The beauty of a busy practice over a long period of time is that you’re always learning. Recently, we’ve been privileged to be involved in 2 private club assessment cases, both of which went to the verge of trial. Among the most contentious issues is that of deferred maintenance, often a significant factor in the valuation of a golf course.
As defined by the Appraisal Institute, for valuation purposes, deferred maintenance is: “Items of wear and tear on a property that should be fixed now to protect the value or income-producing ability of the property, such as a broken window, a dead tree, a leak in the roof, or a faulty roof that must be completely replaced. These items are almost always curable.” From my perspective, the key word in this definition is “now”. The three most significant items golf course buyers look at for potential need of replacement are irrigation systems, bunker rebuilding and cart path paving. Since market value presumes a sale and assessments are required to be based on market value, whether the course is being sold or not, to estimate market value it’s incumbent upon us to view the property through the eyes of a typical buyer.
The American Society of Golf Course Architects publishes a Life Cycle Chart, which we (and much of the industry) use to evaluate the remaining life of some of the most important components. For instance, irrigation systems can last anywhere from 10 to 30 years, according to ASGCA. Greens often need to be rebuilt 15-30 years after construction and bunkers from 5 to 10 years, though there are new systems (more costly) that can extend the life of a functional bunker to as much as 15 years or more.
The key here, as it relates to tax assessment appeals is that if a property is in need of a new irrigation system, for instance, delaying that job involves the assumption of significant risk, especially if the system fails during the hot summer months. It could be disastrous. Poorly draining bunkers and cart paths with potholes and tree root buckling are likely to be evaluated by a buyer as needing replacement, but there are times when buyers will hold off on them – for a while. A dollar for dollar impact could result in a potential sale transaction if replacement is needed at the time of sale.
It’s not uncommon for assessors, and sometimes their appraisers and attorneys to overlook these items of deferred maintenance, often by suggesting that a small, and often inadequate annual reserve allowance resolves the issue when considering the income approach. In fact, if deferred maintenance exists, not only does it have to be cured, but reserves to be set aside to replace the new irrigation system 20-30 years down the road. The same dynamic exists for bunkers, cart paths, HVAC, roofing and any other component of the club that will need to be replaced.
We often work for taxing authorities as well as clubs, and they sometimes seek to overlook deferred maintenance, which most definitely impacts market value. Given the costs of many of these items, especially a new irrigation system, it’s a big deal, and it’s real.