When it comes to widening your brokerage network, winning listings, and building your brand, a well-crafted “Broker’s Opinion of Value” – or BOV – is one of the most powerful marketing tools you have. A resume, pitch, reference, and calling card all in one, can open doors, clinch deals, and cement long-term relationships.
“BOVs are all about building credibility and trust”, says Harken CRE’s Co-founder, Ethan Kanning. “They allow you to demonstrate thought leadership and a deeper understanding of industry and market dynamics, and it is this that will ultimately solidify your client’s opinion of you”.
But producing compelling and professional evaluations from scratch can take time, which is why more and more brokers are turning to online form, tools, and templates to expedite the process – and rightfully so. There’s no harm in leveraging modern technology to improve prospecting, data collection, and analysis, so long as the process doesn’t become overly mechanical and formulaic, resulting in valuations that are sub-par and pedestrian in nature.
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Broker’s Opinion of Value – also called Broker Price Opinions (BPOs) – are essentially property evaluations conducted by CRE brokers on behalf of their clients. When creating a BOV, brokers will draw upon their industry and market knowledge to produce an estimate of value for a specific commercial property, either to help property owners determine their selling price, or investors bidding price.
Other forms of property evaluations include CMAs and appraisals. A CMA – or Comparative Market Analysis – is the simplest form of evaluation, based purely on a review of recently sold properties of a similar size in a similar location. The primary purpose of a CMA is to determine the listing price for a property.
An appraisal is a much more formal evaluation, produced by a neutral, certified third-party appraiser – someone considered to have no “skin” in the game – under the watchful eye of an oversight authority. The methods used to collect and analyze data tend to be more rigorous in this case.
A BOV sits somewhere between the two. While it is more detailed than a CMA, offering a deeper analysis of market data, it is still an informal estimate, or “best guess”, rendered free of charge by a broker in the hope of winning or retaining business. It doesn’t carry quite as much weight as an appraisal, partly because brokers have a vested interest in the outcome and may at times have to balance expectation and wishful thinking with reality and cold hard facts.
If in doubt, says Kanning, always err on the side of the latter. “Inflating values to ‘buy listings’ is never a good idea. Investors tend to be very well informed, so you’re not likely to win the deal, but if you do, you can look forward to the financially and emotionally draining experience of having your listing sit on the market indefinitely. Either way, you’ll tarnish your own credibility and reputation in the process.”
How then, does one accurately determine the value of a property?
Regardless of what you, your buyer, or your seller think or want, the only real arbiter of a property’s value is the market. The best BOV, then, will be one that comes closest to accurately predicting how the market will act. Getting it ‘right’ means winning more deals, retaining more clients, and keeping your buyers and sellers happy. And getting it ‘right’ will always be a function of the quality and credibility of your data, so focus on this and you’ll reap the rewards later.
There are 3 recognized ways to determine property value: the sales approach, income approach, and cost approach.
The sales approach is the most common. It resembles a CMA in that it seeks to establish value based on recent sale prices of comparable properties. This method works well when there are similarly profiled properties in the area but can prove challenging when the asset class is of an unusual or bespoke nature.
The second approach is the income approach, which looks at how much income the property can generate, either through the direct capitalization method, or the discounted cash flow method.
The last method, the cost approach, looks at what it would cost to replace, or reproduce the property, less any accrued depreciation resulting from functional, physical, and external obsolescence.
Your final submission will be an aggregation of value across all three methods.
This used to be an extremely time-consuming process, but thanks to modern technology, much more can now be sourced online. Accredited CRE marketplaces like Biproxi, for example, provide a wealth of off-market data, and the tools to analyze it, so there’s really no excuse for a scant or poorly researched BOV.
Good data and analytics are only half the battle won. According to Kanning, “a good BOV needs to push beyond ‘comps’ and tell the ‘story’ of the property”. And like any good story, it’ll need character and context, narrative and structure. It’ll need to explore the good and the bad, looking to the future, the present, and the past. It will need to make sense of the facts. Fill in the gaps. Paint the big picture.
1. When conducting your sales analysis, include at least three similarly profiled properties on the market, three that have sold within the last 3-6 months, and three that didn’t sell, and were delisted.
2. Don’t limit your analysis to location and price alone. Your comps will carry far more weight if you also factor in the age, size, design, and condition of the property along with its asset class; zoning information, the desirability of the neighborhood, road infrastructure, accessibility and visibility, and any upcoming construction and development activity.
3. Demonstrate a deeper understanding of the market by providing area and population demographics - average age, buying power, spending habits, household incomes, micro-economic growth and mobility stats, levels of education, trade and employment in the area, market sentiment and confidence.
4. Inform your Income and Cost analyses by delving into the past - look to tax records, transaction and ownership history, mortgage, and financing history. Have there been any major liquidations? Sequestrations? Building condemnations? When was the building built, has it undergone significant renovations, and has it been well maintained over time?
5. Assess current and future profitability by looking at the ownership and tenant base. Consider their financial stability, track records, payment histories, and creditworthiness. Look at lease periods, expiration timelines and rental demand, vacancies in the area, leasing volumes, and competitor activity.
6. Include a little information about yourself and your track record – your qualifications, noteworthy achievements, experience, areas of specialization, key clients, years in the trade etc.
7. Lastly, and most importantly, be honest and authentic. Don’t oversell. If the property has shortcomings and challenges, record them in your BOV.
Having the facts and figures at your fingertips is all well and good, but they need to be presented clearly and logically. When drafting your BOV, pay careful attention to formatting, include headers and footers, number your pages, and use bullet points and indentations, bold and italics to highlight key facts. Use color photographs, maps, aerial views, and close-ups to depict location, size, and condition. Where salient to do so, corroborate information by providing web links to source material.
As for structure, all good stories need a clear beginning, middle, and an end. We recommend the following guidelines:
Broker’s Opinion of Value will always vary in length, depth, and detail depending on the broker, asset class, property attributes, size of the transaction, and complexity of the deal. Whether you make use of automated real estate valuation software or develop your own unique style and approach, make sure that your findings are well-researched, data driven, and professionally presented. When they are, there’s a good chance that you’ll wow your clients, winning both their business, and their trust.