Cemetery Appraisal

[James Swatos]

I have an assignment for a cemetery in rural Kentucky. Has anyone done a cemetery appraisal? If so, would you mind sharing the process or report with me? I'm mainly interested in a market analysis for cemetery properties in the U.S. and what was the driving approach to value? Income or sales comparison? This is for a continued use as a cemetery.

Thanks in Advance

 

[Jerry Lieb]

James,

I've never been asked to appraise a cemetery so I can't be of any help to you. However, I just did a quick "Google" and found this website which is apparently an assessor's office in Maryland. They provide some information which you may find useful in organizing your appraisal plan.

http://www.dat.state.md.us/sdatweb/procedures/014100010.htm

Suggest you work with someone who has done this before, so you don't have a USPAP problem with the Competency Rule. Maybe someone will respond to your posting here on the Forum who can help you in that regard.

Good luck...!

 

[The Warrior Monk]

If you're an AI member you can search the Lum Library for are articles relating to the appraisal of cemeteries. The do have several available through the site.

 

[Smokey Bear]

I assisted on one many years ago, I learned that they can stack them 2 and 3 deep in the same plot, depending on when they hit water.

Also, by law they're required to keep a certain amount of $$ for reserves, it's a little harder to separate the business from the land. That's all I remember about it, but some of the worth is related to how many plots they can sell, and stacking the bodies means more sales. Usually they only stack family members.

 

[Stephen J. Vertin MAI]

James:

I have appraised 6 or 7. The main approach is income. If I had to pick a property in which the process was most similar I would say a landfill. Second would be a subdivision. I do not believe there is a main source of data for supply and demand but you can base it on area demographics. All you need to know is area supply, which can be determined by calling competing yards and asking how many lots they have left. Further you need to know average age of death and how many people are nearing said age in your market. This information is available through the US census. This will give you demand. I am going to assume your are very experienced in income capitalization in the following explanation. So hear goes.

Once you estimated supply and demand you can determine future absorption. You simply take the number of lots that you believe will be sold over the years and discount the price at the appropriate yield to present value. There is no residual value or terminal rate in the usual sense. Once the yard is fill there are only cost which are estimated into perpetuity. Therefore, instead of a positive revision (as with most DCF's) you have a negative (due to operational cost). Then it is just a matter of bring the whole cash flows back to PV. If you need further clarification write back.

 

[Stephen J. Vertin MAI]

James:

By the way, welcome to the forum.

 

[PL1957]

Once you estimated supply and demand you can determine future absorption. You simply take the number of lots that you believe will be sold over the years and discount the price at the appropriate yield to present value. There is no residual value or terminal rate in the usual sense. Once the yard is fill there are only cost which are estimated into perpetuity. Therefore, instead of a positive revision (as with most DCF's) you have a negative (due to operational cost). Then it is just a matter of bring the whole cash flows back to PV. If you need further clarification write back.

I've been fortunate enough to avoid assignments that consider the value of continued use as a cemetary, however, in doing preliminary research for bidding such an assignment, I spoke to an operator who indicated one of the industry trends was consolodation, with an eye toward the perpetual care funds. The theory was that, if a single operator could care for multiple cemetaries in an area, their costs would be lower, enabling them to profit on the spread between the return on the endowment and their actual operating costs. Don't know if that really works, but it made for interesting speculation.

 

[Steve Owen]

I've never done one, but have done excess land and buildings for a cemetery. In that case, the approach was somewhat different since the cemetery sold the excess land (in one case).

The approach Steve Vertin outlines sounds reasonable, however. One thing I would think you would really need to be careful about is the cemetery's future obligations. They may be required to provide perpetual care for lots that were sold long ago for much less than current sale value. I'm not really sure how you would deal with that issue.

 

[Stephen J. Vertin MAI]

Original Post Reads:

Once the yard is fill there are only cost which are estimated into perpetuity. Therefore, instead of a positive revision (as with most DCF's) you have a negative (due to operational cost).

That is the whole trick of the appraisal. Assuming the sell off is 10 years. Instead of 10 years out and capitalizing the 11 year (as with most DCF's) there is nothing to capitalize with the exception of cost. When cost are capitalized there is a negative reversion. This is the same with landfills. Instead of a lump sum positive reversion you have a lump sum negative reversion.

PL:

That is a good idea on the part of the industry. It lowers the negative lump sum reversion and thereby increases value.


Steve:

By capitalizing cost and bringing them back to present value you have accounted for all future cost and appreciation. Remember a dollar today is worth more than a dollar in the future.

 

[The Warrior Monk]

Hi Stephen,

If you're feeling ambitious, one of the requests for articles that AI is making is for cemetaries.