One of the first steps when buying or selling commercial real estate is getting an estimated value of the property you’re looking to buy or sell. In many cases, an appraisal is done on the property. The only downside to this approach is that a traditional review from a licensed appraiser can be relatively time-consuming and expensive. Buyers and sellers often want an estimate of value to be completed more quickly and cost-effectively. That’s where a broker opinion of value (BOV), or a broker price opinion (BPO), comes in handy.
BOV stands for broker opinion of value, which is a formal opinion, analysis and valuation conducted by a real estate broker to provide the value of a piece of real estate. BOVs are intended to help buyers and sellers who are deciding on the listing price or the bidding range for a piece of real estate. Essentially, a BOV is an estimate of value determined by a broker. Most BOVs are around one to 12 pages, but some could be quite long and detailed, amounting to 40 to 50 pages of information. Of course, length depends on the property and the client’s requirements.
The terms BOV (broker opinion of value) and BPO (broker price opinion) are used interchangeably and have the same meaning. An appraisal, however, is different, requiring much more detail and specificity, and is conducted by a licensed appraiser. “A broker’s opinion of value is not a full appraisal,” said Kristen Conti, a broker-owner at Peacock Premier Properties. “It’s typically a first step that’s done by an institution or an owner of a commercial property to get a general idea of the property’s value.” However, Conti noted that a BOV or BPO can be somewhat biased because the broker is basing their judgment off of knowing the area and having an opinion of the area. On the other hand, “an appraisal is going to be more of a third party, non-biased opinion,” Conti said.
While BOVs are put together by commercial real estate brokers on behalf of their clients, appraisals are put together by licensed third-party professionals who have nothing to do with that real estate deal. Additionally, a BOV is the broker’s estimate or best guess at the value of a property, based on market data and industry knowledge. However, an appraiser requires much more research, analysis and data collection, so as to ensure more accuracy. “Appraisals are regulated and have to follow a specific format and methodology,” said Reid Hogan, a Commercial Real Estate Advisor at MultifamilyCashin. Another difference between a BOV and an appraisal is that BOVs can be about a client’s entire portfolio of commercial real estate assets, while an appraisal is property-specific. Appraisers also always charge a fee for the appraisal, whereas brokers will sometimes put together a broker price opinion for free, as a way of attracting the client.
In addition, “Opinions of value are a lesser cost to the client than an appraisal,” Conti said. “So they are a little bit less detailed and less expensive.” Conti also gave the example of a strip mall, in which a customer wants to know what other strip malls in the area bring in terms of sales price. “So we’re going to look at rents. We’re going to look at occupancy rates. We’re going to look at all kinds of different factors to determine BOV. A value appraisal is going to go even more in depth on that. They’re going to ask for copies of all those records, whereas a broker, we’re going to take things a little bit more at face value. We’re going to take what the owner says and believe it at face value and create a report based on that information.”
Many commercial real estate professionals such as investors, property owners, real estate attorneys and lenders use BOVs or BPOs to assist in their CRE decisions. Typically, commercial property owners rely on broker opinions to determine the worth of their property and how much they can sell for. On the other hand, buyers rely on BOVs to determine how much they should bid on a property. Some lenders use a broker price opinion to close quickly.
“To prepare a BOV, brokers need to research the property’s type and condition, the improvements’ size, features and age, the size of the land, prices paid recently for similar properties and the overall condition of that market,” Hogan explained. Essentially, to put together a valuation, the broker first begins with a walk-through of the property, inspecting the interior and exterior conditions. From there, the broker then collects data and information about the property, the location and the commercial real estate market in that location. Market information collected includes land cost comparisons, market trends, market lease and cap rate analysis and vacancy rate comparisons. And the additional data collected includes zoning information, tax information, income and expenses and environmental information about the land.
Once all of the data has been put together, brokers can create a capitalized income analysis, in which they take the net operating income of the rent collected, divided by the capitalization rate. This provides an estimate of the property value based on the income it generates. “Basically, you’re looking for history, environmental concerns, rent histories, all the expenses, the taxes, the insurance, external factors around the market,” Conti said. “You’re looking for things coming up that are going to affect the value of this property — so say new roads are coming in or a new subdivision.” The broker might go to the building department in that community and look for any new permits or construction that’s been approved that could affect the value of a property, Conti added.
Getting a broker opinion on your commercial real estate property is a good first step to learning the value of your property. Although a BOV is not as detailed as an appraisal, brokers will generally have a good idea of the property value based on their experience in the industry and the market. So, if you’re looking for an estimate of value on your property before you’re able to get an appraisal, it’s a good idea to ask your broker for an opinion of value first.
