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Bowling Alley Appraisal

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cj rein

Freshman Member
Joined
Aug 15, 2003
I recently reviewed an appraisal of a 30-40 year old +/- bowling alley. I concurred with the appraiser that only the sales comparison approach was applicable. Fortunately, several sales were available within the metropolitan area. My client called later and indicated the bank examiners indicated that all three approaches should have been completed. It is my contention that the cost approach was not applicable due to the age of the property. The income approach was not applicable (in estimating the market value of the real property) since bowling alleys are not typically leased within this market.

I'm looking for some type of support in the form of published articles, etc.. Is anyone aware of anything? Thanks.
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
The income approach was not applicable (in estimating the market value of the real property) since bowling alleys are not typically leased within this market.

Huh? Sounds like a couple of appraisers could use a class on completing the Income Approach for commercial properties. Or did I read this wrong?
 

Walter Kirk

Senior Member
Joined
Jun 24, 2003
Professional Status
Licensed Appraiser
State
New Jersey
I think that you are mistaken. An income approach is always applicable for an income property. Although the property is presently being used as a bowling alley I know of several which have been used for other purposes such as a skating rink, warehouse, clothng manufacturing and even a modular home factory.

The cost approach is also applicable since the economic life of the improvements can be extended by good maintenance.
 

Patrick Egger

Sophomore Member
Joined
May 29, 2003
Professional Status
Certified General Appraiser
State
Nevada
Single approach commercial appraisals will generally raise a red flag with examiners (many of the properties that contributed to bank/s&l failures were appraised using a single approach with the "not applicable" clause), especially on special purpose properties.

As posted, you should re-consider if a cost and/or income analysis would contribute to your value opinion. Unlike SFR's, investors in commercial properties often consider building new as an alternative to an existing that requires remodeling. The difference and deciding factor is the time/cost to remodel, vrs build new and the ability to find an alternate equal/better location.

In this case, you pointed out that bowling establishments aren't leased, I would question that. There may not be any leased in your area, but all types of special purpose properties are leased. It may be that the building would have to have the bowling related equipment removed, etc. but likely there is demand for the shell for another purpose.

It may be that the market approach will still have the most reliable data, however I wouldn't dismiss the other approaches as not being valid, without considerable explanation and reasoning. I suspect the lack of additional approaches and/or such an explanation is what triggered the examiner's comments.

This is a special purpose property, that was appraised "in use" ... not knowing what the client lent the borrower, it may be that the examiners considered the LTV too high for a limited market-special purpose use and that triggered the review, which led to the clients call.

See if the client can put you in touch with the examiner ... I'd try to get some feedback from the exam team and go from there. Examiners can be very touchy (voice of experience) so tread carefully if you want to keep the client.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
All three approaches to value can and should be used. I am so tired of hearing.."cost approach doesn't apply because of the age of the property". Of course it does and you can do it provided you are competent to complete the assignment...which I have to wonder about after your post.

Isn't a bowling alley an income producing property???? Just remember it takes balls to own a bowling alley.
 

Mountain Man

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
:huh: Not to pile on, but did the client order a limited-restriced.... market only report? Even if that's all they wanted, I would not feel comfortable with that.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Better watched the leased equipment in these things. Often the alleys are leased, so what you actually have is a box with a tenant that is a bowling alley.

Roger
 

Steve Wyrick

Member
Joined
Aug 15, 2003
Professional Status
Certified General Appraiser
State
California
Originally posted by cj rein@Aug 18 2003, 01:56 PM
It is my contention that the cost approach was not applicable due to the age of the property. The income approach was not applicable (in estimating the market value of the real property) since bowling alleys are not typically leased within this market.

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My question to all who have answered your question is "Is only the income approach based on leased value to be considered in the Income Approach to Value". As you stated there were several sales of bowling allies in the area would not an income approach based on number of games paid/year be just a valid as a lease approach, and since buyers of these other alley's must have considered the income producing ability of the property did they not base part of their value on the income produced and the the net income produced. In other words isn't the income generated by the property under typical and normal management for the area and income that can be capitalized to arrive at a value.

As far as the cost approach goes, the biggest negative is determining depreciation and the way to determine a reasonable depreciation is from the market sales. So if you have available sales, and if you run the cost to replace of those sales and then compare to their actual sale, you should have a reasonable range of deprciation to be used in the the Replacement Cost Approach to the subject. The only difference maybe in land value among the comps and subject.

I am sorry but it appears to me that unless a limited appraisal using only the market approach was ordered then the original appriaser did not complete the job by not including both the income and cost approaches. You as the reviewer also should have dug a little deeper in your thought process about the property be valued.

It also appears to me based on the comments that the appraiser took on a complex assignment and probably did not charge enough to want to spend time in developing all approaches to value with support which would be time consuming.

Sorry I don't mean to be critical, but the bottom line for me is regardless of the time required, once I accept an assignment I am going to spend all the time it requires to do it right, and it just seems to me that both you and the original appraiser tried to take the easy way out.
 
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