
easily applied on this approach. By assuming that the number of members joining a
facility represents the demand side and the availability of competitive facilities represents
the supply side. The level of market analysis (Inferred/Fundamental Analysis)* to be
carried can be decided by the appraiser based on the availability of data and the facility
characteristics.
After determining the level of market analysis, the first step the appraiser has to take to
apply these concepts is to plot the market area for the facility and identify its
characteristics and any factors that affect joining that facility. In each area, there may
exist many facilities, which may belong to the same religion, some of them may be
preferred more than the others. Similar to other types of properties overlapping on the
market area may exist between two or more facilities. In this case, one of the facilities
draws some of the population in the other area/areas, fig (7). The appraiser has to draw
more attention for any kind of overlapping that may exist and review its historic
formation and any change that may occur in the market area for the subject facility.
*
Inferred Analysis (or Trend Analysis) is an analysis of the market of a real estate which is based on
statistics and data from the past to draw inferences about general class of properties. It is not a subject
specific analysis.
Fundamental Analysis is the analysis that is based on segmentation of broad demographic and economic
data to reflect the subject’s market. It focused on the subject real estate.
48
Fig (7): A possible overlap in the market area between a subject facility and other
competitive facilities.
After plotting the market area, the appraiser has to estimate the effective demand that a
facility may draw from the total population in its market area. He/she has to analyze the
data about the population growth in the area from which a facility draws its members.
The data that is needed to estimate the effective demand is:
•
Population in the market area by age, size, income;
•
% Households joining a given religious group;
•
Estimation of target groups;
•
Estimation of target groups by income, sex, size, etc;
•
Gross income estimates for the entire population;
•
% Of gross income spent on religious groups and facilities;
•
The rate of turn over (the percentage of members that leaves their groups); and
•
Potential member fees for the subject facility.
The appraiser can use the population statistics of the market area on which the subject
facility is located to estimate the number of members supporting a religious facility. The
estimation of the number of members supporting a religious facility represents the
demand side in the market analysis. First the appraiser has to determine the target group
characteristics (by sex, income, size, etc), and then he/she can determine the number of
potential users of the subject facility. The number of households joining a given religious
group can be extracted by analyzing the past and proposed trends of the religious groups’
growth. The rate of turn over for the given religious group will be used to estimate the
number of the group members at any given point of time. When multiplying the
percentage of households joining that group by the total number of population in the area,
the appraiser can calculate the potential number of members joining that group.
49
Using data about the income of the members of a religious group and the amount that
they spend on their facility, the appraiser can estimate the amount that a facility may
receive as income from its members. This income stream can be used to apply the
feasibility approach.
By identifying competitive facilities that exist in the area, which the subject facility
serves, and comparing it to the subject, the appraiser will be able to determine the portion
of the population that the subject facility will draw.
Through this analysis the appraiser will be able to project the income streams that a
facility receives on stabilized basis. The income stream depends on the religious group
regulations and rules, for some groups the fees may be high and the opposite holds for
others.
3.7 The Relation Between the Demand for Religious Facilities and the
Population Growth in Sweden
Due to the availability of data about population and future projections for population
growth in Sweden, the concept of market analysis can easily be applied on the religious
facilities such as churches. The existence of special type of religious facilities in Sweden
depends on the proposed number of members to support it. It is possible to estimate the
number of members supporting a given facility at a given point of time from the
population statistics. This can be carried out by analyzing the available data about the
recent and past records for the number of members of different religious groups. Then the
appraiser can plot the growth trend for each group from this data to know how the
membership growth will be.
An analysis is carried for some of the population statistics to examine the relation
between the number of religious groups’ members, number of new facilities, and the
population growth. The analysis takes the records of the number of Swedish Church
members as an example. Table (3) shows the population statistics and population growth
in the period 1970-2002 in whole Sweden. In Fig (8) the curve shows that the Swedish
population is increasing since 1972. The increasing number of immigrants is one of the
factors behind this growth.
50
The Swedish population 1972-2002
Fig (8): The Swedish
population 1972-2002
9,200,000
9,000,000
Despite
Population
8,800,000
8,600,000
the
positive
growth of the Swedish
8,400,000
population, the number
8,200,000
8,000,000
of members belonging
7,800,000
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
7,600,000
Year
to the Swedish Church
is
decreasing.
decrease
Population
in
membership
of
The
the
the
Swedish Church becomes faster since 1993 (Table (4) & Fig (9)). Table (4) shows the
number of Swedish Church members in the period 1972-2002 and its percentage among
the whole population. Fig (9) shows a graph for the Swedish Church members in the
period 1972-2002.
Fig (9): Number of the
Num ber of The Sw edish Church m em bers 1972-2002
Swedish Church members
7,900,000
7,800,000
1972-2002
Two
7,500,000
7,400,000
7,300,000
main
reasons
are
behind this declination. The
Year
2002
1999
1996
1993
1990
1987
1984
of the Swedish Church and
1981
7,000,000
6,900,000
1978
first reason is the separation
1975
7,200,000
7,100,000
1972
Members
7,700,000
7,600,000
the state in 1999, in that year
33,299
Number of The Sw edish Church members 1972-2002
persons
left
the
Church of Sweden, more
than twice as many as in the previous years. The second reason is the increasing number
of immigrants who belong to other religious groups Table (3). Fig (10) & (11) shows the
graphs for the number of imigrants among the swedish population in the period 19722002. It is obvious that the percentage of the number of the Swedish Church members
among the whole Swedish population is decreasing except in year 1987 Fig (9). In 1987
51
the number of members increased suddenly from 7,602,193 in 1986 to 7,662,027 in 1987.
This sudden increase was followed by a sudden decrease in year 1988 when the
membership decreased to 7,577,450 table (4). The percentage of the Swedish Church
members among the whole population in years 86, 87, 88 was 90.7%, 91.1%, and 89.6%
Respectively table (4).
Immigrants in Sweden 1972-2002
Fig (10): Number of
90,000
immigrants in Sweden
80,000
The general trend of the
Immigrants
70,000
60,000
Swedish
50,000
40,000
Church
membership is declining
30,000
meanwhile, the number
20,000
10,000
of immigrants (Table
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
0
Year
(3), Fig (10), and (11))
is increasing. From this
Immigrants
observation, I conclude
that the growth pattern of the Swedish Church membership and the number of
immigrants are moving in different directions. This is also clear in the period 1989-1995,
when the number of immigrants curve shows an irregular pattern while the number of the
Swedish Church was relatively stable.
The Accumulated Number of Immigrants In Sw eden1972-2002
1,600,000
Number of Immigrants
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
1970
1975
1980
1985
1990
1995
2000
2005
Year
The Accumulated number of Immigrants
Fig (11): Accumulated number of Immigrants in Sweden 1972-2002
52
Total number of churches in Stockholm län 1972-2001
Fig (12): The number
of churches in
Stockholm County
1972-2001
200
150
100
Another analysis was
50
carried to show the
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
0
1970
Total number of churches in
Stockholm län
250
Year
Total number of churches in Stockholm län 1972-2001
relation between the
number
of
churches
and
population
new
the
growth.
The number of the churches is shown in tables (5) and (6). Fig (12) shows the number of
churches belonging to the Swedish Church in the period 1970-2001. When analyzing this
data, it shows that number of new facilities increases in a lower rate than the increase in
population does since the population curve is steeper than the number of churches curve.
The reason behind this is the increasing number of immigrants.
Num ber of new churches in Stockholm län 1972-2001
Number of new churches
7
6
5
4
3
2
1
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
0
Year
No. of new churches
Fig (13): The number of new churches in Stockholm County 1972-2001
53
The number of new facilities in Stockholm County in the period 1975-2001 at five years
intervals is shown in table (7) and Fig (13). A graph is drawn to show the amount of new
churches at five years intervals in Fig (14). Table (8) shows Number of new churches in
Stockholm County 1972-2001. The number of newly built churches is relatively
decreasing. This comes as a result of the decreasing demand for new facilities due to the
decrease in the Swedish Church membership. This conclusion is not valid all over
Sweden; some parishes experience a positive membership growth. For example,
Sollentuna parish, which is the second biggest parish, draws more than 74% of the
population in its area. In spite of the declination of the Swedish Church membership,
there are many new churches that are built recently. The development of new facilities
takes place in some areas that experience a positive growth in membership. For example,
Kummelby Kyrka* is built for Sollentuna Parish in 2000 and Bagarmossen Kyrka is built
for Skarpäck Parish in 2001. A construction of a new church is going on right now in
Hammarby.
Number of new churches
number of new churches
12
10
8
6
4
2
0
1975
1980
1985
1990
1995
2001
year
Number of new churches in Stockholm County by the end of years 75,80,85,90,95 and
2001
Fig (14): Number of new churches in Stockholm County
by the end of years 75, 80,85,90,95 and 2001
* En Kyrka: A Swedish word that means a Church.
54
Conclusion
As churches attempt to become more involved in the day-to-day lives of their members,
church and religious facility design is dictating membership type to some degree.
Accordingly, the traditional use of a church solely as a place of worship is being
expanded. Expanded uses include support facilities such as workout facilities, social
halls, gymnasiums, counseling centers, day care centers, and schools. As the peripheral
space to provide such services expands, the design of church facilities is changing to
include significantly more multipurpose space in relation to the actual worship or
sanctuary facility.
Three approaches to value are generally applicable to the appraisal of many churches and
religious facilities. Paramount to the valuation of a facility is the need for comparables. A
search for data beyond the typical market area is frequently necessary, which in the case
of larger facilities may extend to a nationwide search. The proposed income/feasibility
technique should act as a test of reasonableness, which is particularly appropriate for
potential lenders. To carry the feasibility approach the general concepts for market
analysis can be used and the data employed in the analysis is based on the population
growth data. The feasibility approach can be easily applied in Sweden because of the
availability of data that is needed for the analysis. The appraiser can estimate the number
of members that a given facility is supposed to draw from that market area and then
calculate the income that the facility may receive. An analysis is carried out to examine
the relation between the number of the Swedish Church members, number of immigrants
and the population growth. I observed that the growth of the number of the Swedish
Church members and the number of immigrants moving in different directions. The
analysis concludes that the Swedish Church membership is decreasing while the number
of immigrants is increasing. The same observation is valid
numbers of new built facilities and the number of immigrants.
55
for the growth of the
Part Two
Real Estate Appraisal Process Modeling
Using IDEF0 Method
56
Chapter 4
Real Estate Appraisal Process Modeling
4.1 Process Definition
Almost everything we do in life involves a process. Whether you are making cookies,
installing a home satellite dish or paying an invoice, a process is involved. Process can be
defined at many different levels and with various boundaries. Hereafter are some of the
definitions of the term Process:
“A process or (Business process) is a partially ordered set of activities linked by
precedence relationships, execution of which is triggered by some event(s) and will
result in some observable or quantifiable end results”*;
“Process is a bounded group of interrelated work activities providing output of a
greater value than the inputs by means of one or more transformationsӠ
“Process is a structured measured set of activities designed to produce a specified
output for a particular customer or market. A process is thus a specific ordering of
work activities across time and place, with a beginning, an end, and clearly identified
inputs and outputs: a structure for action.”‡
Furthermore:
•
Processes must have a beginning and an end.
•
Processes are coordinated activities that involve people, procedures, technology
and infrastructure
•
Processes constitute a significant portion of organizational costs.
•
An organization is only as effective as its processes.
•
All work is part of a process that starts and ends with a customer.
* François B. Vernadat, 1996
† Eugine H. Melan, 1992
‡ Thomas Davenport, 1993
57
4.2 Process Attributes
An ideal process will comprise of three main attributes:
•
Making processes efficient means minimizing the resources used;
•
Making processes effective means producing the desired results; and
•
Making processes adaptable means being able to adapt to changing customer and
business needs.
4.3 Terms Related to Process Definition*
Process step: A part of a process that can be either complex or atomic
Task: A process step that is subject to project management (assignment of work units to
individuals or teams)
Process model: A description of a real-world process that is created to support
understanding, enactment, or improvement of a process.
4.4 Why modeling a process?
Unknown processes result in the uncertainty of what is being produced and delivered by
the organization at a specific time to its customers. From a strategically production
viewpoint, process analysis supports the design of products, services or information
systems by shortening the time frame of production and increases the like hood of
discovering eventual malfunctions in a prevailing process.
Through Process modeling it will be possible for a planning team in an organization to
identify the critical parts of what the organization achieves. Further more, it will be
possible to judge upon the organization achievements by comparing the standardized
process to the organization process model.
4.5 The Process of Real Estate Appraisal
Similar to any process, the process of developing an opinion of value can have the same
broad definition of process. It is a model that can be adapted to a wide variety of
* Bernhard Westfechtel, Management of Software Development Processes, 2001(from a lecture at
Department of Computer Science III, RWTH Aachen
58
questions related to value. According to the Dictionary of Real Estate Appraisal, Third
Edition, 1993, the definition of an Appraisal is:
“An analysis, opinion, or conclusion relating to the nature, quality, value, or
utility of specified interests in, or aspects of, identified real estate. (Code of
Professional Ethics of the Appraisal Institute). In this usage, appraisals cover a
variety of assignments, including valuation, consulting, and review.”
“The act or process of estimating value; an estimate of value.” *
From a professional point of view the Appraisal Process can be defined in many ways:
“A systematic set of procedures an appraise follow to provide answers to a
client’s questions about real property value”.
“The valuation process indicates a pattern to be followed in gathering, analyzing
and applying pertinent information to establish a property value”.
The appraisal process begins when the appraiser agrees to get an assignment and ends
when the conclusions of the appraisal are reported to the client. The most common
appraisal assignment is performed to render an opinion of market value. The valuation
process contains all steps appropriate to this type of assignments and provides the
framework for developing an opinion of other defined values.
The valuation process is accomplished through specific steps. The number of steps
followed depends on the nature of the appraisal assignment and the availability of data.
As suggested by the Appraisal of Real Estate 12th edition, the general steps in a valuation
process are shown in Fig (15).
* USPAP, 1992 edition
59
Definition of the Problem
Identification of
client/ intended
users
Intended
use of the
Appraisal
Purpose of
appraisal
(including
definition of
value)
Date of
opinion
of value
Identification of
characteristics of
property (including
location and property
rights to be valued)
Extraordinary
assumptions
Hypothetical
conditions
Scope of Work
Data Collection and Property Description
Market Area Data
Subject Property Data
Comparable Property Data
General characteristics of
region, city, and
neighborhood
Specific characteristics of land
and improvements, personal
property, business assets, etc.
Sales, listings, offerings, vacancies,
cost and depreciation income and
expenses capitalization rates, etc.
Data analysis
Market Analysis
Highest and Best Use
Analysis
Demand studies
Supply analysis
Marketability analysis
Site as though vacant
Ideal improvement
Property as improved
Land Value Opinion
Application of the Approach to value
Cost
Sales Comparison
Income Capitalization
Reconciliation of Value Indication and Final Opinion of Value
Report of Defined Value
Fig (15): The Valuation Process
60
4.6 Modeling the Appraisal Process
The appraisal process similar to other processes, when modeled enables its users to
improve the process. Process models enable the planners to identify and overcome any
difficulties that affect the achievement, quality, cost, and time. Moreover, it will be easier
to analyze the reasons behind the success or failure of any organization by comparing the
standard process models to the actual process that an enterprise follows. A study in USA
concludes that expert appraisers deviate significantly from the prescribed appraisal
process. One of the research hypotheses of the study was that the behavior of expert real
estate appraisers solve routine appraisal problems set in familiar geographic areas will
deviate from the prescribed appraisal process. The study was designed to be
representative of real world residential appraisal assignments. The conclusion of the
study leads to the desire for models of actual behavior, and information gathered during
the study provides the basis for such a model (fig 16). Based upon the frequency of use,
six steps of the appraisal process appear to dominate the behavior of the expert subjects.
These steps were used to build a preliminary five-step descriptive model of expert
appraisal behavior. Other steps prescribed by the appraisal process were employed to a
lesser extend and appear to be considered optional, only to be accessed if the expert felt
that the particular case warranted their consideration.
The study presents strong evidence that expert residential real estate appraisers do not
follow the appraisal process when solving routine appraisal tasks. It also raises serious
questions about the efficacy of the appraisal process and has important educational
implications. If non-normative expert behavior leads to suboptimal valuation judgments,
students and practitioners must be cautioned against this natural but biasing behavior.
Conversely, if the expert model proves to be more efficient than the normative model and
if its use doesn’t bias results, the appraiser process must be seriously reexamined as a
prescription for appraisal problems solving.
61
Fig (16): Descriptive model of residential appraiser behavior*
Based on the prescribed appraisal process model, two IDEF0 models are built. An IDEF0
model for the theoretic appraisal process is built to be compared to an IDEF0 model for
the appraisal process followed by appraisers in one of the biggest Swedish companies
working with valuation and related issues. The model shows how appraisers in Svefa AB
carry out their work from the first stages of the appraisal assignment. In the next section a
description of the IDEF0 method is carried out, it will show the principles of the method
and its rules.
* The numbers that appear with each step shows the portion of the experts who employ the step.
62
Chapter 5
IDEF0 Models Principles
5.1 Introduction to IDEF0 Method
Integration Definition for Function Modeling (IDEF0) is a static modeling paradigm that
represents a system as a network of inter-connected activities. It is based on and derived
from the Structured Analysis and Design Technique (SADT), a graphical approach to
system description. IDEF0 was introduced by Douglas T. Ross in the early 1970s and
used at SofTech, Inc. (USA) on a variety of problems. In 1981, the U.S. Air Force
Program for Integrated Computer-Aided Manufacturing (ICAM) standardized and made
public a subset of SADT, called IDEF0. The United States Air Force commissioned the
developers of SADT to develop a function modeling method for analyzing and
communicating the functional perspective of a system.
IDEF0 was originally used to apply structured methods to better understand how to
improve manufacturing productivity. Another notation goal is to provide a
straightforward means of locating details of interest easily and quickly. In keeping with
these goals, IDEF0 is expected to contain a high level of support for process
understanding, communication, and improvement.
IDEF0 is a method designed to model the decisions, actions, and activities of an
organization or system. It uses a mix of graphics and natural language to capture and
communicate process details. The IDEF0 model is made of a set of IDEF0 diagrams that
depict the constraint, not flow. It is not a flow chart since it doesn’t prescribe a sequence
of operation.
IDEF0 assists the modeler in identifying what functions are performed, what is needed to
perform those functions, what the current system does right, and what the current system
does wrong. Thus, IDEF0 models are often created as one of the first tasks of a system
development effort.
63
The theoretical basis of IDEF0 is that it can be used to model any system comprised of
things and happenings. Therefore, it is perfectly applicable to data processing, project
planning, process modeling, and business process reengineering, and manufacturing
systems because these systems generally consist of a network of inter-connected
activities.
5.2 Features of IDEF0 Models
The models are hierarchical; they start with a single activity at the highest level, this
activity is then decomposed into three to six activities (not less than three and not more
than six) on the next page. The hierarchical structure means that each page of the model
contains a relatively small amount of information. This is a contrast to flow charts that
can have many different activities on the one page. Another feature that makes IDEF0
models easy to understand is its methodology that only contains two elements - boxes and
arrows. The boxes represent the happenings (activities) and the arrows represent the
interface between those happenings (things). Arrows entering a box represent inputs,
outputs, controls and mechanisms of those activities. The inputs are transformed in the
activity using, but not consuming, mechanisms or resources such as staff and machines to
produce outputs. Typically the operation of the activity will be moderated by controls
such as policies and procedures. The main components of an IDEF0 model are shown in
fig (17).
Fig (17): The main components of the IDEF0 Methodology
64
IDEF0 Models are made up of diagrams, arranged in hierarchal structure. Each diagram
tells a story about a portion of the system being modeled. The top-most diagram
represents the entire system, and each box on this top-level diagram is decomposed into
sub-ordinate models at the next level of detail. The number of decomposed diagram
boxes depends on the level of abstraction the model should fulfill. If it is helpful for the
purpose of the model, those activities in turn are decomposed. Although the actual
decomposition page is not shown in this way, fig (18) illustrates how activities are
decomposed.
Fig (18): The concept of top-level diagram decomposition
5.3 General IDEF0 Rules
Box rules
•
Each activity box has a name consisting of a verbal phrase.
•
All activities have at least one control and one output.
•
All activities are contained in the lowest-level decomposition.
•
Single-digit box number appears in the lower-right corner.
Arrow rules
•
Each arrow has a unique label, which is a noun phrase.
•
Labels on arrows branches show flow restriction.
•
Arrows are bundled to match activity level of detail.
•
Arrows have rounded corners for ease reading.
•
Diagram boundary arrows must be plug-compatible.
65
Diagram rules
•
Between three and six activities per diagram.
•
ICOM codes define parent/child arrow connectively*.
•
Diagrams show constraint, they are not data flow diagrams or flow charts.
5.4 AS-IS and TO-BE Models
Two types of IDEF0 Models are usually used when the purpose is to reengineer a
process. AS-IS and TO-BE models are used for this purpose. AS-IS models are IDEF0
models that show how an enterprise now operating, as opposed to TO-BE models which
show how the enterprise will operate in the future or what the standards recommend.
Through comparing the AS-IS model to the TO-BE model a planner can easily define the
problems associated with the entire processing system and suggests all possible actions to
be taken in order to improve the system.
5.5 Benefits of Using IDEFO Models
-Not like other modeling methods, which assume a well-defined problem, IDEF0 is
originally intended for the early problem-definition stages. This fact helps the modeler
deeply understand the problem and create effective solutions.
-Understand, communicate, and validate the proposed changes. The communication
power of IDEF0 provides and efficient and precise way to model real-world operations.
-The use of graphical language approach in IDEF0 Models reduces misunderstanding and
facilitates the main objective; change, control and planning.
-AS-IS Models help their users deeply understand and define the processes for any
further improvements.
-TO-BE Models provide the planning staff with a means of defining improved processes
and a way of gaining consensus.
-The ability to support change initiatives, resulting in lower costs and less breakage.
* ICOM codes: Input, Control, Output, and Mechanism Codes
66
Chapter 6
IDEF0 Model for the Theoretic Appraisal Process
6.1 Overview
The following part shows an attempt to build an IDEF0 Model for the standard theoretic
appraisal process. According to the IDEF0 Method criterion, most of the model is
interpreted through the diagrams, text is employed only when needed; for the purpose of
further description. As the rules of the IDEF0 Method state, the proposed model for the
appraisal process doesn’t show the sequence, it shows the main steps of the valuation
instead and how they can be broken down for the purpose of understanding the process.
Therefore, the model only shows the steps and tasks incorporated in the appraisal process
but not sequentially. For simplicity, the model doesn’t include the cost associated with
each phase of the process.
The concept behind building this model is that the appraisal of religious facilities is a part
of the broad valuation process. The model will help appraisers apply the standard
valuation process on religious facilities as special purpose properties considering their
special characteristics and requirements. Another IDEF0 Model is built to show how the
appraisal is carried by appraisers in Svefa AB and to help improving the process and
reach the best utilization of available resources.
The model is named “Estimate a market value of a property”, fig (20) shows the top-level
diagram, which is decomposed into six main steps. Fig (19) shows the break down of the
top-level diagram into the six steps. Similar to other IDEF0 Models, the model consists of
input, control, output, and mechanism arrows that stand for any factor that is incorporated
in the appraisal process. Fig (20) shows all the inputs, controls, outputs and mechanisms
employed by the model. Hereafter is a highlighting of the inputs, controls, outputs, and
mechanisms incorporated into the proposed IDEF0 Model for the theoretic appraisal
process
67
Estimate a Market Value of
a Property
Identify the
valuation task
Plan the
appraisal task
Collect the
data
Analyze the
data
Ide ntify the
clie nt/use rs
of the
valuation
De te rmine
re quire d
ste ps
C ollect
ge ne ral data
Highe st and
be st use
analysis
C re ate a
time table
for the
proce ss
Colle ct
subje ct
prope rty
data
Se lect the
staff
me mbe rs to
achie ve the
task
C olle ct
comparable s
data
Se t the
scope of
work
Ide ntify the
Purpose ,
intende d use ,
and use rs of
the valuation
Marke t
analysis
Se le ct the
be st
comparable s
Apply the
valuation
methods
Write the
report
Se le ct the
appropriate
valuation
me thods
Apply the
cost
approach
Apply the
sale s
comparison
approach
De fine value
cate gory &
valuation
data
C ollect data
about
alte rnative
use s
Apply the
income
approach
Ide ntify
ge ne ral
characte ristic
of the
prope rty
C olle ct
marke t data
Re concile
Value
Indications
in a final
one
Ide ntify
e xtraordinary
assumptions
Fig (19): The decomposition of the top level IDEF0 diagram into six steps
68
6.2 Inputs (I)
Inputs are objects to be processed or transformed by the function. Inputs can be
information objects or physical objects. In the appraisal process the inputs are mainly
information objects. The main inputs in the IDEF0 model for the appraisal process, I
suggest, are:
Client information
Stands for any information provided by the client regarding the assignment, the appraiser
makes use of this information to identify the appraisal assignment and all the
requirements that a client specify and may influence the process. Through this
information the appraiser can identify the client, the use, and the most probable users of
the valuation report. The main property data that an appraiser needs in any assignment is
based on the information provided by the client. The client provides the appraiser with
the data about his property and its history, contracts, the quality of tenants, operating
costs, maintenance costs, and his own expectations.
Valuer information
Any valuation report must state who achieved the assignment by mentioning the
appraiser’s name and may be his qualifications. Moreover, in large companies, the
selection of the appraiser who will carry out the valuation depends on the appraisers’
capabilities, the nature of the task, and the time it will take. All this information and
similar information represents the valuer information.
Market information
To reach a reliable opinion of value of a property, the value estimate should be supported
by the market information. All the data about comparable sales, rents, vacancies, yields,
costs, operating costs, maintenance costs, interest rates, inflation, and the market trend
are the main market information that is required in the valuation of any property.
69
Property data
The property data that an appraiser employs in the appraisal process includes all the data
that gives a clear image of the property to both the valuer and the users of the valuation
report. The appraiser should collect any available data about the property (i.e., zoning,
possible uses, legal attributes) and its characteristics such as location, size, built area,
lettable area, quality, architectural style, functional utility, equipment and machinery,
property tax, property rights to be valued, construction standard, and building condition.
A property inspection is needed to enable the appraiser identify comparables. To describe
the scope of work required in an assignment, the appraiser must first identify any
extraordinary assumptions or hypothetical conditions that influence the appraisal.
Extraordinary assumptions presume uncertain information to be factual. Hypothetical
conditions are conditions that don’t exist but asserted by the appraiser for the purpose of
the valuation. Extraordinary assumptions and hypothetical conditions are identified after
the inspection of the property.
6.3 Controls (C)
The controls (C) are defined in the form of information objects, they are used to
activate/regulate/synchronize the activity itself. Example of control objects can be orders,
constraints, plans, schedules, management, directives, or regulations. I suggest the
following objects to act as controls for the theoretic appraisal process:
Limiting conditions
Statements of limiting conditions should be included in the report to help protect both the
appraiser and the client, and to inform the client and the other users of the report about
any limitations on the use of the appraisal. The clear identification of the assignment
limitations helps avoiding misunderstanding or abuses of the appraisal.
Client requirement
The client requirements are one of the most important factors that influence the whole
process. The client may clearly state the value category and the purpose of the appraisal,
this is essential for the appraiser when appraising any property. Time limits and the type
of the report, which a client asks for, influence the whole process and the amount of
effort the appraiser will put on each step of the process.
70
Professional standards
The standards and codes set by the international and local appraisers associations are
paramount to the process. Some of the standards may specify how an appraiser should
carryout the assignment and what to mention in the valuation report. In Sweden these
standards and codes are specified by SFF and SFI*. All the appraisers in Sweden should
follow SFF codes. Meanwhile, SFI codes are followed only when the appraisal is done
for SFI members. Appraisers should follow the SFI codes if the client, to whom the
assignment is done, is a member of the SFI, otherwise appraisers may follow it as a guide
only but without any obligations.
6.4 Outputs (O)
The outputs are objects processed or transformed by the function. They can also be
information objects or physical objects. The outputs from the appraisal process are
information objects. Outputs of a function can be used as inputs by other function(s). If
the output is information, it can be used as control input, function input, or data
mechanism input by other function (i.e. the output from the function “plan the appraisal
task” are used as controls for the following functions; see fig (21)). If the output is a
physical object, it can only be used as function input or mechanism input by other
function.
The main purpose of any appraisal assignment is to make an estimate of value for a given
property. Therefore, the outputs from the appraisal process are the opinion of value for
the property and/or a written report. In the suggested IDEF0 model for the appraisal
process, the appraisal report is an output that depends on other functions outputs. A client
may call for a valuation task without submitting a report; otherwise the report may be the
main output of the process. After reaching an opinion of value a feedback may be needed
if the appraiser believes that the results are inconsistent or the value is higher/lower than
he/she believes. The feedback is indicated by a dotted line in fig (21), in this case the
appraiser may need to recollect or check some of the data or to reanalyze it if he/she
thinks that something wrong might have occurred during the data analysis stage.
*
SFF: Samfundet för fastighetsekonomi (the Swedish Society of Real Estate Economics).
SFI: Svensk fastighetsindex (Swedish Property Index).
71
6.5 Mechanism (M)
The mechanism (M) can represent information and/or physical resources. Examples
include data files, databases, machines, plants, software systems, and human operators.
The appraiser, to carry out the appraisal assignment, may use several different sources.
The sources used for the appraisal depends on the valuer facilities. Usually, appraisers
employ the information systems as a source for data collection. Depending on the
available facilities the appraiser has, he/she will determine the level of accuracy of data
and the level of effort he/she has to put on the assignment. The appraiser can make use of
computer programs and software to save time and effort and to make use of the data in
the future. In Sweden most of the market information and comparables data are available
through a database.
Comparable sales data is provided by “Lantmäteriverket”*, which is responsible for the
registration of any change in the ownership of properties. Lantmäteriverket provides all
the information about the properties that are sold in the market or any form of change in
the ownership (i.e. inheritance). Appraisers can get the comparable sales information
from Lantmäteriverket, but an agreement with Lantmäteriverket is required. The
appraiser can get this information from the database by looking for properties that are
sold during the most appropriate period for the valuation and that have the same taxation
code as the subject property. In Sweden all the properties are given a taxation code based
on the tax categories. Properties of a similar function are given the same taxation code;
(Table 9) shows the properties categories according to the taxation codes. Special
purpose properties are given the taxation codes 800-899 (Table 10). Most of the Swedish
companies that are working with valuations have the access to this database.
The market information is available from the Internet and some companies sell more
specific data that appraisers may need. The use of this database is the mechanism through
which appraisers can get the data and estimate a market value of a property.
*Lantmäterietverket is the Survey Office in Sweden, the Division of Land and Geographic Information at
Lantmäterietverket is responsible for the generation, management, development and distribution of
geographic and real property information.
72
IDEF0 Model For The Theoretic Appraisal Process
Figs (20) to (26) shows the IDEF0 model, I suggest, for the theoretic appraisal process, it
is based on what the literature and the international valuations associations recommend
(i.e., Appraisal Institute). The valuation process that is recommended by the appraisal
institute (fig. 15) was the reference for building the model. The titles of the step may look
different to comply with the IDEF0 Model rules. Some of the steps are included with
others steps and broken down, since the number of the models activities shouldn’t exceed
six boxes.
73
USED AT:
KTH
AUTHOR: Akram Elkhalifa
DATE: 11/30/2003
WORKING
PROJECT: The Theoretic Appraisal Model
REV: 2/29/2004
DRAFT
READER
DATE CONTEXT:
TOP
RECOMMENDED
NOTES: 1 2 3 4 5 6 7 8 9 10
PUBLICATION
Limiting
Conditions
Client
Requirement
Professional
Standards
Client information
Final Opinion of Value
Valuer infromation
Estimate a market value of a property
Market Information
Valuation report
Property Data
0
Surveying &
Inspecting tools
NODE:
TITLE:
Information systems Company Facilities
Estimate a Market Value of a Property
NUMBER:
A-0
Fig (20): IDEF0 Diagram A-0 “Estimate a Market Value of a Property”
74
USED AT:
AUTHOR: Akram Elkhalifa
PROJECT: The Theoretic Appraisal Model
DATE: 12/11/2003
REV: 2/7/2004
READER
WORKING
DATE CONTEXT:
DRAFT
RECOMMENDED
PUBLICATION
NOTES: 1 2 3 4 5 6 7 8 9 10
Limiting Conditions
Client Requirement
Client
information
A-0
Professional Standards
Defined task
Property Data
Identify the
valuation task
Scope of work
1
Appraisal steps
and scheduling
Plan the
appraisal task
Valuer
Information
2
Possible alternative uses
Collect the data
Market
Information
Information provided by
the client
3
Collected data Analyze
the data
Incorrect data
Analyzed
data
Data to be reanalyzed
4
Surveying &
Inspecting tools
Property collected data
Information systems
Valuer Portfolio
Assignment
Information
Apply the
valuation methods
Final Opinion of
Value
5
Inconsistent results
Data to be written directly
Basic Information
Valuation
report
Write the
report
6
Company Facilities
NODE:
TITLE:
A0
Estimate a Market Value of a Property
NUMBER:
Fig (21): IDEF0 Diagram A0 “Estimate a Market Value of a Property”
75
USED AT:
AUTHOR: Akram Elkhalifa
PROJECT: The Theoretic Appraisal Model
DATE: 12/11/2003
REV: 1/24/2004
WORKING
READER
DATE CONTEXT:
DRAFT
RECOMMENDED
NOTES: 1 2 3 4 5 6 7 8 9 10
A0
PUBLICATION
Client Requirement
Client information
Identify the
client/users
of the valuaion
Defined client/ users
1
Information about
client needs
Identify the Purpose,
intended use and
users of the valuatiion
Setted value
definition by the
client
Clear purpose &
Intended use of the
valuation
Client
assumptions
Limiting Conditions
2
Defined task
Define the value category
& valuation date
4
Value definition &
valuation date
Set the scope
of work
Property Data
Identify general
Characteristics of the property
3
6
Main property data
Identify extra ordinary assumptions
& hypothetical conditions
Defined
Extraordinary
assumptions &
Hypothetical
conditions
5
NODE:
TITLE:
A1
Identify the Valuation Task
Fig (22): IDEF0 Diagram A1 “Identify the Valuation Task”
76
NUMBER:
Scope of work
USED AT:
AUTHOR: Akram Elkhalifa
DATE: 12/11/2003
WORKING
PROJECT: The Theoretic Appraisal Model
REV:
DRAFT
1/24/2004
READER
DATE CONTEXT:
RECOMMENDED
NOTES: 1 2 3 4 5 6 7 8 9 10
A0
PUBLICATION
Scope of work
Client Requirement
Professional Standards
Dead-line
Assignment information
Recommended Methods
Determine required steps
1
Appraisal steps and scheduling
Defined
Steps
Timetable
Staff Experience
Create a time table for the process
2
Valuer infromation
Available staff information and
Capabilities
Named members
for the task
Select the staff members to achieve the task
3
NODE:
TITLE:
Plan the Appraisal Task
A2
Fig (23): IDEF0 Diagram A2 “Plan the Appraisal Task”
77
NUMBER:
USED AT:
AUTHOR: Akram Elkhalifa
DATE: 12/17/2003
WORKING
PROJECT: The Theoretic Appraisal Model
REV: 1/13/2004
DRAFT
READER
DATE CONTEXT:
RECOMMENDED
NOTES: 1 2 3 4 5 6 7 8 9 10
A0
PUBLICATION
Appraisal steps and scheduling
Professional Standards
Information
provided by the
client
Property economical data
Collect Subject
property data
incorrect data
Collected data
Scope of work
Property Data
1
Collect general data
General economic data
3
General market data
Property & rental market data
Collect Market data
Market Information
2
Collect
Comparables data
Information about market sales
Market Information about other uses
Comparables data
4
Surveying & Inspecting tools
Collect data about
alternative uses
5
Company Facilities
Information systems
NODE:
TITLE:
Collect the Data
A3
Fig (24): IDEF0 Diagram A3 “Collect the Data”
78
NUMBER:
Possible alternative uses
USED AT:
AUTHOR: Akram Elkhalifa
DATE: 12/24/2003
WORKING
PROJECT: The Theoretic Appraisal Model
REV: 2/13/2004
DRAFT
READER
DATE CONTEXT:
RECOMMENDED
NOTES: 1 2 3 4 5 6 7 8 9 10
A0
PUBLICATION
Appraisal steps and scheduling
Professional Standards
Data to be
reanalyzed
Possible alternative uses
Highest and best
use analysis
Highest & best use analysis conclusion
1
Highest and best use
Collected data
General economic data
Property & rental market data
Market analysis conclusions
Market Analysis
Analyzed data
2
Comparables data
Select the
best comparables
3
NODE:
TITLE:
Analyze the Data
A4
Fig (25): IDEF0 Diagram A4 “Analyze the Data”
79
Selected Comparables
NUMBER:
USED AT:
AUTHOR: Akram Elkhalifa
DATE: 12/24/2003
WORKING
PROJECT: The Theoretic Appraisal Model
REV: 2/7/2004
DRAFT
READER
DATE CONTEXT:
RECOMMENDED
NOTES: 1 2 3 4 5 6 7 8 9 10
Defined task
A0
PUBLICATION
Appraisal steps and scheduling
Select the Appropriate
Valuation methods
to apply
Professional Standards
Recommended Methods to be used
1
Reliable and
available data
Data Reliability
Property Characteristics and Features data
Value indication1
Apply the Cost Approach
Analyzed data
Market data
Costs and Depreciation data
2
Selcted Comparables data
Apply the sales
comparison Approach
Reconcile
Value Indications
in a final one
Value indication-2
3
5
Main property data
Value indication-3
Property & rental market data
Apply the Income Approach
Property Economic data and Contracts Information
Property collected data
NODE:
TITLE:
4
Apply the Valuation Methods
A5
Fig (26): IDEF0 Diagram A5 “Apply the Valuation Methods”
80
NUMBER:
Final Opinion
of Value
Chapter 7
The Appraisal Process at Svefa AB
The next part will show how appraisers at Svefa AB do their work; an IDEF0 Model is
built for this purpose. An introduction to Svefa will be the starting point for this part.
Then a description of how the work is carried out will be discussed with the help of the
IDEF0 models.
7.1 Introduction to Svefa AB
Svefa AB is one of the largest property consultancy companies in Sweden with
approximately 70 consultants based in just over 20 offices across the company*. Svefa
was established on July 1st 1995. In 1997 the name was changed from SVEFA AB
(Svensk Fastighetsvärdering AB) to Svefa AB as just a name. Appraisal is the main field
with which Svefa works and most of the appraisers at Svefa are authorized appraisers.
Svefa also carry out some special services within Property Law, Real Estate Economics,
and Brokerage concerning any types of properties. Svefa is a well-known company that
works with the appraisal of special purpose properties and it is considered as a reference
for many companies. Svefa carry out appraisal assignments for large buildings, small
houses, land, forests, and agricultural land.
Svefa appraisals include apartments, commercial and industrial properties as well as
development rights. It appraise property holdings for real estate companies for annual
accounting purposes, and as a due diligence for Swedish and international investors. It
also appraises apartment buildings on the behalf of tenants-owners’ associations or
property owners in connection with conversation to ownership rights. Svefa also provides
investment analysis services to help investors taking the right decisions. Svefa takes an
ideal position to provide impartial legal and financial advice regarding property issues.
This includes the determination of compensation for noise or other environmental
disturbances, valuation in connection with road construction or establishing nature
reserves. This may also apply when seeking a correction if the tax assessment of a
client’s property does not reflect the market value.
* For further information about Svefa look at www.svefa.se
81
Svefa appraises individual area of forests facing encroachment, or complete real estate
holding which may involve farmland with fields and meadows or buildings and
forestland that need to be appraised to change in a family ownership for example. Svefa
conducts negotiations on the behalf of various parties, (i.e. to reach an agreement
between the state and any forest land owners affected by the establishment of a nature
reserve).
Svefa is one of the promoters of the Swedish Internet site www.fastighetspris.nu, where
prices information on sold properties can be found. Svefa is also providing market
information regarding open market rents on profit requirements. It works with property
agents who can help clients buying and selling properties. In addition, Svefa provides
access to surveys and measurements of indoor and out door environment.
7.2 The Appraisal System in Svefa
At Svefa, several automatic appraisal systems are developed. These systems reduce costs
and increase the quality of the appraisals. The appraisal system makes it easier to obtain a
simple and quick appraisal of the properties used as collateral for loans grants. The
FPwin property pricing system is an expert system used by Svefa for the appraisal and
analysis of the property market. The system incorporates information about property sold
all over Sweden and includes all types of property (large buildings, land and forest,
special properties, and single family houses) sold since 1986.
Lantmäteriverket provides the main data about comparable sales that the appraisers at
Svefa employ in the application of the valuations methods. The data that Svefa includes
about the sales in its system includes:
•
Property Name
•
Price
•
Municipality
•
Price/Area
•
County
•
Price/Base Value Ratio
•
Address
•
Type Code according to the
•
Sale Date
•
Buyer
•
Value Year
•
Seller
•
Total Area
taxation codes
82
•
•
Site Area
•
Residential Area
•
Office Area
•
Commercial Area
community took the right to buy
•
Production area (for industrial
the property first; in Sweden the
properties)
community has the priority to
•
Storage
Area
•
Offices
Area
for
the
number
of
transactions Type of transaction
•
(for
A statement telling whether the
buy a property when the owner
industrial
wants to sell it out.
properties)
•
Code
(for
•
industrial
The parish to which a religious
properties)
facility belongs when the sale is
Year of construction
for a religious facility.
The appraisers at Svefa mainly employ the sales comparison and income approach in the
appraisal assignments. For the income approach, Svefa has its own software that enables
the appraisers to estimate a value of a property in a short period of time. Infrequently
used, the cost approach is only employed as a check for the value estimate concluded by
the two other approaches to value.
7.3 Purposes of Svefa IDEF0 Model
The purpose behind building the IDEF0 model that I suggest for Svefa is to
•
Compare the appraisal process in Svefa to the theoretic appraisal model;
•
Include any steps that are not covered in the theoretic appraisal process;
•
Show the difficulties that appraisers at Svefa face during the appraisal process;
•
Determine the performance of Svefa in appraising properties;
•
Suggest how to improve the performance at Svefa; and
•
Set the basis for new appraisers to do their work.
83
7.4 The Appraisal Process at Svefa
Usually, Svefa gets appraisal assignments through direct contacts; often through phone
calls, fax, and e-mails are the mechanisms of getting the task. Some appraisal
assignments may be got through bidding with other companies. Getting the task is a step
that is not included in the theoretic process model. After getting the task, a registration
number is assigned for the task for administrative purpose such as payments. This
number is written in the valuation report and considered as a reference number for the
task in the future when it is needed. Determining who will do the job depends on many
factors such as:
•
Appraisers skills;
•
Appraisers experience;
•
Property to be appraised;
•
Number of properties to be appraised;
•
Location; and
•
The workload on each appraiser.
The first step in the process after identifying the task is the data collection. The appraisers
in general and in Svefa in specific consider this stage as the most difficult stage in the
process. It may be a difficult task to get the accurate and reliable data for special
properties that are infrequently sold in the market. For some types of properties there may
be no enough comparable sales to be used for the valuation. The main sources that the
appraisers at Svefa get the information from are; information systems, means of
communications, direct contacts with colleagues and friends, news, articles, and from
actors in the market. The informal information systems* are not incorporated in the
theoretic process model. It is the appraiser task to ensure the accuracy and reliability of
data that he/she employs in the appraisal.
The appraiser may make a property inspection unless the client states that he/she doesn’t
want such an inspection to be done. Sometimes the client may call for an assignment in
which he/she doesn’t want a site inspection to be carried out or no photos to be taken. In
this case the main incentive for the client to have such requirements is to lower the fees.
*
Informal information systems such as information the appraiser get from friends and informal meetings
with colleagues.
84
The appraisers at Svefa mainly employ the sales comparison and/or income approach in
the appraisal assignments. Usually they start with the sales comparison approach and then
apply the income approach. Which method to be used, mainly depends on the property
type, the nature of the task, and the availability of data.
Normally the appraisal of common types of properties takes about 12-15 hours, while the
appraisal of special purpose properties may take 15-50 hours. Most of the time is devoted
for the data analysis stage. The longer the time an assignment takes, the higher the fees
will be. In some cases the client may call for a task without a written report. The quality
of the written report depends on the purpose of the appraisal, the fees, and the client
requirements. The report includes all the data that the appraiser collects about the
property and its comparables. Some times the client may require that no photos should be
put in the report.
Svefa may terminate a task when it discovers that the client tries to provide wrong
information (i.e. when the client gives false information about the contracts and actual
rents). A feedback from the client may call for a revision or recollection of data. After the
report submission, it is the economic department responsibility to send the bills and
collect the fees.
7.5 IDEF0 Model for the Appraisal Process at Svefa AB
Figures (27) to (30) show the suggested IDEF0 model for the appraisal process at Svefa.
All the information used in building this model is provided by the appraisers at Svefa.
The main difference between this model and the theoretic appraisal process model is the
stage of getting the task. This stage is considered as an administrative stage but it
includes many steps that are incorporated in the appraisal itself such as the definition of
the task and the scheduling of the appraisal steps. The appraisers at Svefa believe that
they follow the following steps as the standards recommend.
85
USED AT:
AUTHOR: Akram Elkhalifa
PROJECT: Appraisal Process at Svefa
DATE: 1/14/2004
REV: 2/28/2004
READER
WORKING
DATE CONTEXT:
DRAFT
TOP
RECOMMENDED
PUBLICATION
NOTES: 1 2 3 4 5 6 7 8 9 10
Swedish professional
standards
Limiting conditions Client requirements Paid fees
Defined Task
Negative bidding result
Client information
Information about Svefa
Payment Orders
Estimate the market value of a property
Market information
Final opinion of value
Property data
Valuation report
0
Surveying &
Information &
inspecting tools
communication
systems
NODE:
TITLE:
Company
facilities
Informal information
systems
Estimate the Market Value of a Property
NUMBER:
A-0
Fig (27): IDEF0 Diagram A-0 “Estimate a Market Value of a Property”
86
USED AT:
AUTHOR: Akram Elkhalifa
PROJECT: Appraisal Process at Svefa
DATE: 1/14/2004
REV: 2/28/2004
READER
WORKING
DATE CONTEXT:
DRAFT
RECOMMENDED
PUBLICATION
NOTES: 1 2 3 4 5 6 7 8 9 10
Limiting conditionsPaid fees
Swedish professional standards
Client requirements
Defined Task
Negative bidding result
Client information
Information about Svefa
A-0
Getting
the task
Restrictions settled by the client on data to be collected
Payment Orders
Task plan & schedule
Property data
Defined Task
1
Possible alternative uses
Collect
the data
Property information provided by the client
Report type
Collected data
Market information
2
Means of
communication
Appraiser
Information
Analyze
the data
Incorrect
data
Surveying &
inspecting
tools
3
Data to be
reanalyzed
Property collected data
Apply the
valuation
methods
Final opinion of value
4
Feed back
Data to be written directly
Information &
communication
systems
Informal
infromation
systems
5
Basic information
Company facilities
NODE:
TITLE:
Estimate the Market Value of a Property
NUMBER:
A0
Fig (28): IDEF0 Diagram A0 “Estimate a Market Value of a Property”
87
Write
the report
Valuation
report
USED AT:
AUTHOR: Akram Elkhalifa
PROJECT: Appraisal Process at Svefa
DATE: 1/24/2004
REV: 2/28/2004
WORKING
READER
DATE CONTEXT:
DRAFT
RECOMMENDED
PUBLICATION
NOTES: 1 2 3 4 5 6 7 8 9 10
Limiting conditions
Information about Svefa
Defined Task
A0
Client requirements
Negative bidding result
Bid with
other valuers
Contract Price
Property data
Client information
Defined Task
Paid fees
1
Identify a typical
valuation task
(getting a task directly)
2
scheduled
payments
Send bills
Means of communication
NODE:
TITLE:
Getting the Task
A1
Fig (29): IDEF0 Diagram A1 “Getting the Task”
88
Payment Orders
3
NUMBER:
USED AT:
AUTHOR: Akram Elkhalifa
PROJECT: Appraisal Process at Svefa
DATE: 1/24/2004
REV: 1/24/2004
READER
WORKING
DATE CONTEXT:
DRAFT
RECOMMENDED
PUBLICATION
NOTES: 1 2 3 4 5 6 7 8 9 10
A1
Client requirements
Information about Svefa
Prepare the
tender document
Bidding invitation
Tender submission
Set the
tender price
1
Contract Price
5
Limiting conditions
Information
from the client
Defined Task
Identify the
appraisal task
Defined steps
Property data
Plan the
appraisal task
2
Task plan &
schedule
3
Positive result
Get the tender result
Negative bidding result
Bidding result
4
Tender submission
NODE:
TITLE:
Bid with Other Valuers
A11
Fig (30): IDEF0 Diagram A11 “Bid with Other Valuers”
89
NUMBER:
7.6 How to improve the work at Svefa?
The suggested IDEF0 model shows how appraisers at Svefa carry out the work. It does
not show how the appraisal process interacts with other activities that Svefa carries. It
does not include any costs associated with each step; time is not included as well. By
including time and cost in the model, a more accurate analysis can be done to determine
what are the time and cost consuming steps in the process. When a more professional
model is built, Svefa can have the chance to apply for the ISO 9000 Certificate* that is
based on quality management principles. Hereafter are some suggestions to improve the
work at Svefa:
•
Build a more detailed IDEF0 model for all Svefa activities.
•
Include costs associated with each step in the IDEF0 to determine the cost
consuming steps.
•
Build a CPM Charts (Critical Path Method Charts)† to include time in the process.
•
Integrate the conclusions of the IDEF0 model with the CPM model.
•
Periodically update the central information system at Svefa by reporting the
conclusions of appraisal assignments.
•
The IDEF0 model can be considered as a basis for new appraisers who join Svefa.
*
ISO (International Organization for Standardization); the ISO 9000 Certificate is based on eight quality
management principles.
†
CPM (Critical Path Method) is a deterministic scheduling strategy that is based on the best estimation of
task-completion time. CPM Charts show a project as a network diagram. The activities are shown as
vectors, and the events are displayed as nodes. CPM is similar to the Program Evaluation and Review
Techniques (PERT).
90
Conclusion
The simplest definition of a religious facility is the place at which people practice their
religion. By definition, religious facilities are special purpose properties. A recent
phenomena in many religious facilities, is the incorporation of other activities in the
facility other than the worship services. For example, churches become more involved in
the day-to-day lives of their members. Accordingly, the traditional use of a church as a
place for worship is being expanded. A church may serve as a school, day care center,
care for elders, voting hall, library, and a community center as well. Therefore the design
of churches is changing to include more multipurpose space in relation to the actual
worship or sanctuary facility. The appraisal of a religious facility may be carried out for
many reasons. The most common purposes of such an appraisal assignment are:
Financing: lenders need to know the value of the facility that they are going to
finance in order to set the finance conditions.
Buying and selling: to determine the price at which a group can buy/sell a facility
Insurance: The appraisal assignments for insurance purposes are frequently achieved
for special purpose properties and properties that have a historical significance.
Splitting up the property: When an existing congregation is split into two or more
smaller congregation a valuation of its facilities is needed to show how the property
will be split up.
Paramount to the appraisal of a religious facility is the description of the physical facility.
The market value of churches for instance, varies depending on the total area of the
facility, seating capacity, design characteristics, quality of construction, and the
functional spaces in the facility. The appraiser has to determine what is considered a
fixture and what is considered a personal property. A property inspection is needed to
identify comparable properties to the subject. The highest and best use analysis is
paramount to the appraisal of religious facilities. If a facility has no enough demand to
support its existence or if there is a new supply, in the market area, that meets the
preference of the users better than the subject does, refurbishment, demolishing or change
of use decisions may be taken. The highest and best use analysis should be done for the
land both as though vacant and improved.
91
Similar to other types of property, churches can be appraised using the three approaches
to value. The Cost Approach is considered the most appropriate approach to apply since
religious facilities are infrequently sold in the market and not income producing
properties. The main concept behind this approach is that the value of the facility will be
equal to its land value plus its cost new after deducting the depreciation. The accuracy of
this approach depends on the estimates the appraiser made for the cost new and
depreciation. The depreciation can be extracted form comparable properties. If no
comparables are available the value estimate will depend on the appraiser’s judgment
especially for the functional and external obsolescence. The application of the Sales
Comparison Approach depends on the availability of information about the sales in the
market. If no sales are made in the area at which the subject facility is located, the
appraiser may extend the search for comparable sales to higher levels (i.e., national
level). This approach is easier to apply and more accurate if information about
comparable sales is accessible and can be obtained.
Since religious facilities are not income producing properties, the Income Approach
(Feasibility Approach) in its known way is difficult to apply. It should be noted that this
is not a value estimate, but is rather a feasibility test or test of reasonableness for the
values developed in the two other approaches. Appraisers consider the potential financing
of a church facility a possible method of analyzing its feasibility.
The appraisal of real estate similar to any process if modeled will enable the planners to
identify and overcome any difficulties that affect the achievement, quality, cost, and time.
Moreover, it will be easier through the process modeling to analyze the reasons behind
the success or the failure of any organization by comparing its actual process to the
standard one. A description is made for the whole appraisal process. Integration
Definition for Function Modeling Method (IDEF0) is used for the purpose of the
appraisal process modeling. IDEF0 method is a static modeling paradigm that represents
a system as a network of inter-connected activities. It is based on and derived from the
Structured Analysis and Design Technique (SADT), a graphical approach to system
description. IDEF0 is a method designed to model the decisions, actions, and activities of
an organization or a system. It uses a mix of graphics and natural language to capture and
communicate process details.
92
The theoretical basis of IDEF0 is that it can be used to model any system comprised of
things and happenings. Therefore, it is perfectly applicable to data processing, project
planning, process modeling, and business process reengineering, and manufacturing
systems because these systems generally consist of a network of inter-connected
activities. The feature that makes IDEF0 models easy to understand is its methodology
that only contains two elements - boxes and arrows. The boxes represent the Happenings
(activities) and the arrows represent the interface between those happenings (things).
Arrows entering a box represent inputs, outputs, controls and mechanisms of those
activities. The inputs are transformed in the activity using, but not consuming,
mechanisms or resources such as staff and machines to produce outputs. Typically the
operation of the activity will be moderated by controls such as policies and procedures.
Two IDEF0 models are developed; the first is for the theoretic appraisal process the
second is for a Swedish valuation company (Svefa AB). These two models describe how
the appraisal assignments are achieved both as the theory recommends and the appraisers
at Svefa perform. No major differences are found between the two processes. The only
differences I realized are the way the appraisers at Svefa get the task, and the way they
get the information. The theory mentions nothing about this stage of getting the task
although that in practice it may influence the processes. If a company is invited to bid
with other companies in a tender, some of the appraisal process steps may be taken even
before the agreement between the company and the client is signed. When bidding with
other companies, the appraisers at Svefa need to identify the task and set a time schedule.
This step is an important one in the appraisal process, it starts even before the assignment
practically triggered. The appraisers at Svefa may obtain the needed information through
informal contacts with colleagues and friends.
The IDEF0 method seems to be effective in the modeling of the appraisal process. A
more professional IDEF0 model will help the appraisers at Svefa AB improve the work.
The model can include the costs associated with each step in the appraisal process. The
reduction of time and cost are some of the quality management requirements. To reduce
the time devoted for each step in the appraisal process, Svefa can integrate the CPM with
the IDEF0 to satisfy this purpose. Using the IDEF0 methodology will help any
organization that is planning to apply for the ISO 9000 Certificate.
93
Appendix I
Tables
Religious Group
no. of members
%
Church of Sweden
7,500,000
84.27%
Roman Catholics
1,500,000
16.85%
Orthodox
100,000
1.12%
Muslims
350,000
3.93%
Jews
20,000
0.22%
Buddhist & Hindus
3,000
0.03%
Table 1: Religious structure among the Swedish population
Origin
Finland
Former Yugoslavia
Iraq
Iran
Norway
Poland
Denmark
Germany
Turkey
Chile
Lebanon
United Kingdom
USA
Syria
Hungry
Somalia
Romania
Ethiopia
India
Vietnam
Thailand
Greece
Estonia
foreign-born
inhabitants
193,000
135,000
56,000
52,000
43,000
41,000
39,000
39,000
32,000
27,000
20,000
Table (2): Immigrants in Sweden*
* Data as of December 2001
94
15,500
14,700
14,600
14,000
13,500
12,000
11,700
11,500
11,200
11,200
10,900
10,200
Year
Population
1972
8,129,129
1973
8,144,428
1974
1975
Growth in%
Immigrants
The Accumulated
number of
Immigrants
29,894
29,894
0.19%
29,443
59,337
98.5%
8,176,691
0.40%
37,430
96,767
63.1%
8,208,442
0.39%
44,133
140,900
45.6%
1976
8,236,179
0.34%
45,492
186,392
32.3%
1977
8,267,116
0.38%
44,005
230,397
23.6%
1978
8,284,437
0.21%
36,187
266,584
15.7%
1979
8,303,010
0.22%
37,025
303,609
13.9%
1980
8,317,937
0.18%
39,426
343,035
13.0%
1981
8,323,033
0.06%
32,272
375,307
9.4%
1982
8,327,484
0.05%
30,381
405,688
8.1%
1983
8,330,573
0.04%
27,495
433,183
6.8%
1984
8,342,621
0.14%
31,486
464,669
7.3%
1985
8,358,139
0.19%
33,127
497,796
7.1%
1986
8,381,515
0.28%
39,487
537,283
7.9%
1987
8,414,083
0.39%
42,666
579,949
7.9%
1988
8,458,888
0.53%
51,092
631,041
8.8%
1989
8,527,036
0.81%
65,866
696,907
10.4%
1990
8,590,630
0.75%
60,048
756,955
8.6%
1991
8,644,119
0.62%
49,731
806,686
6.6%
1992
8,692,013
0.55%
45,348
852,034
5.6%
1993
8,745,109
0.61%
61,872
913,906
7.3%
1994
8,816,381
0.81%
83,598
997,504
9.1%
1995
8,837,496
0.24%
45,887
1,043,391
4.6%
1996
8,844,499
0.08%
39,895
1,083,286
3.8%
1997
8,847,625
0.04%
44,818
1,128,104
4.1%
1998
8,854,322
0.08%
49,391
1,177,495
4.4%
1999
8,861,426
0.08%
49,839
1,227,334
4.2%
2000
8,882,792
0.24%
58,659
1,285,993
4.8%
2001
8,909,128
0.30%
60,795
1,346,788
4.7%
2002
8,940,788
0.36%
64,087
1,410,875
4.8%
Table (3): The Swedish population 1972-2002
95
Immigrants
Growth in %
year
Population
No.
of
members
% of whole
population
Period
No. of
churches
1972
8,129,129
7,754,784
95.4%
1100-1199
19
1973
8,144,428
7,755,295
95.2%
1200-1299
11
1974
8,176,691
7,752,279
94.8%
1300-1399
2
1975
8,208,442
7,770,881
94.7%
1400-1499
39
1976
8,236,179
7,779,940
94.5%
1500-1599
1
1977
8,267,116
7,763,768
93.9%
1600-1699
10
93.5%
1700-1799
12
93.1%
1800-1899
14
1900-2001
107
1978
1979
8,284,437
8,303,010
7,742,678
7,728,939
1980
8,317,937
7,690,636
92.5%
1981*
8,323,033
*
*
1982
8,327,484
7,691,967
92.4%
1983
8,330,573
7,687,152
92.3%
1984
8,342,621
7,679,893
92.1%
1985
8,358,139
7,629,763
91.3%
1986
8,381,515
7,602,193
90.7%
1987
8,414,083
7,662,027
91.1%
1988
8,458,888
7,577,450
89.6%
1989
8,527,036
7,628,914
89.5%
1990
8,590,630
7,630,350
88.8%
1991
8,644,119
7,627,159
88.2%
1992
8,692,013
7,639,577
87.9%
1993
8,745,109
7,630,981
87.3%
1994
8,816,381
7,623,073
86.5%
1995
8,837,496
7,601,194
86.0%
1996
8,844,499
7,546,757
85.3%
1997
8,847,625
7,505,930
84.8%
1998
8,854,322
7,464,990
84.3%
1999
8,861,426
7,399,915
83.5%
2000
8,882,792
7,360,825
2001
8,909,128
2002
8,940,788
Table (5): Number of churches in
Stockholm County by centuries
Period
1900-1909
No. of
Churches
12
1910-1919
8
1920-1929
8
1930-1929
7
1940-1949
1
1950-1959
9
1960-1969
20
1970-1979
22
1980-1989
10
1990-2001
10
Table (6): Number of churches in
Stockholm County 1900-2001
Year
Number of new
churches
82.9%
1975
11
7,285,101
81.8%
1980
7
7,220,694
80.8%
1985
7
1990
3
1995
6
2001
4
Table (4): Number of the Swedish Church members 19722002
* In 1981 there was no registrations at the tax office; therefore there
is no available data about the population
96
Table (7): Number of new churches
in Stockholm County by the end of
years 75, 80,85,90,95 and 2001
Year
No. of new
churches
Total no. of
churches
Growth
in %
Before and
till 1971
-
177
-
1972
2
179
1.1%
1973
6
185
3.4%
1974
1
186
0.5%
1975
2
188
1.1%
1976
3
191
1.6%
1977
2
193
1.0%
1978
2
195
1.0%
195
0.0%
1979
1980
3
198
1.5%
1981
2
200
1.0%
200
0.0%
1982
1983
1
201
0.5%
1984
1
202
0.5%
202
0.0%
1985
1986
1
203
0.5%
1987
1
204
0.5%
204
0.0%
205
0.5%
1990
205
0.0%
1991
205
0.0%
1988
1989
1
1992
2
207
1.0%
1993
1
208
0.5%
1994
2
210
1.0%
1995
1
211
0.5%
211
0.0%
212
0.5%
212
0.0%
1996
1997
1
1998
1999
1
213
0.5%
2000
1
214
0.5%
2001
1
215
0.5%
Table (8): Number of new churches in Stockholm County 1972-2001
97
Codes
100-199
200-299
300-399
400-499
500-513
600-699
700-799
800-890
900-999
Type of Property
Agricultural land and forest
Semidetached houses
Residential + commercial properties
Industrial properties
Undeveloped land
Mining Properties
Electrical production plants
Special purpose properties
Unclassified properties
Table (9): Property Taxation Codes in Sweden
Codes
800
810
820
821
822
823
824
825
826
827
828
829
890
Type of Property
Unclassified Property
Undeveloped land for special purpose
Distribution Services Buildings (i.e. Post)
Cleaning Facilities
Heating Centers
Health Care Centers
Public Sport Buildings
Educational Facilities
Cultural Buildings
Religious Facilities
Public Buildings
Communications Buildings
Military Buildings
Table (10): Taxation Codes for Special Purpose Properties in Sweden 800-890
98
Appendix II
Numerical Examples
II.1 Application of the Cost Approach Example
Assume that a facility contains 10,000 square meters, is 15 years old, is in average
condition for its age, and has a site value of $100,000. Assume many of the short-lived
items have been updated or replaced over their lives, so that the effective (physical) age
of the short-lived items in 10 years and the effective age of the long-lived items is
consistent with the actual age, or 15 years. The total physical life of the short-live and
long-live items is estimated to be 25 and 75 years respectively. The following
calculations provide a typical summary of the cost approach.
Item
Amount in $
Estimated cost new
Direct costs
2
2
Building: 10,000 m @ $60/ m
Site improvements: paving/curbs/striping/lighting/landscaping/detention pond
Pews: 250 m @ $ 40/ m
2
2
Stained glass: 50 m @$65/ m
Sound system/speaker cluster
Total Direct Costs
Indirect Costs: Financing fees, legal, taxes during construction, appraisal fees…etc
Total Estimated Cost New
600,000
85,000
10,000
3,250
2,500
700,750
14,200
714,950
Depreciation
Physical
Curable: Assume that this facility needs a new air-conditioning and
heating system
Incurable: Short lived: Assume $107,243 less curable items ($5,000) or
$102,243*10 yrs. (effective physical age)/25 yrs. (total physical life).
Long-lived: $607,708*15 yrs. (effective physical age)/75 yrs. (total
physical life)
Total estimated physical depreciation
5,000
40,397
121,542
167,439
Functional
The subject facility to appears to have typical functional attributes and does not suffer from
functional obsolescence
External
The subject market appears to discount the sales of religious facilities, due to a recent economic
downturn (market conditions). This factor has been estimated at 5% of the cost new*.
Total Estimated Depreciation (28.42% or 1.9%/Year)
0
35,748
203,187
511,763
100,000
Depreciated Value of the improvements
Plus land value estimate
ESTIMATED VALUE
610,000
(rounded)
* This figure is extracted from comparables assuming that all the properties in the same market area are
subject to the same external influences.
99
II.2 Condition/Age Adjustment for the Sales Comparison Approach
Example*
The following example shows how the adjustment factor can be calculated when
applying the sales comparison approach. This factor is used to adjust the sale price to any
difference in the building conditions between the subject facility and its comparables. In
this example four comparables are used in the application of the sales comparison
approach. The indicated total depreciation for the sales is 18%, 27%, 19%, and 53%. The
estimated depreciation from the subject is 28%. By applying the formula for the
adjustment factor, the indicated adjustment for the sale price for each sale will be -12%, 1%, -11%, and 53% respectively.
Adjustment factor for Sale (1):
A=
=
(1 − Dts ) − (1 − Dtc )
(1 − Dtc )
Dtc − Dts 0.18 - 0.28
=
= −0.12
1 − Dtc
1 - 0.28
Where;
A: Adjustment factor for the sale price;
Dts: Total depreciation of the subject facility; and
Dtc: Total depreciation of the comparable sale
When applying the same formula on other sales, the adjustment factor for each formula is
shown in the following table.
Sale
1
2
3
4
Indicated Total Depreciation Estimated
(Sale)
(subject)
.18
.28
.27
.28
.19
.28
.53
.28
Depreciation Indicated
Adjustment
-12%
-1%
-11%
53%
* Martin H. Aaron, John H. Wright. “The Appraisal of Religious Facilities.” Appraisal Institute, USA,
1997
100
References
Books
Martin H. Aaron, John H. Wright. “The Appraisal of Religious Facilities.” Appraisal
Institute, USA, 1997.
Mary Elizabeth Geraci, “The Appraisal of Real Estate, 12th Edition.” Appraisal Institute,
Chicago, USA, 2001.
Judith Reynolds. “Historical Properties: Preservation and the Valuation Process, 2nd
Edition.” Appraisal Institute, Chicago, USA, 1997.
Arthur E.Gimmy, Martin E. Benson. “Golf Courses and Country Clubs: A guide to
Appraisal, Market Analysis, Development, and Financing.” Appraisal Institute, Chicago,
USA, 1992.
Clarence G. Feldmann; forwarded by John V. Tieso. “The Practical Guide to Business
Process Reengineering Using IDEF0.” Dorset House Publishing, New York, USA,
1998.
François B. Vernadat. “Enterprise Modeling and Integration: Principles and
Applications.” Chapman & Hall, London, UK, 1996.
Christina Nilsson. “Kyrkguiden; Vägledning Till Kyrkorna I Stockholm Stift.” Graphium
Ljunglöfs AB, Stockholm, 2001.
The Central Board of National Antiquities (RAÄ) and the National Historical Museums
Report. “Nya Svenska Kyrkor: Volume 1, Svealand.” Riksantikvarieämbetet, Stockholm,
Sweden, 1990.
Melan, E. “Process Management, Methods for Improving Products and Services”
McGraw-Hill 1992.
101
Davenport, T.H., “Process Innovation: Reengineering work through Information
Technology” Harvard Business School Press, Boston, Massachusetts, 1993.
Articles, Reports, and Lectures
Martin H. Aaron, John H. Wright. “The Appraisal of Churches and Religious Facilities.”
The Appraisal Journal, Vol. 60, Jan 1992.
Julian Diaz III. “How Appraisers Do Their Work: A Test of the Appraisal Process and the
Development of a Descriptive Model.” Journal of Real Estate Research, Vol. 5, No.1,
1990.
Martin H. Aaron, John H. Wright; reviewed by Stephen Traub,ASA. “The Appraisal of
Religious Facilities.” Property Valuation Advisors, USA, 1998.
“International Religious Freedom Report.” The Bureau of Democracy, Human Rights,
and Labor, 2002.
Bernhard Westfechtel, Management of Software Development Processes, 2001(from a
lecture at Department of Computer Science III, RWTH Aachen.
Websites
http://www.bisoft.com.au
http://www.idef.com
http://www.orps.state.ny.us
http://www-i3.informatik.rwthaachen.de/teaching/01/msp/ProcessDefinitionAndEnactment.pdf
http://www.scb.se
http://www.svenskakyrkan.se
http://www.si.se/infosweden/299.cs
http://en.wikipedia.org/wiki/Demographics_of_Sweden#Religion
http://www.state.gov/g/drl/rls/irf/2002/13983.htm
102