Commercial real estate is an exciting and ever-evolving field, complete with its own unique vocabularies and processes. If you buy, sell, or assess commercial properties, you’ve likely heard the term BOV. But what does that mean, and why does it matter?
By the time you finish reading, you will have a better understanding of Broker’s Opinion of Value (BOV), its importance and role in commercial real estate.
What is a BOV?
Defining BOV
BOVs, or Broker’s Opinion of Value, is an estimate on a property’s market value given by a real estate broker. It is opinion with analysis, research and is a valuation by someone with a strong working knowledge of the local real estate market. In short, a BOV provides current property value to owners, investors, and other interested parties in the market.
BOV vs. BPO
Another similar term you might encounter is Broker Price Opinion (BPO), which is often used interchangeably with BOV. Both terms essentially refer to the same thing (a broker’s educated opinion of the value of a property), though the language may vary slightly depending on the context. BOP is actually used more in commercial real estate, while BO is more common in residential markets.
Purpose and Use of a BOV
In the commercial real estate world, a BOV has multiple uses. Here are some of the main reasons that brokers, property owners, and investors use this valuation technique.
Primary Purposes of a BOV
Setting Listing Prices: When putting a property to market, many sellers rely on a BOV to determine an appropriate listing price.
- Bidding Guidance For Buyers: BOVs can give buyers a bidding range for interested properties.
- Internal Assessments: Businesses or investors could use a BOV to evaluate the current value of their real estate assets.
- Investment Analysis: BOVs deliver a quick assessment to help investors determine whether to pursue a property.
Who Uses a BOV?
A variety of commercial real estate professionals utilize BOVs, including:
- Commercial Property Owners: To know how much their property is worth before selling or refinancing.
- Investors: To assess possible investment prospects and decide accordingly.
- Real Estate Attorneys: In addition to real estate lawyers who can provide legal evaluations during property disputes or litigation.
- Lenders: For evaluating property value prior to approving loans/refinances.
How do BOVs Help Decision-Making?
One of the main benefits of using BOVs is that they are a fast and inexpensive way to get an estimate of your property’s worth. Although not as in-depth or formal as appraisals, BOVs provide actionable insights and allow stakeholders make decisions with confidence.
BOV vs. Appraisal
Though both BOVs and appraisals are designed to estimate a property’s value, they serve different, roles and are different in terms of formality and cost. Let’s unpack these distinctions.
Definition and Purpose
- BOV: Broker’s Opinion of Value, generally used for in-house evaluations, listing purposes, or initial investment review
- Appraisal: A thorough, formal assessment carried out by a licensed appraiser that is usually mandated for financing or legal matters.
Formality and Standards
- BOV: More informal, not subject to the same regulated standards, and usually based off the broker’s local expertise and knowledge of the market.
- Appraisal: Very detailed and regulated with industry standards like the Uniform Standards of Professional Appraisal Practice (USPAP).
Cost and Time
- BOV: Brokers can typically prepare BOVs for free or at a low cost, and the process is generally faster.
- Appraisal: Since appraisals are much more detailed, they are more expensive than CMAs and take longer to complete — often costing thousands of dollars.
Objectivity
- BOV: Might introduce some subjectivity, as it is based on broker’s regional insights and opinions.
- Appraisal: Provides a more neutral, third-party opinion and is used in formal financial transactions.
Use Cases
| Aspect | BOV | Appraisal |
| Purpose | Listing, evaluation, analysis | Financing, legal requirements |
| Cost | Free or low cost | Expensive |
| Time | Quick turnaround | Time-consuming |
| Regulatory Need | Not formal | Required for loans or bonds |
(NB — BOVs are good for many things, but they do normally need a formal appraisal to obtain financing as that is what the lenders typically require.)
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How Brokers Determine a BOV
The process of creating a BOV requires property inspection, data analysis, and market research. Here’s what brokers say behind their valuation.
Property Inspection
The broker starts by giving a detailed walk-through of the property to evaluate its physical condition. That includes assessing the interior and exterior, noting any upgrades or damages or special features that could affect the value.
Data Collection
Brokers will compile all the pertinent information related to the property including:
- Property Location – Nearby amenities, infrastructure, and demand in the area.
- Land Use/Zoning: This informs you about the zoning of the land and if there are any legal restrictions on it.
- Tax & Environment Data: Tax and environmental data about properties are mixed in the data set.
- Market Trends: Current property market trends, vacancy rates, and rental trends in the area.
Comparable Sales Analysis
Brokers look at recent sales of comparable properties in the neighborhood to get a ballpark figure. This is also known as the comparative market analysis (CMA) method.
Capitalized Income Analysis
Click here to see the rest of this post Capitalization income analysis is used by brokers for income-generating properties. They take the net operating income (NOI) and divide it by the capitalization rate (cap rate) in order to estimate the property’s value.
External Factors
We also take into account external influences, for example, future projects, new permits and infrastructure projects. These features will have a major impact on a property’s worth in the near future.
Key Components of a BOV
A detailed BOV consists of the following elements:
- Property Description
- Specifics about the property, including its square footage, layout, condition and special features.
Market Analysis
- Current marker conditions: supply and demand trends, market rents and vacancy rates.
Comparable Sales Data
- Data on recent sales or leases of comparable properties in the area, including prices and terms.
Rental Income Assessment
- For rental properties, an analysis of existing and prospective rental income in line with market rates and tenant agreements.
Financial Information
- Information on property taxes, operating expenses, and other financial metrics that affect value.
Zoning and Legal Information
- Zoning laws, permits and any legal restrictions that may impact the property’s use or value.
Benefits of Using a BOV
BOVs come with various benefits and are widely used for property valuations:
- Cost-Effectiveness: Brokers usually provide BOVs at little to no cost.
- Velocity: BOVs can be delivered fast, allowing for timely decision making.
- Market Insight: Local market knowledge from brokers is helpful in providing insight during the valuation process.
- BOVs give you a base value to start pricing your property or to start your investment analysis or negotiations.
Limitations of a BOV
While offering advantages, BOVs have a few drawbacks:
- However, a BOV is subjective because it is a broker’s opinion, and may be influenced by personal knowledge.
- Absence of Official Standards: BOVs are not governed by authorities which renders them less dependable for the formal financial or legal needs.
- Most BOVs are not eligible for financing, which simply mean most lenders would require appraisals because there is not enough detail in a BOV for the lenders to approve a loan.
- No Guarantee of Value — A BOV is just an opinion and can be less than the selling price.
When to Use a BOV
BOVs are best used in the following situations:
- Listing a Property: Inspire a competitive asking price.
- Financial Decisions: To consider potential purchases.
- Internal Reviews: For companies or investors that are valuing their assets.
- Quick Valuation Market Assessments: If you requires a speedy, yet trusted, valuation.
How to Get a BOV
Getting a BOV is pretty simple:
- 3— Find a Reputable Broker: Look for a broker that has experience in your local commercial real estate market.
- PLAID Construction: Supply all property information — financial & legal data.
- Oversee the BOV: When the broker gets the report, review it thoroughly and ask questions if necessary.
Conclusion
A Broker’s Opinion of Value (BOV) is an invaluable resource in commercial real estate, offering a fast and cost-effective assessment of a property’s market value. This is not as formal or detailed as an appraisal, but it gives useful information for purposes of listing, investment and valuation.
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