Thursday, October 27, 2011

Valuing a Gas Station/C-Store

Gas stations/Convenience Stores can be considered one of the most common types of commercial properties. They can also be identified as one of the most difficult to appraise. Some feel that the sales comparison approach is the best appraisal method to use. However, the reliable recent sales data necessary for a sales comparison is not always available.
When gas stations are rarely bought and sold the best valuation method to use would be the Cost Approach. Valuing a gas station using the cost approach can be difficult if the station is older and in need of improvements. The most basic steps in valuing a gas station using the cost approach are to identify independent values of the following (if applicable):
1. Land value.
2. Primary improvements.
3. Site improvements.
4. Petroleum & site equipment.
5. Convenience store & Quick service restaurants.
6. Car wash & miscellaneous equipment.
In the ideal situation, there are a sufficient number of comparable sales of a particular type of gas station. When that happens, the appraiser can simply make adjustments by dollars per hose, dollars per square feet of land, dollars per square feet of building, whole property comparison, gallonage multiplier, and gallonage multiplier with c-store sales ratio. According to a well-known and very experienced gas station appraisal firm; there is now a more modern method to the sales comparison approach.
This modern method consists of the gross profit multiplier and the EBITDA multiplier. A few advantages should you decide to use the gross profit multiplier are that it accounts for variation in pool margins on fuel, accounts for variation in c-store margins within various profit centers and accounts for difference between the comparable sale’s total profit and the total profit of the property being valued. One disadvantage would be if the gas station/c-store is not operating to its fullest efficiencies.
Appraising a gas station can be a difficult process if you do not use the right technique or if you can simply not find valid comparable sales. Appraisers are constantly coming up with new and improved ways to put a value to a specific property. Different methods can be used for dissimilar circumstances.

References
Hopkins appraisal services
www.sama.sk.ca/sama/mvahandbook/PDF/C5GasStation.pdf

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