After segmenting the hotels/motels by type, geographic market area and location within each market area, the next step in the process is to further stratify the facilities into quality classes (rank).  In general terms quality should take into account location within the segment e.g. (waterfront v. non waterfront), type of construction, age and condition.  The properties are ranked by overall quality classes such as Class 1, Class 2, etc.  A Class 1 facility for example, would have the best location, newer, superior quality construction, be well maintained, and generate higher revenue. A Class 2 facility would have an inferior location, good quality construction, be well maintained but older and have lower revenue.

As a general guide or check to assist in the quality ranking, reference can be made to publications such as the American Automobile Association (AAA) Diamond Rating Service.  It should be noted that rankings of this nature are subjective and should be used with caution. Moreover not all hotels/motels are rated.

Once all of the above has been accomplished the ground work has been set for the income and expense analysis section contained within the Income Approach which is discussed in Part 8 - Approaches to Value.