A broker’s price opinion is an unofficial assessment of a property’s market value based on expert judgment (that of your broker).
It’s grounded in both qualitative and subjective factors, including neighborhood characteristics, curb appeal, and the conditions of the market.
You may seek out a broker’s market of opinion if you’re buying or selling a home or property.
This is often used by people looking for confirmation of a commercial property’s value before initiating an official appraisal.
Keep reading for all you need to know about a broker’s opinion of value (and whether they’re legal in your state!).
1. What is a broker’s opinion of value?
In commercial real estate, a broker’s opinion of value (BOV) is utilized to create an estimate of value for a specific commercial property.
BOVs are used by real estate professionals such as investors, property owners, lenders, CPAs, and real estate attorneys.
Commercial owners look to BOVs to determine their property’s worth, decide to sell their property, and choose how much to sell their property for.
A broker’s opinion of value can come in the form of two or three pages or anywhere from 40 to 50.
The length depends on the purpose of the BOV, the property under analysis, and the requirements of the client at hand.
2. How does a broker’s opinion of value work?
Also, a broker’s opinion of value, also called a broker price opinion, is not utilized or permitted in every state.
Some state laws prevent brokers from providing this service or block them from charging fees to perform this duty.
You should check with your state to see if it is legal for brokers to provide this service.
While brokers in your state may seek training to conduct and issue price opinions, that doesn’t necessarily make it legal for them to do so.
When developing a price opinion, a broker will consider the value of similar surrounding properties and sales trends in the neighborhood.
The location of the property and its surroundings will be a factor in the opinion.
Additionally, comparable home or property listings and recent sales impact the price opinion for a property.
Brokers will also estimate any of the costs associated with getting the property ready for sale and/or the cost of any needed repairs.
3. What’s the difference between a BOV and an appraisal?
When you consider a broker’s opinion of value, you may think it sounds like an appraisal.
While it’s not too far off, you can use the following distinctions to help you differentiate.
A broker’s opinion of value is compiled by real estate brokers on behalf of their customers
Appraisals are assembled by licensed third-party professionals who have no buy-in when it comes to the deal itself.
A broker’s opinion of value is a broker’s estimate at the property value
It’s backed by market data and other industry knowledge, but it’s still their “best guess.”
Appraisers require a fee for their services while brokers often offer their opinion of value for free, especially if they’re trying to win a client over.
A broker’s opinion of value can be used to determine the value of an entire portfolio of CRE assets
Appraisals are generally property specific.
4. What are the similarities between a broker’s opinion of value and an appraisal?
There are a few ways that appraisal and broker price opinions are like one another.
Here’s what you need to know.
BOVs and appraisals look at sales of comparable properties
Both a broker and an appraiser will evaluate properties that are like yours in size, condition, neighborhood, etc.
They will also seek to compare your lot to properties sold within the first two months.
BOVs and appraisals trust expert opinions
Both opinions concern the value of a property from experts in their field.
BOVs and appraisals rely heavily on market data
An appraisal and broker’s opinion of value evaluate data including recent sales, lot size, and the number of bedrooms and bathrooms.
Using all of this information, they come up with their opinion of value.
5. How is a broker’s opinion of value created?
A broker’s opinion of value begins with a walk-through of the property.
The broker will tour the site with the owner and inspect the interior and exterior condition of any structures.
The broker uses the collected data about the property and the market in which it’s located to make a property-specific analysis.
Here’s what the analysis would consist of…
Income and expenses (if applicable)
Tax information
Any other environmental data available pertaining to the site
From this information, a broker would then create an opinion of value based on a sales analysis, capitalized income analysis or replacement cost analysis.
The market analysis may also include a market lease and cap rate analysis, land cost comparisons, market trends, and vacancy rate comparison as applicable.
6. How is a broker’s opinion of value used in commercial real estate?
You may decide to get a broker’s opinion of value when you want to list your property, refinance, or make improvements.
Here’s when you can and cannot use a BOV.
When to use a BOV
The most common instance in which to use a broker’s price opinion is when you want to list your property for sale.
A broker’s price opinion can also help you decide how much to ask for your property.
Thus, it’s a helpful tool if you’re actively planning to list your property or considering it.
Keep in mind that BOVs are more accurate when they have solid data backing them and when the agent providing the opinion is experienced.
Another use of BOVs includes the elimination of private mortgage insurance.
Some lenders will accept a broker’s price opinion as proof that you have more than 20 percent home equity and can cancel PMI.
Finally, you can use a BOV to facilitate a foreclosure or short sale as some lenders will permit their use instead of an appraisal.
Keep in mind that this isn’t universal, and in many cases, appraisals are necessary.
When not to use a BOV
There are some instances in which using a BOV isn’t an option.
One of these is when you’re obtaining a mortgage.
In this instance, lenders usually require a full appraisal of a property before approving a home loan.
You also cannot use a BOV to refinance your mortgage.
Most of the time, your bank will often need a full appraisal to refinance.
That said, some states (like North Carolina) permit streamlined refinancing if you have an FHA or VA loan.
This doesn’t require an appraisal at all.
Another instance in which you’re not able to use a broker’s price opinion is to apply for a home equity loan or line of credit.
Like other mortgage loans, you normally need a third-party appraisal to borrow from your home equity.
Finally, you often cannot use a broker’s price opinion to evaluate unique property as they are more difficult to price and assign value.
7. Why are brokers’ opinions sought in real estate?
BOVs may be requested by an owner who wants an initial assessment of a property for needs such as refinancing a mortgage or selling.
Often, this service costs less and can be performed more quickly than an appraisal of a property.
8. What is a drive-by broker’s price opinion?
A drive-by broker’s price opinion is exactly what it sounds like.
It’s when brokers drive by a property and see it only from the exterior.
While they may leave their car to see some external features, they will not attempt to enter the residence.
Alternatively, an internal broker price opinion is performed by gaining authorized access to any structures in order to review their condition and amenities.
Brokers will often take photos during this process.
9. What’s in it for the broker?
You may wonder why brokers perform this service.
In addition to being paid for this service (sometimes), brokers often submit a price opinion in the hopes of winning the listing they are assessing.
They might include a marketing plan in addition to their price opinion.
This tells the property owner how they would approach representing the property.
A broker’s opinion of value has been regarded as a concise alternative to a comparative market analysis.
10. What should you look for in a broker’s opinion of value?
A broker’s opinion of value is an informal approach to value, which means that the result can vary depending on the broker, brokerage firm, or professional who prepared it.
That said, there are a few core elements that should be consistent regardless of where you get your price opinion.
Property type: The opinion should highlight the type of property that is being valued and whether the value is consistent with similar properties of the same type on a per-square-foot or per-unit basis.
Property condition: The broker’s opinion of value should note whether the condition of the property being valued is similar to the condition of comparable properties (the ones being used as a basis for value).
Market conditions: The price opinion should recognize the assumptions behind how market conditions impact value.
Sale prices of similar properties: The opinion should highlight what the sales prices of comparable properties are on a per-unit and per-square foot basis and how they relate to the property being valued.
Final value: Based on the above factors and others considered by the broker, the opinion should tell you what the final value of the property is and whether it’s clearly supported by market data.
11. What are the advantages of obtaining a broker’s opinion of value?
The main advantage of getting a broker’s opinion of value is that it can provide a property owner with a reliable and reasonably priced opinion of their property’s value.
This value can be used to solicit investment capital and help them to understand the property asking price in a sale transaction.
Here are some other advantages of getting a broker’s price opinion.
A BOV can provide a price range based on market conditions
This range is based on the knowledge of a real estate expert, and it’s often incredibly useful while setting a listing price.
A BOV is faster than an appraisal
This opinion is often a faster option in an active real estate market than an appraisal.
Appraisals can often be hard to schedule.
A BOV costs less than an appraisal
This opinion can cost a fraction of the price of an appraisal making it a more affordable option.
A BOV can be a substitute for an appraisal
This type of opinion can sometimes be used by lenders for a foreclosure, short sale, or borrower’s request to cancel private mortgage insurance (PMI).
12. What are the disadvantages of obtaining a broker’s opinion of value?
The main disadvantage of a broker’s opinion of value is that it isn’t considered an “official” opinion.
The value is only based on one broker’s opinion.
Another lender or investor may or may not accept it.
The broker is not required to follow the same strict protocol that appraisers must adhere to, and thus, the value they provide is considered slightly less reliable.
Here are some additional disadvantages of getting a broker’s opinion of value.
A BOV isn’t always as accurate as an appraisal.
An appraisal is performed by a certified and licensed real estate professional rather than a real estate agent or a broker.
Appraisals are often seen as more accurate and reliable.
A BOV can’t be used as an alternative to an appraisal.
If you need an appraisal, then you need an appraisal.
You can’t swap in a broker’s opinion of value where an appraisal is concerned.
A BOV is considered subjective.
Once again, a broker’s opinion of value is just that….an opinion.
It’s done by an agent whose commission is based on the sales price rather than an objective, third-party professional like an appraisal.
You need to remember that this is what you’re investing in.
A BOV may be restricted by some state and federal laws.
As noted above, state laws often dictate when and how you can use a broker’s opinion of value.
At the end of the day, always remember that the arbiter of a property’s value is the market.
Final Thoughts
If you’re considering getting a broker’s opinion of value, first make sure that they’re legally allowed in your state.
Then, determine if it fits your need.
If not, an appraisal may be a better route to go.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.
Prior to starting Gokce Capital, Erika received a Bachelor of Architecture from the University of Southern California and a graduate degree in Urban Policy from Columbia University. She worked as both an architectural designer and engineer in New York before joining the New York City Department of Housing Preservation and Development.
Erika currently lives in the New York Metropolitan area with her spouse, daughter and cat. She is originally from Chicago and still considers herself a midwesterner at heart.
Erika also loves to read, write and travel (fun fact, she has visited all 50 states and more than 30 countries!). Her new book, Land Investing Mistakes: 11 True Stories You Need To Know Before Buying Land, is now available on Amazon.