As many of you here know I am the Superintendent at Wolf Point Club in Texas. Wolf Point was designed by Mike Nuzzo, built “in-house” with construction being directed by Mike and myself. The course was designed and built to be a personal golf course for the use of the owner and his guests.
We are in the midst of a contentious property tax fight. Our local appraiser has valued the golf course at a rate 10X higher than the other golf courses in the area and more than twice that of the nearest “nice” country club.
As a admitted laymen in these matters, I believe there are three different methods for valuing a golf course.
1. Like most real estate, comparable sales are one way it can be done. As the taxpayer we like this method as we believe it shows what the true value of a course is, provided the use is not changing. Problem is, in the Houston area, many golf courses have sold in the last few years for development reasons which seem to unfairly raise the value of the golf course. But, when you use comparables where the use has not changed, the numbers would help our case as those golf courses that are trading are selling for much less than our current valuation.
2. Another way to value is the income approach. In our case, the assessor has changed the use of the land from ag exempt to commercial. Problem is we are not in business. Besides the owner, no one has ever paid for anything to play here. We have no income and thus the assessor will not use this method.
3. That leaves the cost method which basically values the course at what it would cost to replace. This is the method the appraiser is using and even though we built the course in house he is arguing that he must value the course using a schedule that shows replacement costs as if it where built in a more traditional (general contractor) manner.
I understand that placing a value on a special use piece of ground can be very tough. But it makes no sense to me that a guy who just wants to play golf on his own course should be penalized so severely. If you built a nice racetrack on your land, and you are the only one driving on it, is it worth more than Daytona? I could think of many other examples but basically what it comes down to for me is they are simply trying to charge what they think the freight will bear.
What, besides income, makes a golf course valuable? Take away income and they are all losers unless they are sitting on valuable land. Why is a golf course with no income worth more than a grassy field?
Thoughts?
Don,
I’ll try to help as best I can, but each state has its own ins and outs relative to property valuation.
RE:
1. Any time a course is sold to be converted to residential development it is NOT being purchased for the same use currently provides. An excellent argument goes as follows, I know of a framer who just sold 100 acres of dry land for $40,000 an acre because a builder is going to put infrastructure on it and sell ˝ acre lots for $55,000 each. Surely it is not realistic that all farmers should pay taxes on either a per acre basis of $40,000 or $110,000 an acre just because one other did. The value of the land does not increase until the use changes. Valuation based on best use or most profitable use is not reasonable as when applied across the board is not realistic. Regarding the courses that sold for a decreased value and continued their function as golf course. You need to be aware that any “distressed sales” are excluded as market comparables. So any course that was sold and in foreclosure, under receivership or resulting from a bankruptcy is excluded. This approach may not be as good as it seems to you.
2. The assessor’s approach to change the use from land exempt to commercial is not an option unless: 1. you have set up a for profit business on the site, which you have not, 2. the zoning board has changed the zoning of the land, which they have not. This might be one of your stronger arguments. Since the assessor had not taken this approach it only re-affirms that the course is just a big grass field with no income. Until such time as it is sold for a for profit entity it has no comparables from which to base a valuation.
3. The cost approach is where most owners and assessors find common ground, but that too is only in the case of for profit operations as an operation is looking to minimize a cost against an income stream. Remember also that the items you made are for the most part depreciable by IRS code. Tees, greens, bunkers, irrigation, drainage all have a well established depreciable schedule. All of which are based on cost allocation not market cost. Further, in the case of any facility that is not considered part of a going concern with any external commitments, there is no reason that would mandate an owner to re-construct. It’s not like you all have membership that require a functioning 18 hole course or anything.
4. There is another argument that involves the end valuation of any course in general. It involves the transfer of value / inputs. A great example, we’ll stay with the farmer for a second, is the guy who digs a 40 acre pond in the middle of a 100 acre field and then sells off the remaining land as residential lots. The valuation is a two step model. The first step is that the cost of the pond construction is transferred to the basis of the lots, you can’t really leave the value in the bond a tax it forever ‘cause it wouldn’t work. That new value is now the owner’s basis until he sells the lots. The second step is that the new lots are valued at the sales price to the new owner. The lots were made more valuable by their proximity to the value increasing feature – the pond, which now has no value. The assessor should be doing an end around on you and trying to increase the value of at the land adjacent to the course as that is what has increased in value, provided ownership of said land is not the same as the course. Example 2, had you pt in a dairy operation with 1000 head would the value of the adjacent property have gone up? Don’t think so.
You can also make the argument that at anytime you can cease maintaining your grass field. Will you be getting a rebate on that tax bill?
You must protest at ever turn and on time. You must also seek an audience with your state board of real estate appraisers, which in Michigan is a sub-section of the Governor’s office. It is like the state supreme court of the board of review.
Good Luck!
JT