A golf course appraisal is a complex process that often means different things to different people. By definition, it is simply “the act or process of developing an opinion of value” or even simpler, “an opinion of value”. The appraisal of a golf course or golf club property is somewhat unique because unlike traditional investment real estate (office buildings, shopping centers, etc.) there are personal and intangible property components that are almost always included in any sale of a golf course or club. In addition, the appraiser is bound by the Uniform Standards of Professional Appraisal Practice (USPAP), which establish rules for how appraisals are done.
Practically, with golf property assignments, determining the scope of work is critical. For instance, if the club is private, are the value of memberships to be included? Is there a refund liability obligation to be considered? Is an alternative use possible and/or likely or is the club being appraised based on continued use as a club? Is the assignment to value the going concern (as most golf properties are bought and sold) and will an allocation of real property, personal property, and business value (intangible) be required?
Some of the more important things to look for in a golf course appraisal include:
- Methods and techniques should be golf industry specific and reflect timely behavior of market participants, such as appropriate and relevant units of comparison, golf industry specific capitalization and discount rates and appropriate consideration of real and personal property allocation and intangible business interest, if required.
- What is being appraised? Does it include memberships? Is there a refund obligation? What and whose interests are included in the valuation. There are several types of golf facilities and several sub-types within those parameters. The appraiser should be aware that golf courses are not all the same and cannot all be directly compared with one another. Golf courses rarely sell as just real property and this is often overlooked by those unfamiliar with the golf property dynamics. How was the sales price allocated between real property, personal property, and business value?
The appraiser should be aware that the various types golf courses (Private, Daily-Fee, etc.) are not all the same and cannot all be compared. Golf courses rarely sell as just real property and all interests must be accounted for and considered in the subject property and any comparable sale.
- Golf properties require some unique descriptive information. Some appraisers do an acceptable job of analyzing the clubhouse and other buildings. However, golf course improvements often throw most appraisers a curve ball when it comes to understanding them. Some of the elements requiring a thorough understanding and analysis include:
- irrigation system,
- quantities (acres of greens, tees, bunkers, etc.),
- elevation change,
- maintenance specs,
- other important elements affecting revenue and expenses
- It should be clearly understood in the assignment whether the appraiser is asked to value the property based on continued use or highest and best use. An analysis of any deed restrictions, covenants or implied restrictions should be included. Which interest is being valued and, in the case of some private clubs whether the membership interest is being considered should be clarified. As clients often do not specify this, it is the appraiser’s obligation to identify same.
- If the assignment is to value the property for continued golf use, it is imperative that the appraiser perform a “golf highest and best use analysis” whereby an evaluation of the market position (DF, PR, SPR, etc.) is performed and the appraiser considers alternative operating scenarios and market positions.
- Comparable sale or market competitor information should be sufficient to support the conclusions being formulated in the appraisal. A simple internet search to identify the “rack” rates for competitive courses does not constitute adequate market research and sales should be developed and verified not only to include sale price and recording information, but where possible appropriate physical information and economic indicators. Appropriate units of comparison that are consistent with the actions of market participants are essential. At a minimum, the golf course appraiser should develop the income and sales comparison approaches. The relevance of the cost approach is often questioned in golf property assignments, but may be required in certain jurisdictions. This should be determined by the appraiser after careful consideration of the market dynamics, subject property and any relevant jurisdictional issues. In accordance with USPAP, the exclusion of any approach must be explained. It is also emphasized that properties used in the comparative process (sales and market competitors) should be visited and viewed by the appraiser, if possible.
- Golf property leases are fairly infrequent. Appraisers may be asked to provide market rent estimates, or to use valuation methodology often referred to as the market rent approach. Since lease information is difficult to come by, appraisers should take great care in utilizing same as often the data is dated, incomplete or unexplained.
- “Sufficient information” for golf course appraisals is defined differently by different appraisers and by different assignments. It is emphasized that the appraiser is expected to gain a thorough understanding of the property components, operations and market segment in their analysis. 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.
- What is being valued and whose interest should be valued must be clarified in the appraisal report and the scope of work. This is often an issue with private club assignments and a discussion on typical purchasers should be included.
These are some of the highlights that relate to appraisal standards requirements, but are often overlooked by inexperienced golf course appraisers. A few other things to look for in a golf property appraisal are:
- Leased fee and leasehold valuations
- Descriptive maps and photos
- Treatment of Membership Refund Liability (if applicable) and impact on value
- Thorough market research, not just what’s online
- Business Valuation discussion and allocation of real property, personal property, and business interests
- Special Methodologies
- Proper Use of Direct Capitalization vs. Discounted Cash Flow Analysis
- Units of Comparison to be consistent with market participants
Key to this discussion is that all golf properties are not alike thus, golf course appraisals need to address the often unique and specific issues for the various types of golf course properties and individual markets. “National averages” often published can be sometimes helpful in framing an issue in a golf course appraisal, but as they say “all politics are local” and golf markets are the same way. The national averages rarely tell the story for the specific market.