Golf Course Appraisal 101

Appraising golf courses is a specialty and some individual appraisers become experts in the appraisal of the golf courses and appraise nothing else.  For the rest of us, appraising the occasional golf courses can challenge our analytic skills.  This article provides takes a cursory look at the golf course appraisal process. 
Golf course appraisals investigate important topics like the golf market including the supply, demand for golf play and golf competition within a specific area.  Also considered is the site / course size (number of holes), improvements, historic and anticipated future income and expenses and market sales information on both private and public golf courses.
The number of golf courses per person and the number of hotel rooms per person are important characteristics for appraisers to investigate, both tourists and residents play golf, and the player mix must be known.  Areas with many courses can become saturated and in turn it becomes difficult for operators to increase green fees and increase other revenues.  Economic downturns, like the "recession of 2008," usually have a significant negative effect on the demand for golf play.  It is important for appraisers to forecast from past events and future expectations how the golf market will trend over the next several years.  Communicating regularly with operators / managers in your local golf market is the best way to stay in touch with trends.
Being able to identify golf competitors is a relatively easy task for an appraiser.  Players compare courses based on their green fee, their perceived course quality, the proximity of the course to tourist destinations, area demographics, the location of competitors and the number of competitors in a market.
The total number of golf rounds played in a market area is often a known statistic.  Upon investigation, an appraiser can tell if the trend for rounds played at a specific course is increasing or decreasing in the market.  While the rounds played may be decreasing the average rate per round may be increasing, so revenue could conceivably increase in a shrinking market.
Appraisers utilize all three appraisal approaches to value golf courses; the sales approach, the income approach and the cost approach.  The sales approach in golf course appraisals generally employs qualitative and not quantitative adjustments, thus adjustments are made with "inferior," "similar" and "superior" ratings.  Appraisers usually select the price per hole as the unit of comparison in golf courses appraisals and not the total purchase price.
As would be expected, the income approach is often favored in a golf course appraisal.  Operating ratios including, rounds played, average golf fee per round, equipment rental per round, and golf related expenses per round must be analyzed.  Ancillary income from merchandise, food and beverage, cart rental and other sources per round is useful for comparison.  Operating ratios from comparable golf courses reveal strong similarities to appraisers.  Typical are; a merchandise cost of sale percentage of 40% to 60%, a food and beverage cost of sales percentage between 20% and 30%, a golf department percent of revenue between 10% and 20%, a general administration fee of 6% to 15% and a total expense ratio of 60% to 75%.  Capitalization rates, which provide an indication of what an investor would expect to receive on a similar golf investment, can also be discovered by an appraiser via the investigation of comparable sales.
The cost approach in golf course appraisals is often problematic for appraisers, because it considers the value of the land "as if vacant" and then it adds the depreciated value of the improvements.  Land values often increase dramatically over time, and appraisers find that the value of the land exceeds the value of course as found using other analyses.  Land dedicated to a golf course use cannot, however, often be utilized for an alternate purpose.  It is usually not practical to conclude that the demolition of a golf course for development purposes is its highest and best use, since the transition of the course to an alternate use would probably destroy the value of the adjoining properties it was built to enhance.  Thus, appraisers consider the Cost Approach to have limited applicability in golf course appraisals.
It’s important for an appraiser to remember that some golf courses were constructed for the sole purpose of transferring value to adjoining lots.  The viability of the golf course itself may have been of secondary importance to the developer who added millions of dollars in value to his frontage lots, but may be of major importance to the members / owners who take possession of it after the developer is finished.
2012-2013 Update: Many golf courses, like most other property types, have declined in value in the Las Vegas area during this extended recession that began in 2008.  Why?  Take a look at the number of rounds played, take a look at land value reductions in the market or simply take a look at the falling net operating income of many courses over time.  There are always exceptions, but in general golf courses have fallen prey to falling discretionary income.  For many, they just can't play golf if their money is going to pay for increasingly expensive things like food and gasoline.
For more appraisal information contact Glenn J. Rigdon, MA, MRICS, ASA a Las Vegas / Henderson Nevada appraiser via email or via his business website Horizon Village Appraisal (http://www.horizonvillageappraisal.com), or you can also click on “Contact Us” on the home page of this website.  

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