BOV vs Appraisal

The Short Answer

An appraisal is a valuation prepared by a state-licensed or certified appraiser under a professional standard. A broker opinion of value is a broker's estimate of what a property would sell for, prepared under no such standard. Both produce a number. Only one of them is a valuation of record.

Side by Side

Why the Standard Is the Real Difference

The distinction people reach for first is credentials, but the load-bearing one is the standard.

An appraisal in the United States is governed by the Uniform Standards of Professional Appraisal Practice. USPAP constrains how the appraiser develops the opinion, what must be disclosed, what records must be kept, and what independence is required. That is what makes an appraisal usable by a third party who was not in the room: a reader can rely on it without knowing the appraiser, because the conduct behind it is specified.

A BOV has no equivalent. Its quality is a function of the broker who wrote it. A good one is more current on the submarket than any appraisal, because the broker is transacting in it weekly. A bad one is a number chosen first and supported afterwards, and nothing external prevents that.

This is also why "which is more accurate" is the wrong question. The appraisal is more accountable. On a submarket a broker trades in daily, their read of pricing may well be sharper — but you cannot tell from the document which kind you have.

The Incentive Worth Naming

Most BOVs are free because they are business development. A broker producing one is frequently competing for the listing, and the way to win a listing is to be optimistic about the price.

That does not make BOVs untrustworthy; it makes the incentive worth pricing in. Two practical habits:

• Read the comparable set before the conclusion. If the comps skew toward the top of the range, the conclusion will too.
• Ask for the assumptions. Exit cap, growth, vacancy. A BOV that will not show them is asking you to take the number on trust from someone with a reason to be high.

Where the BOV is commissioned rather than pitched — a portfolio mark, an internal review — that incentive is absent, and the document is usually more sober for it.

When Only an Appraisal Will Do

Use an appraisal when someone other than you has to rely on the number:

• Lending collateral. The valuation behind a loan is normally an appraisal, and for federally related transactions the requirement is set by federal rule rather than by preference.
• Litigation, divorce, partnership dissolution. The number will be challenged, and it needs a signature that carries professional accountability.
• Tax assessment appeals and estate work. Governed by their own evidentiary requirements.
• Financial reporting. Where an auditor has to accept the mark.

Whether a broker's opinion may substitute for an appraisal in a given situation is set by state law and, for federally related transactions, by federal rule — and it varies by state and by use. Check the rule that applies rather than assuming.

When a BOV Is the Better Instrument

• Deciding whether to sell. You want a current read on price, not a document for a third party.
• Pricing a listing. This is the BOV's home ground.
• Screening acquisitions. Days rather than weeks, at no cost, for an asset you may not pursue.
• Interim portfolio marks. Between formal valuations, where the cost and turnaround of an appraisal are disproportionate.

The test is simple: if the number is for a decision you are making, a BOV is usually enough. If it is for a decision someone else requires, it usually is not.

Common Mistakes

• Treating a BOV as an appraisal because it is long. Length is not accountability. A thirty-page BOV is still a broker's opinion.
• Commissioning an appraisal for a pricing decision. Weeks and a fee for a number you were going to test in the market anyway.
• Reading either without the as-of date. Both are point-in-time. A six-month-old valuation in a moving market describes a market that no longer exists.
• Comparing a BOV's value to an appraisal's and calling the gap an error. They can legitimately differ: different purposes, different definitions of value, sometimes different dates.

Sources

• The Appraisal Foundation — Uniform Standards of Professional Appraisal Practice: the standard governing appraisal practice in the United States.
• Appraisal Institute: professional body for appraisers; methodology and designations.
• National Association of Realtors: broker licensing and professional standards.