METHODOLOGY GUIDE- VALUING GOLF COURSES IN ONTARIO - …
Transcript of METHODOLOGY GUIDE- VALUING GOLF COURSES IN ONTARIO - …
METHODOLOGYGUIDE
VALUINGGOLFCOURSESINONTARIO
ValuationDate:January1,2016
AUGUST2016
August22,2016
TheMunicipalPropertyAssessmentCorporation(MPAC)isresponsibleforaccuratelyassessingandclassifyingpropertyinOntarioforthepurposesofmunicipalandeducationtaxes.
InOntario’sassessmentsystem,MPACassessesyourpropertyvalueeveryfouryears.Thisyear,MPACisupdatingthevalueofeverypropertyintheprovincetoreflectthelegislatedvaluationdateofJanuary1,2016.MPACiscommittedtoprovideOntariopropertyowners,municipalitiesandallitsstakeholderswiththebestpossibleservicethroughtransparency,predictabilityandaccuracyinvalues.Aspartofthiscommitment,MPAChasdefinedthreelevelsofdisclosureofinformationinsupportofitsdeliveryofthisyear’sassessmentupdate.ThisMethodologyGuideisthefirstlevelofinformationdisclosure.ThisguideprovidesanoverviewofthevaluationmethodologyundertakenbyMPACwhenassessinggolfcoursepropertiesforthisyear’supdateensuringthemethodologyforvaluingthesepropertiesiswelldocumentedandinalignmentwithindustrystandards.
Propertyownerscanaccessadditionalinformationabouttheirownpropertiesthroughaboutmyproperty.ca.Logininformationforaboutmyproperty.caisprovidedoneachPropertyAssessmentNoticemailedthisyear.AdditionalinformationaboutMPACcanbeaccessedatmpac.ca.
AntoniWisniowskiPresidentandChiefAdministrativeOfficer
RoseMcLean,M.I.M.A.ChiefOperatingOfficer
TableofContents
1.0INTRODUCTION................................................................................................................4
1.1PROPERTIESCOVEREDBYTHISMETHODOLOGYGUIDE......................................................................41.2LEGISLATION.............................................................................................................................51.3CLASSIFICATION.........................................................................................................................61.4THEUSEOFTHISMETHODOLOGYGUIDE.......................................................................................61.5CONSULTATIONANDDISCLOSURE.................................................................................................7
2.0THEVALUATIONPROCESS.................................................................................................8
2.1OUTLINE..................................................................................................................................82.2APPROACH.............................................................................................................................102.3DATACOLLECTION...................................................................................................................102.4DATAANALYSIS.......................................................................................................................152.5VALUATION............................................................................................................................172.6VALIDATINGTHERESULTS..........................................................................................................17
3.0THEVALUATION..............................................................................................................18
3.1APPROACH.............................................................................................................................183.2SAMPLEVALUATION.................................................................................................................193.3CONCLUSION..........................................................................................................................20
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1.0Introduction
TheMunicipalPropertyAssessmentCorporation(MPAC)–mpac.ca–isresponsibleforaccuratelyassessingandclassifyingpropertyinOntarioforthepurposesofmunicipalandeducationtaxation.
InOntario,propertyassessmentsareupdatedonthebasisofafour-yearassessmentcycle.In2016,MPACwillupdatetheassessmentsofOntario’snearlyfivemillionpropertiestoreflectthelegislatedvaluationdateofJanuary1,2016.Assessmentsupdatedforthe2016baseyearareineffectforthe2017–2020propertytaxyears.
ThelastAssessmentUpdatewasbasedonaJanuary1,2012,valuationdate.Increasesarephasedinoverafour-yearperiod.Anydecreasesinassessmentareappliedimmediately.
Itisimportanttoensurethatthevaluationmethodologyappliediscapableofprovidingarealisticestimateofcurrentvalueattherelevantvaluationdate,which,inturn,enablesallstakeholderstounderstandthevaluationprocessandhaveconfidenceinthefairnessandconsistencyofitsoutcome.
ThisMethodologyGuidehasbeenpreparedforthebenefitofMPACassessors,propertyownersandtheirrepresentatives,municipalitiesandtheirrepresentatives,AssessmentReviewBoardmembers,provincialofficials,andthegeneralpublic.
Thisguideoutlinesthevaluationprocesstobefollowedbyanassessor,includingstepsthatrequireappraisaljudgment.Itisincumbentupontheassessortomakeinformeddecisionsthroughoutthevaluationprocesswhenarrivingatestimatesincurrentvalue.
1.1PropertiesCoveredbyThisMethodologyGuide
ThisMethodologyGuideappliestogolfcoursesinOntario.
Thetypesofgolfcourseownershipandoperationvaryandcaninclude:
• dailyfee
• semiprivate
• executive
• high-endpublic
• privatefor-profit
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• privatenot-for-profit
• resort
• exclusive
Golfcoursesalsoofferarangeofservicelevelsfromasimplecheck-inboothtomoreextensivefacilities,includingrestaurants,proshops,concessions,lockerroomsandotherrecreationalfacilities(suchastenniscourts).
Thetypesandobjectivesofgolfcourseownershipvaryandcaninclude:
• privateequityfacilities,whichcatertoanexclusivenumberofmembersandtheirguestsandaregenerallyoperatedonanot-for-profitbasis
• privatenon-equityfacilities,whichmayoperateaseitherafor-profitornot-for-profitfacility
• semiprivatefacilities,whichcombinemembershiprightswithpublicaccess(atspecifictimesandonafee-payingbasis)andgenerallyoperateasfor-profitfacilities
• daily-feefacilities,whichareopentothepubliconafee-payingbasisandgenerallyoperateasfor-profitfacilities
• municipally-ownedpubliccourses,whichareopentothepubliconafee-payingbasisandrunasnot-for-profitfacilities
MPACusesaseriesofpropertycodestocategorizedifferenttypesofproperties.Thepropertycodeforgolfcoursesis490.
Anassessormayalsomakereferencetoadditionalmethodologyguidesforpropertiesthatdonotfallpreciselywithinthedescriptionofthepropertycodelistedabove.
1.2Legislation
ThemainlegislationgoverningtheassessmentofpropertiesinOntarioforpropertytaxpurposesiscontainedintheAssessmentAct.1
TheActcontainsimportantdefinitionsandstateswhatpropertyistaxableandhowitshouldbevalued.Section19(1)oftheActrequiresthatlandbeassessedatcurrentvalue,whichis
1AssessmentAct,R.S.O1990,cA.31:https://www.ontario.ca/laws/statute/90a31.
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definedtomean,inrelationtoland,“theamountofmoneythefeesimple,ifunencumbered,wouldrealizeifsoldatarm'slengthbyawillingsellertoawillingbuyer.”
TheMinisterofFinancefiledOntarioRegulation430/15onDecember18,2015,whichaddedadditionalrulesaffectingthevaluationandclassificationofpropertiesonwhichathird-partysign(billboard)islocated.Tocomplywiththeregulation,theincomeattributabletoathird-partysignwillnotbeincludedinthevaluationofanypropertyforassessmentpurposes.
1.3Classification
MPAC’sroleistoaccuratelyassessandclassifyallpropertiesinOntarioinaccordancewiththeAssessmentActanditsassociatedregulationsestablishedbytheGovernmentofOntario.Theclassificationofapropertywilldeterminewhichtaxratewillbeappliedbythemunicipalityortaxingauthority.Allpropertiesareclassifiedaccordingtotheiruse,andOntarioRegulation282/98oftheAssessmentActsetsouthowvariouspropertyusesareclassified.
TheclassificationofgolfcoursesiscoveredinSection3(1)2.vi,whichincludesintheResidentialPropertyClass“landusedasagolfcourse,includingbuildingsandstructuresusedforthepurposeofmaintainingthegolfcourse,butnotincludinganyotherbuildingsandstructuresandthelandusedinconnectionwiththosebuildingsorstructures.”2
InadditiontobeingincludedintheResidentialPropertyClass,theassessedvalueallocatedtothefood/beverageandproshopcomponentsofagolfcoursefallsintotheCommercialPropertyClass.
Ifaportionofthepropertyisusedforotherpurposes,forexamplehoteluse,itmaybenecessarytovaluethosecomponentsseparatelyandsumthecomponentvaluestoachievethecorrecttotalcurrentvalue.Itmayalsobenecessarytoapportionthetotalvalueofthepropertybetweenthevarioususestoensurethattheappropriatetaxrateisappliedtotherelevantpartsoftheproperty.
1.4TheUseofThisMethodologyGuide
ThisMethodologyGuideisintendedto:
• EnsureMPAC’sassessedvaluesforthesepropertiesarefair,accurate,predictableandtransparent.
2OntarioRegulation282/98,GENERAL:https://www.ontario.ca/laws/regulation/980282.
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• Providedirectiontoassessorsandclearexplanationstomunicipalities,taxpayersandAssessmentReviewBoardmembers.
• EnsurethatMPAC’smethodologyforvaluingthesepropertiesiswelldocumentedandalignswithindustrystandards.
• Explainthethoughtprocess/decision-makingprocessthatanassessorshouldundertaketoapplythevaluationmethodology.
• Ensureaconsistentapproachtovaluingthesepropertytypes.
• SupportMPACassessorsinconductingtheirduediligencein:
Ø applyingOntario’slegislationandregulationsØ adheringtoindustrystandardsformarketvaluationinamassappraisal
environment
ItshouldbenotedthatthisMethodologyGuideisnotintendedtobeasubstituteforanassessor’sjudgmentinarrivingatamarketvalue–basedassessment(i.e.,currentvalue)foraparticularproperty.However,giventhattheMethodologyGuideexplainsindustrystandardsforpropertyassessment,conformstovaluationindustrynorms,andadherestoprovinciallegislationandregulation,MPACassessorsareexpectedtofollowtheproceduresintheMethodologyGuideandbeabletoclearlyandsatisfactorilyjustifyanydeviationsfromit.
1.5ConsultationandDisclosure
MPACiscommittedtoprovidingmunicipalities,taxpayersandallitsstakeholderswiththebestpossibleservicethroughtransparency,predictabilityandaccuracy.Insupportofthiscommitment,MPAChasdefinedthreelevelsofdisclosureaspartofitsdeliveryofthe2016province-wideAssessmentUpdate:
• Level1–MethodologyGuidesexplaininghowMPACapproachedthevaluationofparticulartypesofproperty
• Level2–MarketValuationReportsexplaininghowthemethodologyoutlinedinLevel1hasbeenappliedatthesectorlevelforthepurposesofeachassessment
• Level3–PropertySpecificValuationInformationavailabletopropertytaxpayers,theirrepresentativesandmunicipalities
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2.0TheValuationProcess
Thevaluationprocessalwaysbeginswithadeterminationofthehighestandbestuseofthesubjectproperty.
Golfcoursesconsistoflargetractsofland,oftenincloseproximitytoexistingdevelopment.MPACassessorsmustalwaysconsiderthehighestandbestuseanddevelopmentpotentialoftheproperty.Apropertywithahighervalueunderanalternatepermitteduseshouldnotbevaluedasagolfcourse.
Thehighestandbestuseofthepropertymustbedeterminedasvacantandimproved.Thefourhighestandbestusetestsarethatthealternative,higher-valueuseofthepropertymustbephysicallypossible,financiallyfeasible,legallypermissibleandmaximallyproductive.
Anyrelianceuponthisguideismadeonlyaftertheassessorhasdeterminedthatthehighestandbestuseofthesubjectpropertyisthatofagolfcourse.
Assessorsdeterminethevalueofapropertyusingoneofthreedifferentapproaches:
• thedirect(sales)comparisonapproach
• theincomeapproach
• thecostapproach
2.1Outline
Inthedirect(sales)comparisonapproach,valueisindicatedbyrecentsalesofcomparablepropertiesinthemarket.Inconsideringanysalesevidence,itiscriticaltoensurethatthepropertysoldhasasimilaroridenticalhighestandbestuseasthepropertytobevalued.
Intheincomeapproach(or,moreaccurately,theincomecapitalizationapproach),valueisindicatedbyaproperty’srevenue-earningpower,basedonthecapitalizationofincome.Thismethodrequiresadetailedanalysisofbothincomeandexpenditure,bothforthepropertybeingvaluedandothersimilarpropertiesthatmayhavebeensold,inordertoascertaintheanticipatedrevenueandexpenses,alongwiththerelevantcapitalizationrate.
Inthecostapproach,valueisestimatedasthecurrentcostofreproducingorreplacingimprovementsoftheland(includingbuildings,structuresandothertaxablecomponents),lessanylossinvalueresultingfromdepreciation.Themarketvalueofthelandisthenadded.
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MPACprimarilyusestheincomeapproachtovaluegolfcourses.Thevalueofanincomepropertysuchasagolfcourseisbasedonthepresentworthofanticipatedfutureincome.
MPACusesthedirectcapitalizationmethodtoestablishcurrentvalueassessmentsinamassappraisalcontext.
Thismethodestimatestheannualrevenuethatcanbegeneratedbythegolfcourse,deductsoperatingexpenses,andthenappliesacapitalizationratetothenetincometoarriveatanestimateofcurrentvaluefortheproperty.
Thedirectcapitalizationapproachinvolvesthefollowingsteps:
1. Determinestabilizedrevenuesforthegolfcourse
2. Deductthestabilizedcostofsales
3. Determinethegrossmargin
4. Deductstabilizedexpensestodeterminethenetoperatingincome(NOI)beforemunicipaltaxes
5. Establishthecapitalizationratefromsalesdata
6. Determinetheeffectivetaxrate(ETR)usedtorepresentpropertytaxes.TodeterminetheETR,apercentageofeachthemunicipalcommercialandresidentialtaxratesareusedandadjustedtoaccountforthesubsequentpersonalpropertydeductionfromthecapitalizedvalue.
7. Addtheeffectivetaxratetothecapitalizationrate
8. CapitalizetheNOIintoanestimateofvalue
9. Deductpersonalpropertyfromthecapitalizedvalue,withtheresultbeingthecurrentvalueassessment.
10. Addthevalueofanyotherlandandbuildingsnotcapturedinthevalueofthegolfcourse.
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2.2Approach
TherearethreemainphasesinthevaluationprocessusedbyMPAC:
• datacollection
• analysisofthedatacollected
• valuation
2.3DataCollection
Thedatarequiredforgolfcoursevaluationscomefromanumberofsources:
• MPACconductsperiodicinspectionsofgolfcourses.
• PropertyownersarerequiredtoprovideMPACwithdetailsincludingactualincomeandexpenses.
• MPACalsocollectsinformationaboutsalesandtransfersofgolfcourses.
• Thereareanumberofguidesandotherpublishedinformationaboutgolfcourses.
MPACgenerallycollectsthefollowingtypesofdataforgolfcourses:
• generaldata
• financialdata
• propertydescription
• salesdata
• improvementdata
• landvaluationdata
• greenfeesandmembershipdata
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InformationfromOwnerorManager
Inordertocompareproperties,toproperlyclassifyeachgolfcourseandtodevelopappropriatecurrentvalues,itisnecessaryforMPACtoobtainpertinentinformationabouteachgolfcourse,asfollows:
• greenfees
• numberofroundsperyear
• developmentcosts
• buildingplansanddrawings
• sitelayout
• incomeandexpensestatementsoveraperiodofyears
• budgetsandfinancialforecasts
• typeofirrigationsystem/watersupply
• courseandsloperating
• size/length/layoutofcourse
• design/qualityofcourse
• facilitiesavailable
• topography
• age
• landscaping
FinancialData
Agolfcourseownerormanageristhemainsourceofagolfcourse’sfinancialdata.Awrittenrequestforthepertinentfinancialinformationismadetoeachgolfcourseowner.Acopyoftheoperatingstatement,includingrevenueandexpenses,isrequiredannually.
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Revenuedatarequiredonanannualbasisincludes:
• greenfees–non-memberandguestfees,packagedeals,tournaments,etc.
• cartrentals–rentalfees,trailfees,storageandbatterychargingfees
• membershipfees–alltypesofmembershipfeesandannualduesplayerspayforthecurrentgolfseason
• range–allrevenueearnedfrompayandplayatadrivingrangeand/orrevenuefromdrivingrangememberships
• lessons–allrevenuederivedfromgolflessonsaftercommissionispaidtotheinstructor
• proshop–revenuefromsalesofallmerchandise
• foodandbeverage–food,alcoholicbeveragesandnon-alcoholicbeveragesfromallsources,includingbanquetsandtournaments
• otherrevenue–breakdownofallotherrevenue
Costofsalesdatarequiredonanannualbasisincludes:
• proshop–thedirectcostofpurchasestosupplethegolfshopwithgolfmerchandiseforsale
• foodandbeverage–thedirectcostofpurchasesoffoodingredients,alcoholicbeveragesandnon-alcoholicbeveragesforre-sale
Expensedatarequiredonanannualbasisincludes:
• wagesandbenefitsfromallsourcesatthegolfcourse,shopsandrestaurants,includingmanagement,directlabourandassociatedbenefitcosts,employerhealthtax,vacationpay,staffon-siteaccommodations,staffmeals,clothingallowance,etc.
• administrationduesandsubscriptions,alltelecommunicationcosts,automotivecosts,costfortravel/education/training,officesupplies,computersupplies,donationsandbankcreditcardcharges
• proshopsupplies,includingallconsumablecostsassociatedwiththeoperationofthegolfshop(forexample,uniformsforgolfshoppersonnel,scorecardsandpencils)
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• foodandbeveragesupplies,includingallconsumablecostsassociatedwiththeoperationofrestaurants(forexample,uniformsandnapkins)
• marketingexpenses,includingallchargesforpromotionaladvertisinginprint,radio,televisionandonline
• turfoperations,includingthecostoffertilizer,pesticides,aggregatesandfueltooperatetheturfequipment(butnotincludingcoststopurchaseorleaseequipment)
• professionalfeesforexternalconsultants(forexample,legalandaccountants/auditors,includingtravelanddisbursements)
• repairsandmaintenance,includingallexpensesrelatedtorepairbuildingsandassociatedfurnitureandfixtures(butnotincludingcapitalexpenditures)
• allutilitiesassociatedwiththeoperationofthefacilities,includinghydro,propane,gas,heatingoil,waterandsewage,andcableandsatellite
• alltypesofinsurancerelatedtotheoperationsandbuildingsofagolfcourse(excludinginsurancerelatedtoemployeebenefits,whichisaccountedforunderfringebenefitsbydepartment)
• abreakdownofallotherexpenses
Pleasenotethatnoneoftheexpensecategoriesshouldincludeanyinterestpayments,mortgagepayments,loanpayments,propertytaxes,amortization,depreciation,capitalimprovementsorpurchasesofcapitalassets.
PersonalPropertyData
Ifowned,detailsofownershipshouldincludethedepreciatedcostofthefollowingequipmentand/orfurnishings:
• golfcarts
• maintenanceequipment
• kitchenequipment
• clubhousefurnishings
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Ifleasedorleasedtoown,detailsoftheleaseshouldincludetermsandpaymentsforthefollowingequipmentand/orfurnishings:
• golfcarts
• maintenanceequipment
• kitchenequipment
• clubhousefurnishings
GolfCourseSalesData
MPACalsocollectsdatawithregardtosalesofgolfcourses.Thisinformationisrequiredforestablishingtheappropriatecapitalizationratestoapplyinthevaluationandconfirmingfinalmarketvalues.
Salesdatatobecollectedincludes:
• propertyaddressandlegaldescription
• salesprice
• dateoftransfer
• nameandaddressofvendorandpurchaser
• intereststransferred(feesimpleorother)
• purchasermotivation
• financingconditions
ItisimportantforMPACtoascertainasmuchinformationaspossibleregardingeachsale,includinglocalmarketfactors.Allinterestsinthepropertysalemustbeisolatedandseparatedtoderiverealisticvaluesfortheassessableproperty.Golfcoursesalesincludenon-assessableitems,suchasinventory,personalproperty,intangibles(businessvalue)andthecontributoryvalueoftheimprovements.
MPACassessorswillanalyzesalesfromabroadgeographicalareatodetermineappropriatevaluesandanalyzelocalmarketconditionstoreconcilethesaleprices.
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Confidentiality
Asoutlinedabove,itisimportanttobeawarethat,inordertoenableMPACtoproduceanaccuratevaluationofthepropertyconcerned,informationneedstobeobtainedfromavarietyofsources.
ThiswillincludeinformationfromMPAC’srecords,fromtheowneroroperatoroftheproperty,fromthemunicipalityinwhichthepropertyislocated,fromtheassessor’svisittotheproperty,andfromothersources.
AllstakeholdersinthepropertytaxsystemhaveaninterestinensuringthatthecurrentvalueprovidedbyMPACiscorrect;inordertoachievethis,itisnecessaryforallpartiestocooperateintheprovisionofinformation.
Itisappreciatedthatsomeoftheinformationoutlinedabovemaybeofacommerciallysensitivenature.MPACrecognizestheneedtoensurethatanyinformationprovidedtoitisproperlysafeguardedandonlyusedforthepurposeforwhichitissupplied.Assessorsmustappreciatethenatureofthisundertakingandensuredataistreatedaccordingly.
If,afteranappealhasbeenfiled,MPACreceivesarequestforthereleaseofactualincomeandexpenseinformation,orothersensitivecommercialproprietaryinformation,theusualpracticeistorequirethepersonseekingtheinformationtobringamotionbeforetheAssessmentReviewBoard(ARB),withnoticetothethirdparties,requestingthattheARBorderproductionoftherequestedinformation.ThereleaseofsuchinformationisatthediscretionoftheARBandcommonlyaccompaniedbyarequirementforconfidentiality.
TheAssessmentActoutlinesinsection53(2)thatdisclosedinformationmaybereleasedinlimitedcircumstances“(a)totheassessmentcorporationoranyauthorizedemployeeofthecorporation;or(b)byanypersonbeingexaminedasawitnessinanassessmentappealorinaproceedingincourtinvolvinganassessmentmatter.”
2.4DataAnalysis
Havingcarriedoutthedatacollectionoutlinedpreviously,theassessorneedstoanalyzethedataandreachaconclusionregardingtheappropriatevaluationmethodtouseandhowitshouldbeapplied.Theprocessincludestheanalysisofthesalesdataandtheanalysisoftherevenueandexpensedata.
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AnalysisoftheSalesDataCollected
Salesdataisanalyzedtoestablishbenchmarksandthecapitalizationrate(R)–thenetoperatingincome(NOI)ofthegolfcoursedividedbyitssaleprice–whichcanthenbeusedtovaluesimilarproperties.MPACmaintainsadatabasetoenablethedatafromdifferentpropertiestobeanalyzedandcompared.Thedataisclassifiedsothatitcanbesortedintoappropriategroups,whichreflectthedifferenttypesofgolfcoursesinvariouslocations.
AnalysisoftheRevenueandExpenseDataCollected
Thefirststepistostabilizeincomeandexpenses.
Golfcourseincomeandexpensescanvarysignificantlyfromoneyeartothenext.Becausethevaluationofgolfcourseslookstotheincomereturnedoverthelongrun,itwouldnotbeappropriateforMPACtovaluegolfcoursesonthebasisofoneyear’spoorperformanceoroneyear’sexcellentperformance.Bystabilizingtheincomeandexpensesoverathree-yearperiod,thepeaksandvalleysofincomesandexpensescanbereducedandthevalueofthegolfcoursebecomesbaseduponamorestablepictureofthegolfcourse’sperformance.
Oncethedatahasbeencollectedandtheassessorhasestablishedstabilizedrevenuesandexpenses,thenextstepistocomparetheactualrevenueandincomeperformanceofagolfcoursetotheindustrynorms.
Bycompilingtheincomeandexpenseinformationintoadatabaseandthenclassifyingallofthegolfcourses,MPACisabletoestablisharangeofvaluationparameters.Theseparameterscanthenbecomparedtopublishedindustrydataandindustrynormsandcanbeusedtoanticipateexpectedperformancelevels.
MPACworkswiththeNationalGolfCourseOwnersAssociationinordertoestablishcertainindustrynormsthatareappliedtotheassessmentofallgolfcoursesacrosstheprovince.Thesenormsinclude:
• roundranges
• discountratefactor
• costofsalesfromproshop(percentage)
• costofsalesfromfoodandbeverage(percentage)
• overallexpense(percentage)
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• capitalizationrate(range)
• personalpropertydeduction(percentage)
2.5Valuation
Havingundertakenthenecessarystepsoutlinedabove,theassessorshouldnowbeinapositiontoapplytheappropriatevaluationmodel.
2.6ValidatingtheResults
Oncetheassessorhascompletedthevaluation,itisnecessarytocarryoutaseriesofcheckstoensurethatallrelevantpartsofthepropertyhavebeenincludedinthevaluation,therehasbeennodouble-countingofanyadjustments,theresultingvaluationhasbeencomparedwithanymarketevidencethatmaybeavailableinrelationtosimilarproperties,andthefinalvaluationisinlinewiththevaluationofothersimilarpropertiesinOntario.
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3.0TheValuation
3.1Approach
Regardlessofthetypeofgolfcourse,MPACvalueseverygolfcourse(assumingtheproperty’shighestandbestuseisagolfcourse)asifitwereapublicfor-profitcourse.Thisensuresconsistencyinthevaluationofgolfcourses.
First,theassessordeterminesthegolfoperations’revenuebyidentifyingthecourse’sprimegreenfeerate,thenmultiplyingitbyastandarddiscountratetodeterminetheaveragegreenfee.Theaveragegreenfeeisthenmultipliedbythenumberofroundsappliedtothesubjectgolfcourse.
Otherprojectedstabilizedrevenuesareaddedtothisgolfoperationsincomeincludingcarts,range,lessons,proshop,food/beverage,etc.,inordertoestablishtheproperty’stotalrevenue.
Costsofsalesarethendeductedfromtheproshopandfoodandbeveragerevenuestodeterminethegrossmargin.
Finally,tocalculatetheNetOperatingIncome,expensesaresubtractedfromtheGrossMargin.
TheCapitalizationRate
MPACanalyzesmarketdatatodetermineagolfcourse’scapitalizationrate.Thecapitalizationrateappropriateforthepropertywilldependonawiderangeoffactors,includingthelocation,populationbase,size,length,age,quality,condition,etc.
Thecapitalizationrateisderivedbyusingthefollowingformula:
CapitalizationRate=NetOperatingIncomePropertyPurchasePrice
Thecapitalizationratealsoincludesanadjustmenttoreflecttheeffectivetaxrateasthevaluationisbasedonthenetincomeofthepropertybeforepropertytax.
ValueAttributabletoPersonalProperty
Aportionofthevalueofagolfcourseisattributabletoandgoestosupportpersonalproperty.Thisamountisdeductedfromtheincomevalueofthegolfcourse.
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Add/DeductOtherComponentsofValue
Fromtimetotime,aproperty’svalueisnotentirelycapturedorisoverstatedbytheapplicationoftheincomeapproach.Anadjustmenttothevalueisthenrequired.Anexamplemaybeanadditionforexcessland.
ExcessLand
Insomesituations,theremaybesurpluslandsaspartoftheproperty,which,becauseofmarketconditions,maybeundeveloped.Thissurpluslandmustbevaluedseparatelyandaddedtothemarketvaluedeterminedforthegolfcourseportionoftheproperty.
Thedeterminationofexcesslandinvolvesareviewofcurrentzoningbylawsaswellasthecurrentdensityandconfigurationoftheproperty.Excesslandvalueistypicallyderivedusingmarketsalesstudies.
FinalizetheValuation
Thefinalstepintheprocessistoconsolidateamarketvaluefortheproperty.
3.2SampleValuation
Asamplegolfcoursevaluationisshownbelow:
Numberofrounds 25,000
PrimeRate $100
Factor 58%
Golfoperationsrevenue $1,450,000
Cartrentalrevenue $200,000
Golfrangerevenue $200,000
Lessonsrevenue $100,000
Otherrevenue $200,000
Proshoprevenue $100,000
Foodandbeveragerevenue $400,000
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Totalrevenue $2,650,000
Less:Costofsales
Proshop $74,000
Foodandbeverage $180,000
Grossmargin $2,396,000
Less:Expenses $1,892,840
Netoperatingincome $503,160
Capitalizationrate(9%)
Effectivetaxrate(1.07%)
Overallcapitalizationrate 10.07%
Indicatedvalue $4,996,624
Less:Personalproperty(9%) $449,696
Netvalue $4,546,928
Rounded $4,546,000
3.3Conclusion
ThisguidesetsouthowMPACassessorsapproachthevaluationofgolfcoursesforpropertyassessmentpurposes.
Althoughitoutlinesthegeneralapproachadopted,itdoesnotreplacetheassessor’sjudgmentandtheremaybesomecaseswheretheassessoradoptsadifferentapproachforjustifiablereasons.
ForfurtherinformationaboutMPAC’srole,pleasevisitmpac.ca.