Appraisal Standards as applied to Golf Properties

The Uniform Standards of Professional Appraisal Practice (USPAP) is basically the rule book for the valuation of real estate.  Developed and promulgated by the Appraisal Foundation, and updated biennially, USPAP consists of eight (8) fairly detailed standards addressing the development, reporting and review of real estate, personal property and business valuations, along with advisory opinions, definitions and a variety of rules relating to ethics, record-keeping, competency and scope of work.

Golf property appraisals have some unique qualities that require specific attention in order to be compliant with USPAP.

To many appraisers, a golf course is simply a golf course.  However, there are several types of golf facilities, each requiring different approaches and different market data.  For instance, daily-fee golf facilities are analyzed much differently than private clubs.  Private clubs often have equity or deposit membership interests to consider and operationally depend on dues and other fees which are charged over the course of a year, whether the club’s facilities are used or not.  Daily-fee courses rely on “pay as you play” fees of patrons.  The scope of work required for an accurate and relevant appraisal of a golf facility – of any type, dictates a scope of work analysis to determine how the appraisal problem is properly approached for the specific club being appraised.  Some of the relevant questions to be asked include:

  • Is the value of memberships to be included?
  • Is there a refund liability to be considered?
  • Since golf properties are typically traded as going concerns, is an allocation between real and personal property required?

Understanding what is being appraised is often the most confusing question and it’s up to the appraiser to answer it.

Standards Rule (SR) 1-2(e) requires that the appraiser identify the property characteristics that are relevant to the type and definition of value and the intended use of the appraisal.  This means much more than a simple description that the property is “an 18-hole golf course and various buildings” which buildings are often described in full detail while ignoring the elements of the golf course which often largely determine the economics so critical to value.  Some of these components which are often overlooked include:

  • turfgrass,
  • irrigation system,
  • quantities (acres of greens, tees, bunkers and drainage, etc.),
  • elevation change,
  • designer,
  • maintenance specs,
  • other important elements affecting revenue and expenses

Appraisers are often asked to value a property based on “highest and best use”.  This term can have two meanings for a golf property.  Should the property continue operation as a golf facility or would an alternative use be advised?  If golf, should it be private, daily-fee, semi-private, resort or some variation of one or more of those categories.  Market positioning is a critical part of this question.

SR 1-4 addresses the information required for a credible appraisal result.  For golf property appraisals this means (for instance) more than simply harvesting “rack rates” from the internet for market data and developing the relevant approaches to value. It is critical to employ methodologies that are consistent with participants in the marketplace.  The use of irrelevant units of comparison (such as $ per hole) can be misleading and result in conclusions that aren’t reliable.

In reporting a golf property appraisal, SR 2-1 requires that the report contain “sufficient information” for the benefit of the reader.  Sufficient research should be undertaken to identify market competitors and an effort made to compile sufficient physical and operating information about each competitor and comparable sale to analyze accordingly.

Visiting competitive properties and understanding the subject’s position in the marketplace is a must.  There are too many variables to consider and golf courses all look good online.  There is no substitute for a visit to evaluate a club’s competition.

These are a few of the more relevant specifics that the client should demand from a properly done golf property appraisal.  Before retaining an appraiser for a golf property assignment, focus on the issues of particular relevance to the property being appraised.  The cheapest appraisal is rarely the one that will address the relevant issues and develop the most credible (and useful) results.  Ensure that the appraiser is not only experienced with golf courses, but with the type of facility being appraised and that he/she understands the problem and has the skills required develop the solution.