Market Value and Golf Properties in the COVID Era

Recently, we’ve come across a few assignments where we provided estimates of market value and then advised our client not to sell for that price. We advised them to hold out for more. Why is this one might ask.

First, the definition of market value deserves some attention. As defined by the Appraisal Dictionary, Market Value is defined as follows: “The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.” This definition contains several “qualifying” elements that may conflict with a variety of factors that can impact the potential sale price of a property.

  1. “Most probable price” presumes exposure to a broad cross section of the relevant market. In the case of golf (and other) properties there is often a submarket of highly motivated buyers who may be inspired beyond economics. In the golf industry, lately there are some examples of properties being sold for prices likely exceeding appraised market value.
  2. “As of a specified date” somewhat limits an appraiser in a fluid market and the nature of appraisals requires reliance on historical data that may not reflect the evolution in the marketplace.
  3. “Reasonable Exposure” presumes that the property is marketed broadly and would seemingly fail to account for unusual market conditions such as those situations where buyers seek properties not being marketed and where there might be competition amongst buyers and auction-like bidding.
  4. “Prudently and Knowledgeably” fails to recognize those buyers that may not be “economic” buyers, may therefore be otherwise motivated and seeking a “trophy” or a “toy”. Such buyers, sometimes called “hobbyists” may be club members, locally prominent citizens or simply affluent golf enthusiasts. This dynamic occurred during the 1990’s golf boom and there seems to be evidence of same today.

Bottom line is that if the “perfect storm” of factors collide, it’s altogether possible that some (by no means all) golf and club properties can command sale prices in excess of market value in today’s golf charged environment.

Despite the golf recession that existed for about the past 20 years before COVID, golf courses have consistently retained their appeal with a segment of investors, including “hobbyists”. That appeal has only increased with the surge in golf participation, rounds and memberships and even in a broader sense, we’re observing some appreciation in golf property values, based on more typical, economic based metrics and only time will tell about the sustainability of these increases.

In most cases, a properly done appraisal is an excellent measure of a property’s value. However, weaknesses in the appraisal process, along with market fluctuations and special circumstances require the appraiser to also be a prudent advisor to the client. Yes, it takes some courage for an appraiser to “step out” but if one truly wants to be of service to the client, it can be most valuable.