What is a broker opinion of value (BOV)?
A broker opinion of value, or BOV, is an estimate of a property’s market value provided by a real estate broker. BOVs help investors by giving them an idea about how much they can expect to pay for the commercial real estate assets they plan to buy. A broker opinion of value can also be of great use to sellers, as it can assist in determining the listing price for a property being put on the market.
A BOV is also known as a broker price opinion (BPO). The terms are synonymous.
You should remember that a BOV is a valuation based on the broker’s knowledge and experience of the market and the available data. It is not as comprehensive or in-depth as an official appraisal.
BOV vs appraisal – Key differences
There are several crucial differences between BOVs and appraisals. A broker prepares a BOV, while appraisals are conducted by licensed and certified appraisers. Additionally, appraisals are comprehensive documents drawn up for real estate assets that go into great depth to analyze a property’s value.
They describe the property, estimate its market value, and provide information about its location, physical attributes, and the possibility of its future development. BOVs, on the other hand, contain far less information.
Here are some of the specific ways in which BOVs differ from appraisals:
- BOVs are based on the opinion of the broker: Bear in mind that a BOV estimates the value of a piece of commercial real estate and is prepared by a broker. It is based on the broker’s knowledge of local market conditions and market data. Brokers prepare BOVs for their clients or potential clients. Conversely, appraisals are conducted by independent third parties unconnected with the transaction.
- BOVs provide a quick idea about the value of a property: One of the most significant advantages of getting a BOV prepared by a broker is that it provides an initial value you can work with. Typically, a buyer would want to know the approximate worth of a property before committing more time to the deal. Similarly, a BOV gives sellers some understanding of the price a property can be expected to fetch.
- A BOV costs less than an appraisal: Appraisals can be expensive. A certified appraiser could charge thousands of dollars to appraise a commercial property. You can expect to pay between $2,000 to $5,000 for a small commercial property appraisal. An appraisal for a medium-sized property could cost $5,000 to $10,000. For larger commercial properties, expect to pay significantly more. BOVs are far more economical. Brokers often provide them free of cost to their clients.
- Speed of the process: BOVs are prepared by brokers familiar with a specific niche of the commercial real estate market or with a geographic area. They often already have access to the required data. Experienced brokers know the value at which properties of the same type have recently changed hands. Similarly, they have other relevant details about comparable properties. These factors help them prepare a market value estimation quickly.
An appraisal is a far more complex and time-consuming process. It involves preparing a report that follows a specific structure based on a detailed property evaluation by a qualified and licensed appraiser. Commercial real estate professionals consider the quick turnaround time in getting a BOV a big plus.
BOV vs appraisal – Key differences
| Aspects | BOV | Appraisal |
| Speed | Available quickly. | Takes far longer to prepare. |
| Made by | A broker. | A licensed and certified appraiser. |
| Depth of analysis | Not as comprehensive as an appraisal. | It is a detailed evaluation of the property. |
| Accuracy of the valuation | Can be biased as it is based on the broker’s opinion. | An unbiased estimate of the property’s fair market value based on an extensive assessment. |
| Cost | Cost-effective. Could even be free. | Expect to spend thousands of dollars. |
Should you opt for a BOV or an appraisal?
Choosing between a broker opinion of value and an appraisal is usually straightforward. Asking a broker to prepare a BOV makes sense when the transaction is in its initial stages. At that point, buyers and sellers would look for a quick and cost-effective way to value a piece of real estate. A BOV perfectly fulfills both requirements. A formal appraisal is a completely different game. Here are some of the situations when an appraiser is appointed:
- An appraisal is usually conducted when an unbiased opinion about a property’s fair market value is required.
- A lender may require an appraisal when advancing funds against the security of a property.
- Property appraisals can also be crucial in tax assessments and contractual disputes.
- Appraisals are also helpful for determining the coverage amount when insuring property.
How does a broker determine a BOV?
A broker would take the following steps when estimating the fair market value of a property:
Property inspection
This involves visiting the property to get a first-hand impression of its physical attributes. The broker would pay special attention to the condition of the buildings and the site as well as the ease of access to the property.
Gathering property-related data
The value of commercial real estate is strongly influenced by the following factors:
- The price at which the property has been sold in the past
- Current rental income
- Age of the property
- Zoning and legal issues
- Property type
Collect market-related data
This step involves collecting details about the prices at which the same types of properties have been sold recently. The value at which comps have changed hands can play a crucial role in arriving at an accurate BOV. In addition to collecting comparable sales data, brokers also gather information about rental rates for similar properties.
Benefits of BOV in a real estate transaction
A BOV can provide an indication of a property’s worth. This knowledge is useful for both buyers and sellers. It tells buyers if their bid is in the correct range, and sellers can use it to arrive at an accurate listing price.
Here are some of the specific benefits that a BOV can provide:
- Can keep you one step ahead in the negotiation process: Commercial real estate professionals know that price negotiations in a property deal can be complex. An accurate idea of the real worth of the commercial real estate assets up for sale can give you a marked advantage. Hence, if your broker has extensive market knowledge and has taken the trouble to collect up-to-date information, it can immensely help negotiations.
- Helps you formulate a plan of action: A BOV is a detailed multi-page document. It contains a wealth of information about the property, including the rent you can expect to earn, the costs related to the property, and the net operating income. The facts and figures in a BOV can be of immense use to property owners as well as sellers during the preliminary stages of a real estate deal.
- Gives you a quick idea about how to approach the market: While a BOV is less detailed than a formal appraisal, the data it holds can provide all the basic information you need to evaluate a property.
- A specific number to work with: Most investors have a budget in mind when considering different property purchase options. It can be annoying to spend a lot of time on a particular deal only to discover that it does not fit within your budget. A BOV helps prevent this.
What should every BOV include?
Although BOVs do not follow a fixed format, they usually contain the following particulars:
1. Detailed information about the property
You will be able to see the property’s address, full particulars of the buildings on the property, what they are used for, and a host of related information. The document can also include photographs of the property.
2. Property condition
The BOV will tell you the property’s condition and the particulars of the repairs needed to be carried out.
3. An assessment of rental income or return on investment
What is the net operating income of the property? What are the different expenses commercial property owners can expect to pay? The BOV will answer these questions and more.
4. Market information
You can expect to see information about similar properties for sale. When preparing the BOV, the real estate broker will pay special attention to this section, as it will allow you to compare the target property with other properties of the same type.
5. Details about recent deals of similar properties
The document will provide details about comparable properties that have been sold in the past and the values at which the transactions took place.
6. Market trends
This section of the document will address issues like the local economic climate, changes expected in zoning laws, and demographics.
7. Final property value
Finally, the BOV will provide you with an estimate of the property’s value.
How to get a BOV for a commercial property
To obtain a Broker’s Opinion of Value (BOV) for a commercial property follow these steps:
- Reach out to a broker: Contact an experienced real estate broker with your requirements.
- Share property details: Provide the broker with detailed information about the target property to ensure an accurate assessment.
- Review and discuss BOV: Review the BOV carefully after receiving it and discuss any questions or concerns you might have. Seek clarifications on any points in the document.
- Consider the costs: Some CRE brokers offer BOV services for free, others may charge a fee, though typically far less than a formal appraisal.
The bottom line
If you are considering buying or selling commercial property, it is an excellent idea to start the process by asking a broker to prepare a BOV. It is a cost-effective and speedy approach to determining the property’s fair market value and details about comparable properties and the market environment.
