Thinking of selling your commercial property and need a ballpark idea of its market value? A ‘broker opinion of value’ (BOV) might be just what you are looking for.
A BOV is a shorter and simpler valuation than an appraisal.
It is also sometimes referred to as a ‘broker price opinion’ (BPO). Appraisals are usually lengthy (and costly) and must be performed by an independent third party.
However, a well-drafted BOV from your real estate broker can help you make sound investment decisions regarding your property. Best of all, brokers often provide them for free.
Although you don’t always need a formal appraisal, it’s important to understand when a BOV is a suitable alternative option.
What is a BOV in Commercial Real Estate?
A broker’s opinion of value is an estimate of a commercial property’s market value by a real estate broker.
The estimate is determined by analyzing the property’s condition, amenities, location, and comparable sales in the area.
BOVs are typically used by commercial property owners when their property is being listed for sale.
Investors can also use a BOV to determine how much to offer on a commercial property.
However, a BOV is often not sufficient for a bond or mortgage application.
Most banks or lenders will expect you to pay for an official appraisal before lending you money.
Other commercial real estate professionals such as CPAs, real estate attorneys, and banks also make use of broker price opinions.
What Are the Differences Between a BOV and an Appraisal?
Knowing the key differences between a BOV and an appraisal, and when to use each one, can save you a lot of time and money.
BOVs Are Informal/Unofficial Assessments of Market Value
A BOV is an unofficial first assessment of the property’s value based on the expert opinion of your broker.
BOVs are a cost-effective method of estimating a commercial property's value, but a formal appraisal is usually required when applying for a loan or selling shares.
That said, a skilled broker who has access to the latest market information, can often create a BOV as thorough as a certified appraisal.
BOVs Are Often Free of Charge
A BOV is usually requested by a commercial property owner and often completed for free by the broker (in the hopes of winning new work).
Consequently, BOVs don’t normally carry weight with banks and lenders because they are opinion-based and viewed as less trustworthy than an appraisal.
Appraisals Are Carried Out by an Independent Third-Party
Whereas a BOV is an expert opinion, an appraisal is carried out by an independent certified appraiser, who has no stake in the deal being made.
Appraisers are required to follow strict guidelines and processes when determining value, whereas brokers are not.
Appraisals are Property Specific
An appraisal is usually specific to a single property, while a BOV can estimate the value of an entire portfolio of commercial real estate assets.
A BOV can also give you a pricing range, but an appraisal will give you one price.
BOVs Are Restricted by Some State Laws
In some states, laws restrict brokers from providing BOVs or prevent them from charging fees for them. Before requesting a BOV, it’s worth checking with your state to find out if it’s legal for brokers to provide this service.
How Does a Broker Determine a BOV?
Skilled brokers rely on their years of experience and knowledge in commercial real estate to come up with a best guess estimate of the property’s market value. This is not just a thumb-suck though. Putting together a quality BOV requires a few important steps.
Property Walk-Through and Inspection
Your broker starts out by inspecting the condition of the interior and exterior of the property. Photographs and measurements are taken as well.
Property Data Collection
Information collected about the property includes type, zoning allowances and restrictions, lot size, land value, building size, height (number of stories), and age.
Operational income, previous sale history, tax history, and value of improvements are also taken into account.
Market Data Collection
Your broker will collect as much information as possible about the market conditions in your property’s location. A comparison is made with other similar properties on the market, or recently sold.
A comparable property would be a similar size, type, and in a similar location. Comparable properties are known as ‘comps’. The selling price of the comps will reveal what buyers are willing to pay for a typical commercial property of that size and type in that area.
Rental rates for varying property types in the area will also be collected. These will give you an idea of how much rental return your buyer can expect.
While traditionally, comparisons and other marketing insights were gained by speaking to neighboring property owners and tenants, commercial real estate analytics software can add a deeper layer of insight that was previously difficult to access.
Deep insights you can gain from real estate analytics software includes:
- Population and Other Demographic Trends
- Car Traffic benchmarking
- Trade Area Analysis
- Visitation Metrics and Trends (Mobility Data)
What Should Every BOV Include?
Depending on the size and complexity of the property being valued, a BOV report can range from a few pages to many (including images). But there are certain questions that every well-put-together BOV should answer.
Does the value of the property seem consistent with similar types and sizes of properties in the area? Are there any highlights that make this property stand out from others?
What is the current state of the property, and how does its condition compare to similar types and sizes of properties on the market?
How are the current market conditions affecting the value of the property? What assumptions are being made?
Sales Prices of Comparable Properties (Comps)
How much have similar types and sizes of properties sold for in the last three to six months? How does the property being valued compare?
Taking all the above factors into account, what is the best estimate of the value of the property? Have all relevant costs been considered and is it backed up by market research?
Using Property Analytics to Collect Insights for BOVs
A well-researched, data rich BOV is a great way for a broker to prove their expertise and stand out to potential clients.
Some clients might ask more than one broker to prepare a BOV for their property, so the quality of the data and a professional presentation can make all the difference.
In a few clicks, you can populate property information, market data, comps, and other key insights into a templated report on an GIS tool, such as AlphaMap’s property analytics tools.
With AlphaMap, brokers can generate more BOVs in less time, at a much higher quality than before. Owners are also receiving more in-depth property information, which means better decision-making, and money well spent.