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- Golf Course Appraisal 101
Golf Course Appraisal 101
- By Glenn Rigdon
- Published December 4, 2008
- Commercial Appraisal , Special-Purpose Appraisal
- Unrated
Glenn Rigdon
The author, Glenn J. Rigdon, MA, MRICS, ASA is a commercial appraiser / broker. He was the Economist AZ State Land Department and Staff Specialist ROW - Legal for NDOT. See http://www.horizonvillageappraisal.com/ and our sister site at http://www.nevadacommercialrealproperty.com for more information or call 1-702-568-6699.
View all articles by Glenn Rigdon
Appraising golf courses is a specialty area, and some individuals become experts in the appraisal of the golf course property type and they appraise nothing else. For the rest of us, appraising the occassional 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 and demad (competition) within a specific area, the site and its improvements, historic and anticipated future income and expenses and market sales information on both private / public golf courses.
The number of golf courses per population and per hotel room is an important characteristic for appraisers to investigate, both tourists and residents play golf, and the player mix is important to know. Areas with many courses can become saturated and in turn it becomes difficult for operators to increase green fees and 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 regulary 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 demogrpahics, 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 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 inestment, can also be discovered by an appraiser via the investigation of comparable sales.
The cost appraoch 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.
Its 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 member / owner who takes possession of it.
Golf course appraisals investigate important topics like; the golf market including the supply and demad (competition) within a specific area, the site and its improvements, historic and anticipated future income and expenses and market sales information on both private / public golf courses.
The number of golf courses per population and per hotel room is an important characteristic for appraisers to investigate, both tourists and residents play golf, and the player mix is important to know. Areas with many courses can become saturated and in turn it becomes difficult for operators to increase green fees and 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 regulary 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 demogrpahics, 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 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
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 inestment, can also be discovered by an appraiser via the investigation of comparable sales.
The cost appraoch 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.
Its 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 member / owner who takes possession of it.