An examination and application of current lodging valuation practices

Abstract

Lodging enterprises use a mix of approaches to estimate the value of their real property. Some approaches are formal, comprising theories and models while others are informal, operating by ad hoc rules of thumb. There is a wide variation and complexity between each valuation technique, with each offering benefi ts as well as limitations. While there are many approaches to valuating hospitality enterprises, three approaches are generally utilised to determine the value of lodging properties. These include the cost approach, the sales comparison approach and the income capitalisation approach. This paper presents an overview of the common valuation methods used in determining the value of hotels. The paper uses hypothetical data to illustrate the application of the income approach and the direct comparison approach.