Scope of the Appraisal – Make Sure it’s Clear

Recently, we were retained for an appraisal assignment of a private club in the Southeastern US.  As we always do, after the initial inquiry and discussion about the assignment I sent the client a proposal for our firm to be retained to perform the appraisal.  Having been told that the appraisal would be used to establish value for the club, which was recently acquired from the developer, we included the following language in our proposal:

  • Interest Valued ——————————————-Going Concern, Fee Simple
  • Property Valued—————————————– The subject property is a private golf club facility with 18-hole golf course, maintenance facility, practice facility, associated buildings and land.  It is noted that the clubhouse in use is owned by the local HOA and leased to the club.  The onsite ponds are also not owned by the club and water usage is by mutual agreement.

Further, we included the following language in our proposal:

  • Intended Use of Report—————————————– to establish asset values as of the date of acquisition for federal tax purposes

Unfortunately, never mentioned was that the accounting firm sought an allocation of land and building values.  While certainly able to be accomplished, such an allocation requires the development of vacant land value estimates, which changes the scope of work for the appraiser significantly.  The appraiser would need to add to the assignment the research of relevant sales of vacant land (there aren’t many land sales for golf development these days) and analyze those sales to develop a reliable estimate of vacant land value to allocate from the real property value.

Appraisal assignments for golf or club properties, or any other type of property are done for a wide variety of reasons.  It is imperative that the client is clear to the appraiser, in specific terms how the appraisal will be used and what value indications are needed.  It can change the assignment, sometimes dramatically and most importantly result in a misunderstanding that needs to be resolved.

The bottom line is that an appraisal isn’t simply an appraisal and there are numerous interests or elements that may or may not need to be considered and included.  Communication about the scope of work should be clear and the assignment should be clearly defined in the engagement letter.