What Is a Broker Opinion of Value, and Is It the Same as an Appraisal?

You ask a broker what your building is worth. A week later, you get a polished report with a number on it.

That report is a broker opinion of value. It's useful. It is not an appraisal.

Knowing the difference can save you from pricing your building wrong or picking a broker for the wrong reason.

The Short Answer

A broker opinion of value (BOV) is a broker's estimate of what your property will likely sell for. It's usually free, and it's built to help you decide whether to sell and who should sell it.

An appraisal is a formal valuation by a licensed appraiser. You pay for it, it follows professional standards, and lenders rely on it.

• BOV: market-driven, sales-focused, usually free
• Appraisal: independent, standards-based, paid
• BOV answers "what could this sell for?"
• Appraisal answers "what is this worth as collateral?"

Both use the same three methods covered in Article 2: income, sales comparison, and cost. The difference is who does the work and why.

What a BOV Is (and Isn't)

A good BOV includes your NOI, a cap rate, recent comparable sales, current competing listings, and a recommended pricing strategy.

Brokers prepare them because a BOV is how they compete for your listing. That's the catch.

Some brokers inflate the number to win the business. It's called "buying the listing." You sign with whoever said the biggest number, the property sits on the market, and months later the price comes down anyway.

A BOV is a sales pitch with math attached. Read the math, not the pitch.

What an Appraisal Is (and Isn't)

An appraisal is done by a state-licensed or certified appraiser who has no stake in whether you sell. It follows the Uniform Standards of Professional Appraisal Practice, the profession's rulebook.

Appraisals are mostly ordered by lenders, not sellers. When your buyer finances the purchase, their lender will usually order one.

For bank-financed deals, federal banking agencies require an appraisal on commercial real estate transactions above $500,000. At or below that line, a bank can use an evaluation instead, which doesn't have to follow appraisal standards or be done by a licensed appraiser.

What does that mean for you? If your buyer's financing and the appraisal comes in low, the deal gets renegotiated or dies. Your asking price has to survive someone else's appraiser.

When You Need Which

Get a BOV when:

• You're deciding whether to sell at all
• You're interviewing brokers
• You want a fast, free read on the market

Consider your own appraisal when:

• You need a defensible number for an estate, partnership buyout, or divorce
• You're selling to a related party or a tenant and want an independent price
• Your BOVs are so far apart you can't trust any of them

For most straightforward sales, two or three BOVs are enough to set a price. The buyer's lender will order the appraisal later.

How to Pressure-Test a BOV

Get at least three. Then compare the assumptions, not just the final numbers.

Say your building has $140,000 in NOI, and three brokers send BOVs:

• Broker A: 5.5% cap rate = about $2.55 million
• Broker B: 6.5% cap rate = about $2.15 million
• Broker C: 6.75% cap rate = about $2.07 million

Broker A's number isn't higher because they found something special in your building. It's higher because they picked a lower cap rate. Ask every broker the same three questions:

• Where did your cap rate come from?
• Are your comps closed sales or asking prices?
• Is your NOI from my actual trailing 12 months?

If a broker can't back up the cap rate with recent closed sales, the high number is just the pitch.

Recap

• A BOV is a broker's estimate of likely sale price, usually free and sales-focused
• An appraisal is an independent, paid, standards-based valuation that lenders rely on
• Bank-financed commercial deals above $500,000 generally require an appraisal
• Some brokers inflate BOVs to win listings, so compare assumptions across at least three
• Your price has to hold up against the buyer's appraisal, not just your broker's opinion

Final Word

A BOV tells you what a broker thinks they can sell your building for. An appraisal tells a lender what it's worth as collateral. Use the first to plan, expect the second at closing, and never pick a broker just because they said the biggest number.

See what similar properties are listed for in your market. Browse commercial listings at hutfin.com.