SERVICE STATION - METHOD OF VALUATION

The capitalization method is unreliable because of the lack of market rents and any reliable evidence of net income. Occasionally, private service stations are leased and/or sold on the open market and if such transactions occur they are good evidence of market value. However, such sales are rare and are becoming even rarer. Private service stations account for only about 5% of the total number and are quickly being eliminated. The best method of valuation is the summation method because:

1. The land component can usually be reliably valued with opportunity cost sales for example, comparable lands sold for used car yards or fast food outlets.
2. Oil companies do not allow viable service stations to become obsolete. They are always subject to updating, rebuilding and modernisation. Therefore, in practice, the existing improvements do not suffer a great deal of physical depreciation.
3. The replacement cost of the improvements can be reliably determined and if new and highest and best use, their market value equals "replacement cost new".
4. The valuer should follow the historical development of service stations sites so as to determine the expected economic life of the improvements. Today, this would be no more than about 10-15 years. Once a good idea of the expected life is known, the "accrued depreciation" of the improvements can be found.
5. Sometimes the oil companies utilize sale/leaseback financial arrangements to build new service stations. The sale/leaseback agreement is not a good indicator of market rent but is a good indicator of the expected life of the building (usually the term of the lease) and therefore, the expected annual rate of depreciation.

Where a large part of turnover is from a retail/supermarket then that part should be valued separately as for any other retail use in the immediate area. The capitalization of net rents is the best method.