Golf Courses: The Valuation Debate
Golf courses like many other complex property types of real estate present a challenge to determine value. Many golf courses are operating in a saturated market where the demand is not always there to generate a profit. Assessors traditionally utilize the cost approach to value most property types and then depreciate based on age to derive an accurate value. The issue with this approach is that construction costs and material costs/availability are different now than they were many years ago. The Marshall Swift handbook for construction cost that is used by appraisers as the industry standard for cost approach valuation is an accurate source; though depreciation rates can be subjective based on property type.
When a piece of real estate is appraised by a licensed appraiser; they are providing an opinion of value and this can be agreed upon or disputed by other parties involved in the transaction. Many appraisers are hired for financing purposes, estate settlement, and tax abatements.
The amount of golf course sales varies from state to state and the demand is not always the same for the amount of people that regularly play or are learning to play. As stated before many golf courses are sold at a discount in order to complete the transaction. The market that is created for a comparable sales approach valuation method is much different than the cost approach used by an assessor; since there are intangibles that affect sales for golf courses like: location, age, demographics, and demand to play by consumers. The income approach to value is not always the best way to derive fair market value for a golf course as if there is negative net operating income; it is impossible to determine a precise market value based on the calculation.
When there is a golf course that needs to be appraised, it is best to look at the market it resides in and what data can be applied to the valuation process. There might be a case where there are multiple arms-length sales transactions that provides an opportunity for a comparable sales approach to value. There is also the potential that enough market data will be established for an accurate capitalization rate, which can be used in conjunction with a positive net operating income for an income approach to value. The cost approach can be helpful for financing new construction of a golf course; though there are many drawbacks for older golf courses.
Allobar Strategies, a property tax consulting firm has the ability to help golf course owners file tax abatements if applicable and utilize their network of experts to assist with the valuation process.