No more abused approach to value do I see than the sales comparison for a marina. Most appraisers aren’t crazy enough to do a cost approach. It’s a rare day indeed if it produces a number corroborated by the sales comparison approach or income approach (note that there are situations where the sales comparison approach is useful to a marina and I will discuss it in other parts of this series). The income approach can usually stand for itself if it uses three or more years of financial statements. That leaves the sales comparison approach as the “check on value” for a marina. As Shakespeare would say, “therein lies the rub.”
No Pain No Gain
Let me illustrate my key point by way of example. Let’s say you want to buy a car. You have a huge selection to choose from. Do you go foreign or domestic? What features do you want? How much do you want to pay? These questions and others decide what brand of dealership you visit and what brands you will exclude. You are essentially a segment of the market, not the market itself. That’s the way it is with marinas. The industry is simply an agglomeration of different market niches. It’s a bottom-up approach, not a top-down one. Just like you wouldn’t consider a Ford the same as a BMW, treating all marinas as comparable or even comparing them in a sales comparison grid is of exceedingly little usefulness.
A Little Arm Twisting Never Hurt… Much!
Have you ever wondered why appraisers talk so much about the sales comparison approach even before you hire them? It’s this little thing called USPAP – the Uniform Standards of Professional Appraisal Practice. We’re required to consider all applicable approaches to value. The entire USPAP document is oriented toward providing credible results that do not mislead the client. So what this means is that even if you know and I know the sales comparison approach is not useful or relevant to your marina for reasons discussed in subsequent parts of this blog series, we appraisers are still required to invest time and effort looking for sales. Yes, that time is built into the fee quote in one form or another. I share your pain.
In Part 2 I’ll give you a real example to highlight the time and effort that goes into telling you one sentence – that the sales comparison approach wasn’t relevant, would not produce credible results, and was excluded from the report.
