In valuing real estate for assessment purposes we are guided by the words of J. Taschereau in Sun Life Assurance Co. of Canada v City of Montreal :¹

"The 'real value' is the market value or the 'value in exchange', and in order to ascertain it, one must necessarily, even if there has been no sale of the building, try and find what would have been the price of the building in the open market.  The rule is not that because there is no buyer and no seller, as in the present case, the well-known theory of willing buyer and willing seller does not apply. We must ask ourselves the question: What would occur if there was a buyer and a seller?"

These comments were subsequently approved by the Privy Council of the House of Lords on appeal from the Supreme Court of Canada.²

In consideration of the question posed by J. Taschereau there are three logical approaches to valuing golf course properties:

1. The market value is considered to be equal to the sales price of the fee simple real estate, i.e., the Direct Comparison Approach.
   
   
2. The market value is considered equal to the present value of the future benefits or income attributable to the assessable real estate, i.e., the Income Approach.
   
   
3. The value as new is considered equal to the cost of replacing the property.  As the property ages and depreciates, this cost new value can be adjusted to reflect current market value, i.e., the Cost Approach.

The Cost Approach is fairly easy to apply to the question posed by J. Tashereau in Sun Life Assurance Co. of Canada:³ “What would occur if there was a buyer and a seller?"

Logically itcan be assumed that the seller would want to recover the depreciated costs of the property and that the buyer might expect to pay for the replacement costs of the property.  These assumptions run into difficulty when the seller feels that the property is worth more than the original costs of construction because land values have risen, and/or the purchaser feels the property is worth less than the replacement cost because the income is not sufficient to support that price.

If land values can be determined and depreciation properly accounted for, then the intrinsic logic of the Cost Approach holds for many sale/purchase decisions.  In these instances, and where no other approach suffices, the Cost Approach can be a valuable tool for the valuation of golf courses.