Everything to Know About BPOs/BOVs in CRE

Anyone involved in real estate likely knows what an appraisal is—an assessment of a property’s value, stemming from an analysis of the property’s condition, amenities, location, and comparable sales in the area.

A broker opinion of value (BOV) is not all that different, just coming from an actual broker.

Here, learn about BOVs and how, when, and why they’re used, and then see how you can improve your opinion’s of value by using property intelligence.

What is a Broker Opinion of Value in CRE?

In commercial real estate, a broker opinion of value (BOV)—often referred to as a broker price opinion (BPO)—is used to come up with an estimate of value for a specific commercial property.

BOVs/BPOs are used by many CRE professionals, including investors, property owners, lenders, CPAs and real estate attorneys.

They’re most often relied on by commercial owners looking to determine their property’s worth, and as such, whether to sell the property or not (and for how much).

A broker’s price opinion could be as simple as two or three pages, or as detailed as a 40-50+ page book. It depends on the purpose of the BOV, the property under analysis, and the requirements of the client at-hand.

Broker Opinion of Value vs. Appraisals

There are a few distinctions to be made between BOVs and appraisals:

1. BOVs are typically put together by commercial real estate brokers on behalf of their customers. Appraisals are put together by licensed third-party professionals who have no “skin” in the game, as it pertains to the deal at hand.

2. A BOV is essentially a broker’s “best guess” at a property’s value, albeit a “best guess” backed by market data and other industry knowledge.

The guidelines for appraisals are much more stringent, including more robust data collection and analysis.

That said, a skilled broker with access to up-to-date market information can create a BOV as thorough as a commercial MAI certified appraiser.

3. Appraisers will always charge a fee for conducting an appraisal. BOVs are often put together by brokers for free, especially if trying to win over a client to get a listing.

4. BOVs can be used to determine the value of an entire portfolio of CRE assets, whereas appraisals are generally property-specific.

How a Broker Opinion of Value Comes Together

Creating a broker opinion of value usually begins with a walk-through of the property.

A broker will tour the site with the owner, inspecting both the interior and exterior condition of the property.

The next step would be data collection.

CRE brokers gather a bevy of information about the property and the market in which it is located.

Property-specific data typically includes, at a minimum, an analysis of:

• Income and expenses
• Tax information
• Zoning
• Any other environmental data available pertaining to the site

A broker will then create a capitalized income analysis and replacement cost analysis.

The market analysis will usually include a market lease and cap rate analysis, land cost comparisons, market trends, vacancy rate comparisons and more.

An Example of a BOV used in CRE

A detailed BOV may be several pages long, with robust analysis and images embedded throughout the document.

As such, most BOVs will begin with an Executive Summary that summarizes pertinent property information, such as location, square footage, building features, property condition, and market drivers influencing demand for that type of asset.

The Executive Summary will also usually include some version of a “Value Abstract,” which indicates the broker’s high-level opinion as to the value and demand for the property.

The Value Abstract will give a summary of pricing expectations, such as asking sale price and expected sale price, represented as both a dollar figure and price per square foot.

Brokers will usually express these values as a range, for example, the asking sale price for an industrial property might be $650,000 to $700,000 ($58/SF – $62/SF), with an expected sale price of $500,000 to $625,000 ($45/SF – $55/SF).

Finally, the BOV will usually include a “Property Highlights” section that serves as a bulleted list of key property information, including a summary of property strengths and challenges, as shown below.

BOVs always include several images of the property, interior and exterior. Most will also include an aerial shot of the property that shows its location from above.

This gives a sense of the size and scale of the property and its relationship to nearby properties.

Some BOVs will also use an aerial to show the property in context of the surrounding area, such as proximity to highways, major employers or universities, and neighborhood amenities such as restaurants, retail, schools and pharmacies.

The next section of a BOV is perhaps the most critical: the comps section.

Brokers will include the listings for several comparable properties in the area.

These comps provide an important baseline for understanding the value of the property in question.

Ideally, comps will be for similarly-sized properties, in similar condition, with similar amenities and in the same market.

Below is a comp that someone might use when creating a BOV for a warehouse facility.

For unique properties, such as indoor shopping malls, a broker might have to look for comps outside the immediate area, as some areas simply don’t have multiple shopping malls—particularly those that have sold recently.

CRE brokers will want to look for comps that have sold within the past 3-6 months, when possible.

The older the comps, the more obsolete the data becomes as market conditions evolve.

Brokers will then either increase or decrease their opinion of a property’s value, based on how that property stacks up with others recently sold.

Brokers will also look at market competition, including other assets currently listed for sale.

For example, a broker creating a BOV for a warehouse facility would want to note if there is another similarly-sized property on the market, and would want to include information from that listing, as shown below:

To round out their comp analysis, CRE brokers will take one final look at nearby assets that have not sold and are not actively listed. This will provide insight as to tenancy, rental rates, vacancy rates and more.

Again, it’s intended to provide an overview of potential competition that could influence the value of the property in question.

The last piece of a BOV is a look at market data.

This will usually include demographic trends, construction activity, available inventory, absorption rates, leasing volume, new business formation rates, employment growth and more.

These trends are often represented in graph or chart form.

Using Property Intelligence to Collect Insights for a BOV

Putting together a high-quality, well-researched BOV is a great way for a broker to showcase their expertise to prospective customers.

A property owner interested in selling their property, for instance, might ask three brokerage companies to put together BOVs for them before determining who to list their property with.

Sometimes, it’s the presentation of a BPO/BOV and the data therein that ultimately makes an owner want to work with you over others.

This is where a broker could turn Reonomy.

Reonomy is a property intelligence platform that brokers can leverage to easily assemble appraisal-quality valuations in a very timely fashion.

Reonomy’s property intelligence provides robust data about properties in any market. Data sets include sales histories, debt histories, lot sizes, building area, asset types, tax histories, ownership information and more.

Brokers can also identify comps in any market, with just a few clicks.

Let’s say a broker is creating a BOV for an investor looking to sell an 84-unit apartment building:

While analyzing the property, in just a click, a user can shift their focus to a list of comps for the property they were analyzing.

In this example, one of the comp properties is a 70-unit property that recently sold for $14 million.

The 70-unit property was farther from the highway, did not have any substantial on-site amenities, and was in general need of renovations.

Meanwhile, the 84-unit apartment building has a beautifully landscaped outdoor area, including a heated saltwater pool.

It offers an on-site fitness center and live-in property manager.

The units were all renovated last year and are in modern condition. So, not only does this property have more units, but the property has a lot more to offer a prospective buyer.

As a final analysis, the broker looks at the income generated by the 84-unit property.

The broker knows that multifamily properties in this area are trading at about a 5.25% cap rate, so the broker is able to back into a value of about $19.5 million, a price that is validated by looking at the market comps provided by Reonomy’s property intelligence.

Reonomy can be valuable for brokers trying to pin down comps for assets that sell infrequently, or assets in which there are few comparable properties in a specific region.

For another example:

A broker trying to create a BOV for a golf course for sale in Tallahassee, Florida might not have a clue where to start looking in terms of comps.

As we see below, there are only a few similar properties in Tallahassee, and their characteristics vary widely.

One was built in the 50s, another in the 60s, another in the 70s and one in the 90s – though the one being sold was built in 2003.

Three of the four comps haven’t sold since being built.

The zoning for each of the properties varies greatly too, which impacts what could be built on-site if a new owner were interested in redeveloping the property.

Reonomy allows you to muscle your own way to accurate comps by way of a property search.

A broker can filter their results to expand the search outside of Tallahassee, maybe starting with all of northern Florida.

The broker can then look for golf courses that have sold within the past year, as these comps will be most relevant.

The broker can even expand the geography for the comps, looking at a broader area but for more comparable property details – such as year built and lot square footage.

Creating BOVs used to be a lengthy, time-consuming process. Brokers would often enlist the support of an in-house analyst to scour public records for data.

Reonomy has simplified the process by making it easier than ever for brokers trying to find data, comps and other information needed to put together a fine-tuned BOV.

This is the best way for brokers to wow potential customers, and in turn, earn their trust and land more deals.