Broker Opinion of Value
A broker opinion of value, sometimes referred to as a broker’s price opinion, is an assessment of a commercial property’s value by a commercial real estate broker.
An opinion of value is reached by using one of three standard approaches: The Cost Approach, Income Approach & Direct Comparison Approach
The Cost Approach
When a property type is unique and rarely sold on the market, we can’t rely on either the comparison or income approaches to determine its current value. In these cases, we estimate your property’s current value with a three-step process:
- We calculate the current cost of replacing buildings, structures, or other taxable components on the land.
- We apply a deduction for depreciation due to age, functional or economic conditions that could impact the value of the property.
- We determine the value of the land and add it to the calculations to produce an overall valuation.
The cost approach is typically used for the following types of properties:
- general-purpose industrial properties
- grain elevators
- gravel pits
- large and special purpose properties
The Income Approach
An income-producing property’s ability to earn revenue is directly tied to its current value. When using the income approach, we carry out a detailed analysis of your property’s income and expenses and then compare it to similar properties to determine how much income a property could be expected to generate.
We then analyze the relationships between incomes and sale prices to calculate the capitalization rate (cap rate) for the property by dividing the income by the sale price.
The income approach is typically used for the following types of properties:
- hospitality properties
- industrial malls
- multi-residential properties
- office buildings
- shopping centres
The Direct Comparison Approach
This is the most known valuation approach. We analyze recent sales of comparable properties to determine the value of your property. In considering any sales evidence, we ensure that the property sold has a similar or identical use as the property to be valued.
The direct comparison approach is typically used for the following types of properties:
- vacant land
Note: As part of the Realtor® Code of Conduct, we are prohibited from providing Broker Opinion of Value on properties in which we have financial interests and the fee charged for the BOV has nothing to do with the actual value of the property.