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Fast Food Appraisals - The Best Unit of Comparison



Article:
The traditional unit of comparison for fast food restaurants is the price per square foot of building including land. In many cases, however, a price per square foot of land including building would produce a more credible value. Fast food restaurants are often relatively small buildings on relatively large sites. The value of the building can frequently be dwarfed in importance by the land value.

We recently completed a study of 74 fast food properties in the Chicago Metropolitan Area to determine which appraisal method would produce comparables in a tighter range that would be more predictive of value. Mathematically it's called the coefficient of variation (CV) which is a measure of variation around the mean. In our study, the coefficient of variation was 0.614 per square foot of building versus 0.742 for price per square foot of land. This would imply that the price per square foot of building would generally have a somewhat tighter range than the price per square foot of land. The difference is not large, however, and in neither case was the coefficient of variation tight implying that neither approach had highly predictive characteristics for fast food properties.

The more important take away is that in many situations, depending upon the property, a price per square foot of land or the utilization of both a price per square foot of land and price per square foot of building might yield a more accurate value. Defensively, it could also offer a further level of protection. I could easily envision the Cook County Assessor starting to apply this same price per square foot of land analysis to fast food appraisals (as they currently already do for gas stations). Should this occur, many traditional appraisals that have only considered the price per square foot of building could actually serve as the basis for a dramatically higher assessment instead of a reduction