By Larry Hirsh, President, Golf Property Analysts
Recently, we were retained for two very different assignments that raised the same question. In the appraisal world, the Uniform Standards of Professional Appraisal Practice (USPAP) requires us to state the intended use of the appraisal.
One client had been very vague about the use of the appraisal but implied that it was for corporate asset valuation. I later learned that there was an assessment appeal being pursued for the property and asked if the appraisal were to be used in conjunction with the appeal. He wondered why I inquired and asked if there were a difference in the finalized report. There is. If used for ad-valorem tax assessment the income approach is developed differently in that the annual tax liability is removed from the pro-forma and the capitalization rate “loaded” with a factor to ensure that the real estate taxes are considered appropriately and on a “normalized basis. Thus, there is good reason to ensure that the intended use is specified. There is also a high likelihood that this assignment may require litigation support services should the appeal go to court.
On the other assignment, we were asked to provide an appraisal for a couple considering the purchase of a golf course facility to operate in their retirement. We undertook all the normal tasks of doing an appraisal of an operating golf course facility and developed our analysis. Arriving at an estimate of value and reporting same to the client is where this assignment became more about the client (patient) than the property (disease).
Our client requested a call to discuss the appraisal and go over our process and report. We did a GoToMeeting and among other things the client inquired about the personal investment impact of purchasing this golf course property.
I learned that the client was anticipating retirement from his “regular” career within 5 years and anticipating relocating to a family favorite vacation destination. Since we had established our estimate of value for the property, the conversation evolved into a discussion of the client’s goals. My “appraiser hat” went off and on went my “consulting hat”. Now, it seemed as though my role was more of advising our client not so much on what the value was, but rather on the virtues of acquiring the property given their objectives.
The specific property under consideration was concluded to have limited growth potential, located in a sparsely populated region with a short golf season. The client was considering funding the potential acquisition with retirement savings and looking to risk some of those funds for the potential of a greater return. The client’s focus was clearly on maximizing return on investment. “Treating the patient” indicated that I needed to advise them that the potential for growth in value was limited in this particular case. The potential existed for additional consulting work for us had they purchased the property. Had the client been a young golf pro, superintendent or simply someone looking for a career in golf, likely to finance most of the purchase with debt and planning to live off the potential income from the property, my advice may have been different.
The value of the property is one thing, but it can mean different things for different objectives. In the world of real estate appraisal, it’s not uncommon to lose sight of the “big picture” in favor of simply analyzing the property and the numbers. An important part of the assignment is the “people part”, knowing who your client is, understanding their goals and objectives and having sight of whether the client fits the description of the likely purchaser or not. It’s inherent on us, as both appraisers and consultants to “treat the patient” as well as the disease.
Larry Hirsh is the President of Golf Property Analysts. Whether investor, owner, club or municipality, each client has different goals and objectives and Golf Property Analysts invests the time to understand those goals and tailor analysis and advice to help clients by providing unbiased, objective and truthful advice and counsel.