Litigation Support Appraisals for Golf & Club Properties

One of the things we do as appraisers is take continuing education on a regular basis.  Recently, I navigated through a course on the appraiser’s role as an expert witness, which was of particular interest because we do a good bit of litigation support work and are currently involved in several such cases, including one federal court case involving a prominent private club.

One specific area of the course was the portion on what are known as the “Daubert Tests”, which can determine whether an appraiser’s (or any expert witness) testimony is admissible in court.  Basically, an expert witness (as opposed to a fact witness) is someone with specialized knowledge or skills, who can offer an opinion that is substantiated with data.  There are four (4) tests as a result of the “Daubert” case from 1993 that determine whether the witness has demonstrated specialized knowledge or skill.  These are:

  1. Tested – Whether the theory or technique used by the expert can be, and has been tested;
  2. Peer Review – Whether the theory or technique has been subjected to peer review and publication;
  3. Error Rate – The known or potential rate of error of the method used is known or predictable;
  4. General Acceptance – The degree of the method’s or conclusion’s acceptance within the relevant scientific community.

While not all the tests will apply in all cases, this is a good guide to use in determining the admissibility of certain techniques in court.

In the appraisal of golf properties, this process is particularly applicable because there are numerous methods utilized, some of which are unique to golf properties, and some of which aren’t particularly realistic when compared to the normal behavior of market participants.  For instance, the “stock & debt” technique for valuation of a private club, which is quite theoretical can’t really be tested because there are few (if any) sales of clubs which support adding the retail value of memberships to the existing debt.  While the method has been used by some appraisers and even published, it’s error rate can’t be predicted and given the assumption of a sale in estimating market value, it’s level of acceptance is limited at best.

In New York State the generally accepted method for tax certiorari cases is the “market rent” approach.  As applied, this method derives a rental value from leases of daily-fee and municipal golf courses for application to private clubs.  It seems like a square peg in a round hole, but it has been reviewed and accepted by some (including courts) despite not being tested in the marketplace or having a predictable rate of error.  It has also been rejected by some peers and its acceptance has been limited so far.

In many (if not most) states, the use of a discounted cash flow analysis in just about any courtroom situation is risky, despite this method (in applicable situations) being tested, reviewed and widely accepted by both appraisers and the market.  The unpredictability of error is this method’s downfall and despite passing 3 of the 4 tests, most attorneys avoid the procedure.

I find the differences between jurisdictions intriguing.  It’s not uncommon for methodology used and accepted in one jurisdiction to be flatly rejected in another, especially with the preponderance of otherwise unusual valuation methodologies used for golf properties.

We often find ourselves in litigation assignments where judgement on a variety of methods are at issue.  These methods are often unique to golf properties, such as which unit of comparison to employ in the sales comparison approach, whether to include an adjustment grid or how to allocate real and personal property .  Accordingly, it’s usually a good idea to plan ahead, determine which methodologies may be accepted and which may not. It’s a good idea to address these issues up front.  The witness stand is no place to be searching.