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Do I Need an Appraisal or a BOV?
Understanding the Differences of Valuation Methods
Ramey Peru & John Finnegan
June 26, 2024
One of the most common requests we get is for a Broker’s Opinion of Value or a BOV. We typically provide them as part of our marketing proposals but there are also plenty of instances in which we create a standalone version at a client or prospect’s request.
Many years ago, coming out of the great financial crisis, we were contacted by a group who was a partner in a parcel of vacant land in the west valley. The site was planned for multifamily development. At the time, there had been a few multifamily land transactions in the east valley, but nothing for that use had been sold west of I-17, especially not in this part of town.
We ran through several different development scenarios and based on the rents, exit values and feedback from active developers, we concluded multifamily development was not a viable use at that moment in time (but would be once the market had sufficiently recovered). This led us to value the site as either an investment/buy and hold or single-family subdivision site.
Almost immediately after hitting send on the BOV, our phone was ringing and upon answering, expletives were being hurled at us and our professional integrity was being called into question. Once the partner calmed down, we walked through our thought process and they seemed to understand.
Why was this group so upset? They had an appraisal showing the value was 4x what we showed in our BOV and they had invested in the deal based on that value. We asked to see the appraisal and the appraiser had valued the parcel on par with land sales in Chandler and Gilbert, where rents and incomes are significantly higher.
It was a very difficult and uncomfortable conversation to say the least.
How could this have happened? A couple of main takeaways from this story:
Valuing land can be difficult, especially if there are limited similar transactions with which to compare.
Land value is ultimately a function of its end use, but when the end use won’t be viable in the immediate future, values can vary significantly.
Appraisers have standard protocols they must adhere to while a broker does not.
Most times, a BOV and an appraisal will return similar values, but in uncertain or fast-changing markets, they can meaningfully diverge.
Below is a table showing some of the major differences between an appraisal and a BOV, but a simple way we tend to look at it is that an appraisal returns a defensible/justifiable value, while a BOV will tell you what value you can expect if you were to sell your property today.
Appraisal | BOV |
Purpose: | |
Typically required for formal transactions such as securing a mortgage, refinancing, estate planning, and legal matters. They are often mandated by lenders, courts, and government agencies. | Usually used for less formal purposes, such as helping property owners decide on a listing price, estimating potential selling prices for buyers or investors, or for internal company evaluations. |
Conducted by: | |
Licensed or certified appraisers who must adhere to strict professional standards and guidelines, such as those set by the Uniform Standards of Professional Appraisal Practice (USPAP). | Real estate brokers or agents. While brokers have market knowledge and experience, they do not necessarily have the formal training or certification that appraisers have. |
Methodology: | |
Comprehensive and standardized approaches, including the sales comparison approach, cost approach, and income approach. They analyze detailed property data, recent comparable sales, market trends, and physical property conditions. | Experience and knowledge of the local market, comparable property sales, and current market conditions. The process is generally less rigorous and detailed than an appraisal. |
Report: | |
The resulting appraisal report is thorough, detailed, and typically runs several pages. It includes extensive documentation, supporting data, and analysis. | Usually shorter and less detailed than an appraisal. It includes the broker’s professional opinion on the property’s value, supported by comparable market data and analysis. |
Legal Standing: | |
Appraisals have legal standing and are considered highly reliable and authoritative. They can be used in court and are often a key component in legal and financial decisions. | Considered less formal and less authoritative than appraisals. They do not hold the same weight in legal or financial proceedings and are typically used for guidance rather than official purposes. |
If you are in need of a BOV (or an appraisal) or would like to discuss this further, please reach out!
Thanks,
John Finnegan Senior Vice President | Land (602) 405-5212 | Ramey Peru Senior Vice President | Land (602) 228-3638 |