There’s more than one way to learn the value of your property.
Whether you’re buying or selling, knowing the worth of the property in question ensures you’re paying or receiving a fair price. To find that value, you’ll need either an appraisal or a broker’s opinion of the property’s value. Both avenues offer different benefits and opportunities, and knowing those differences is key to locking in the most appropriate price for your real estate.
Here’s a guide for how to choose between an appraisal and a broker opinion of value.
What is a Real Estate Appraisal?
When preparing for a property sale or inspection, the term “appraisal” is usually the first that comes to mind. An appraisal is a formal evaluation of a property conducted by a state-licensed third party. Appraisers are fully trained and certified for the role, and their inspections must meet a set of standards set by an oversight body.
Appraisals can be requested by the property owner or ordered by a bank or lender (usually only when a loan is part of the equation). They’re also performed at a cost, which, depending on the property/real estate in question, averages $300 to $400.
What’s Involved in an Appraisal?
There are three key steps to having an appraisal performed on your property:
- Inspection: It begins when an appraiser pays your property a visit for an assessment. They will check the overall condition of the property and note its features, size, amenities, geographic positioning and other factors.
- Market Research: Next, the appraiser will begin analyzing the local market. Factors such as local neighborhood amenities, prices for similar properties (along with any that have recently sold) and market trends.
- Valuation Report: When all the data is collected, the appraiser will create a report that delivers the estimated value of the property you’re selling or buying.
The Role of a Realtor in an Appraisal
While you’re busy selecting real estate and the appraiser works to determine the value of each prospective piece of real estate, a realtor will be behind the scenes to ensure that everything goes smoothly. A realtor’s list of duties includes:
- Scheduling Appraisals: This might be the most important role of a realtor during the process. It’s their job to make sure the appraiser has access to the property and can analyze it in a timely manner.
- Conduct Tours: A realtor’s knowledge of the property can be a huge asset to an appraiser. They can preface the inspection with a tour and answer questions about the property that can aid in compiling a final valuation report.
- Emotional Support: Buying and selling property can be a huge drain, and an effective realtor will be there to help you through the process. They will help you understand the details, file your documentation and make sure you hit your deadlines.
Benefits of Appraisal
- Certification: The most obvious benefit of appraisals is that the evaluation is certified. The final results rely on facts rather than opinions and come with the reassurance of a trained appraiser.
- Standards: A symptom of being certified is that your property will be appraised based on a strict standard set of principles. It will also come with the support of investors and lenders.
- More Money: If you’re buying your property, the results of your appraisal may allow you to negotiate a lower paying price. Conversely, property sellers might also benefit from the appraisal if the numbers come back in their favor.
Risks of Appraisal
- Higher Cost: When compared to a BOV, an appraisal comes with a bigger bill. A formal inspection from a professional appraiser will cost money, and you’ll need to make sure it’s in your budget.
- Lower Selling Prices: Appraisal always carries a risk of delivering lower-than-hoped-for numbers. If an appraisal delivers a lower price than you were hoping to sell your property for, it can have a big effect on your finances.
What’s a Broker Opinion of Value?
While similar in several ways, a broker opinion of value (or “BOV”) is a much different process than an appraisal. A BOV is conducted at the request of the property owner, and on a more informal basis than an appraisal requires.
As the name implies, any evaluation is strictly the opinion of the commercial real estate broker conducting it. These evaluations are also often performed for free, with the broker offering the service for a chance to officially represent the property in the future.
What’s Involved in a Broker Opinion of Value
When your broker arrives to inspect your property, they’ll have a checklist of things they’re looking for and questions they’ll be taking into consideration. These factors include:
- Property Condition: What kind of shape is the property in? Will it need repairs before it can be sold?
- Local Market: Are there any similar local properties for sale or that have recently sold? How do they compare to the one the broker is inspecting?
- Property Value: What could the property reasonably be sold for based on every factor considered? Is what is the demand for the property type in your market?
Similarly to an appraiser, the broker will assemble their findings into a report and present it to you. It will then fall to you to make the final decisions regarding selling or buying.
Benefits of a BOV
A BOV might not come from a trained appraiser, but a broker’s opinion carries advantages that the appraisal does not. Here are a few:
- It’s Free: Unlike an appraisal, a broker will offer their opinion of value free of charge. As explained earlier, this is usually done in exchange for the broker representing the property during its buying or selling.
- Reliability: In addition to being a free service, a reliable opinion of value from a trusted source can be beneficial when soliciting investment capital. The more thorough the investigation, the more likely investors will back your purchase or sale.
- A Second Opinion: When buying property, a BOV can be used as a second opinion to compare against an investor’s independent conclusion. You can also use it to measure against the findings of an appraiser.
Risks of a BOV
Alongside its unique benefits, a broker opinion of value also carries unique risks that will need to be taken into consideration. They include:
- Lack of Officiality: Due to the opinion-based nature of a BOV, investors don’t typically give it the same weight as an appraisal. They’re often seen as “unofficial” since the opinions are not backed by guidelines or institutions.
- Loss of Lenders and Investors: Given the less reliable reputation of broker opinions, you may find difficulty using their findings in your proceedings. Lenders will most likely disregard their opinion, as will investors.
Conclusion: Which Option is Right for You?
In the end, your own unique circumstances will dictate the best choice. If you need an in-depth property evaluation backed up by the state and supported by banks and lenders, consider investing in an appraisal. If you’d like to save some cash and get a second opinion regardless of lender support, a broker opinion of value is your best option.
If you need further advice on accurately evaluating your property, contact the experts at DRK. They will guide you through the process, answer your questions and help you succeed in your venture.
Take a look at the commercial property available for lease in the Columbus, Ohio, area right here.
Until next time,
Other blog posts you may enjoy:
Four Reasons to Invest in Commercial Real Estate
8 Security Measures to Protect Your Commercial Real Estate Property
Site Selection 101: Where Does Your Commercial Property Belong?
