An appraiser talks about the valuation of funeral homes and feeling at peace with these properties
As someone who specializes in funeral home valuation, I have had several interesting property inspections — and my very first one pretty much prepared me for all inspections to come.
For the past decade I’ve specialized in the valuation of funeral homes throughout the Midwest. I’m fascinated by their history and business model. A funeral home with a trusted name in the community should be a recession-proof business that could continue indefinitely — if it adapts to changing burial trends.
Early in my career, I was a generalist who would tackle virtually any valuation assignment that came across my desk. However, I gravitated toward the unusual or unique properties. I enjoy zeroing in on what makes these special-use commercial properties tick — what drives their value and demand. I received my first funeral home assignment in 2008, and I’m sure I lost money on it because I spent so much time building and formulating my market analysis. But it set me on the course that helped define my valuation career.
As with many special-use properties, the key to appraising funeral homes lies within the market analysis and the determined highest and best use.
The first step I take when beginning a funeral home assignment is acquiring state and county death-rate statistics. I apply those to the population within an identified trade area to project a reasonable number of deaths that likely will occur. In this projection I also account for reasonable leakage (I know — this sounds really bad when discussing funeral homes), because many people who live outside a trade area often are brought back to be buried in their hometowns.
Once I’ve projected the number of future deaths, I calculate the trade area’s historic market share by comparing the number of actual
deaths over the past several years to the subject property’s reported number of funeral services. I also survey all funeral homes within the subject property’s trade area to determine the total number of services and corresponding market share. I then use these numbers to determine whether the market is underserved, overservedor near equilibrium. A similar process is used when completing feasibility studies for new or proposed funeral homes.
Once I apply the projected capture rate for a subject property to the estimated number of deaths within the trade area, I’m able to predict how many services the property should expect to deliver over the years. Finally, I project gross revenue, which involves correctly accounting for market trends, such as an uptick in cremations. It’s important to cross-reference a property’s historic number of services to determine how many of those involved cremation, full-service funerals and burials, or a combination of the two.
As you might imagine from someone who specializes in funeral home valuation, I have had several interesting property inspections — and my very first one pretty much prepared me for all inspections to come. I had almost completed my work, but I needed to ask the funeral director about such things as seating capacity, furniture, fixtures and equipment, and the like. I found her in the chapel preparing for a funeral. As she was kindly giving me what seemed like very long answers, she continued to brush the hair of the deceased woman lying in the casket. I barely caught one word the funeral directorwas saying because all I could hear was the
brushing of the hair. It was not my best work.
A decade later, I’m used to funeral home environments. Like the child in the movie The Sixth Sense, I see dead people. A lot of dead people. So much so that I’ve earned industry cred among funeral directors. My trainees, however, not so much. I recall a young trainee fresh from law school who was a very cool, calm and collected individual, which made it that much more interesting to take him on his first funeral home assignment. When we walked into the chapel, I noticed an open casket but he did not, so I was awaiting his reaction. He basically jumped out of his shoes when he glanced over and realized there were three of us in that room.
These assignments are not for the faint of heart, but you do eventually get used to it. I took my family with me on a recent funeral home inspection, and they waited in the car while I completed the work. Immediately afterward, we went to the Kings Island amusement park — it was just another Saturday.
Appraising funeral homes involves analyzing death rates, the number and types of services offered in the area, and other data to determine whether the market is underserved, overserved or near equilibrium.