There are a number of units of comparison available to compare hotel/motel properties. The most common are:

• Price per room
• Revenue per available room (RevPAR)
• Gross operating income per room
• Net operating income per room

Sale Price per Room is frequently used in the industry and industry publications such as Colliers, HVS and PKF. The purpose is to give a general indication of current transactions using a common measure (sale price per room). To obtain accurate results using price per room it is important that a high degree of similarity exists between the comparable sales and the subject property. For example, the reliability of this method increases as the quality, location, age and mix of facilities, room and occupancy rates is most similar requiring few adjustments. But this rarely happens except in homogeneous facilities such as limited service hotels/motels. When differences between comparable sales and the subject property require considerable adjustments, many of which may be unsupportable with empirical data, the reliability of price per room is relegated to a “rule of thumb” method.

Revenue per Available Room (RevPAR) can provide a supportable indication of value as it is room revenue which drives the success of a hotel/motel. As stated earlier, all other facilities such as food and beverage, meeting rooms, health clubs, and shops are there to support the main function of maintaining or increasing room rate and occupancy. RevPAR as a unit of comparison is most accurate when net income to gross income ratios of the comparables and the subject are similar.

Gross Operating Income per Room as a unit of comparison can be useful providing the level of expenses between the subject and comparable sales are similar. If they are not, the numerous adjustments required can render this unit of comparison nothing more than a “rule of thumb” method much like the gross income multiplier method in the Income Approach.

Net Operating Income per Room is probably the most accurate of the four units of comparison, as it directly compares the total net operating income of the subject property with the comparable sales. As such it accounts for the different levels of expense within the various departments.

As stated earlier the Direct Comparison Approach produces the most accurate results when the subject property and comparable sales are most similar requiring few adjustments. This is demonstrated in case study of a medium size motel property in Part 11.