Ask three people what a commercial building is worth and you can get three numbers, each one defensible. A broker gives one for free. An appraiser gives one for a fee, usually for a bank. An independent advisor gives a third, for the owner.
The numbers differ because the questions differ. Before you order any of them, it helps to know who is asking and what they will do with the answer.
Three numbers, three askers
A broker opinion of value, often shortened to BOV, is a pricing view from a commercial broker. It is usually free. The broker prepares it to win a listing or to advise on an asking price, and is paid by commission if the property sells.
An appraisal is a licensed appraiser’s opinion of market value, prepared under the Uniform Standards of Professional Appraisal Practice (USPAP). Lenders, courts and many estate matters rely on it. Clover State does not provide appraisals.
An independent valuation is an opinion of value from someone with no stake in the sale, the listing or the loan. At Clover State it is called valuation advisory: a fixed fee, the math shown line by line, and a written recommendation at the end.
What a broker opinion does well
Brokers talk to buyers every week. A good BOV tells you what similar buildings are listed at, which buyers are active and how long a sale might take. That market feel is hard to get anywhere else, and it costs you nothing.
A BOV is also clear about its purpose. It is a marketing document that proposes an asking price and a plan to reach it. Read it that way and it is useful.
Where the incentive shows
The broker earns a commission when the property sells. A high number can win the listing. A lower one can make the sale quicker. Neither pull has much to do with the owner’s real question, which is often whether to sell at all.
This is not a comment on anyone’s honesty. It is the structure of the work. The signs to look for are the same in any valuation:
- Income based on asking rents for vacant space, not the rents in place
- A cap rate stated without the sales it came from
- Comparable sales listed without adjustments for size, age or location
- No mention of the leases, their expiration dates or their expense terms
- One number, with no range and no sensitivity
A cap rate, for anyone new to the term, is one year of net operating income divided by price. Small changes in it move a value a long way, which is why its source matters. Our glossary of lease and valuation terms defines it and about thirty others in a sentence each.
When a licensed appraisal is required
Some decisions need a licensed number, and no other kind will do. Most bank loans above the federal threshold require an appraisal. In 2018 the Federal Reserve, FDIC and OCC raised that threshold for commercial real estate transactions from $250,000 to $500,000. Below it, a lender may use an evaluation instead.
Many court and estate matters call for a licensed appraisal too. If a lender, a judge or an estate attorney will rely on the number, ask them what they require before you order anything.
Clover State does not appraise. On a scoping call we will say whether your question needs a licensed appraisal, and if it does, we can scope it and coordinate a licensed appraiser. The full comparison is in appraisal or evaluation: which do you need.
What an independent number adds
An independent valuation sits between the free number and the licensed one. It answers the owner’s own question: renew, refinance, sell, contest the assessment or hold.
Three things set it apart:
- No stake in the outcome. A fixed fee, no commission and nothing to sell afterward.
- The math in view. Net operating income, the cap rate and the comparables on a page you can check with a pencil.
- A recommendation. The number ends in a decision, with the risks written down.
Our property valuation service offers four formats, from a five-day snapshot to a full consulting report with a site visit.
A worked example
The numbers here are illustrative. Say an owner has a 14,000 square foot strip center in east Cheyenne with two of its eight suites vacant. A broker’s opinion arrives at $2.1 million.
The broker’s math uses pro forma net operating income of $147,000. That figure assumes both vacant suites lease at asking rent. It is divided by a 7.0% cap rate:
$147,000 ÷ 0.070 = $2,100,000
An independent read starts from the leases in place. The six occupied suites produce net operating income of $128,000. Recent sales of similar centers support a 7.75% cap rate for a center with this much vacancy and near-term lease roll:
$128,000 ÷ 0.0775 = $1,651,613
Leasing the two empty suites will cost money before it earns any. Say $40,000 of tenant improvements, $15,000 of leasing commissions and $10,000 of carrying costs while they sit empty. That is $65,000:
$1,651,613 less $65,000 = $1,586,613
So the as-is value is about $1.59 million, roughly $510,000 below the broker’s figure. Both numbers can be right for their purpose. The broker’s is a target after lease-up. The independent one is today’s value with today’s tenants.
The decision follows from the gap. If the owner lists now at $2.1 million, a careful buyer will underwrite the rents in place and offer from there. Leasing one or both suites first, then selling, may serve the owner better. A pricing proposal cannot make that call on its own, because its job is the listing.
Which number fits which decision
| Decision | Usually enough | Why |
|---|---|---|
| Choosing a listing broker | Two or three BOVs, then an independent check | BOVs show the market; the check shows the gap |
| Renewing a major tenant | Independent valuation | Value with and without the renewal guides the terms |
| Refinancing above the threshold | Licensed appraisal, through the lender | Federal rules and the lender require it |
| Contesting a Wyoming assessment | Independent valuation | Evidence of market value, inside the appeal window |
| Divorce, estate or litigation | Licensed appraisal | Courts and attorneys set the standard |
| Planning to hold, sell or refinance | Independent valuation | The owner’s question, priced three ways |
Questions to ask about any number
Use these on a broker’s opinion, an appraisal or one of ours:
- Who paid for it, and does anyone earn more if the number is higher or lower?
- Is the income in place, or projected after lease-up?
- Which sales support the cap rate, and how were they adjusted?
- Were the leases read, including amendments and expiration dates?
- Which expenses were deducted, and do they match the trailing twelve months?
- How does the value move if the cap rate shifts half a point?
- What does the report recommend, if anything?
A number that answers all seven is worth acting on. One that answers two is a starting point, and there is nothing wrong with a starting point as long as it is treated as one.
Using both numbers well
The owner in the example does not have to choose between the broker and the independent number. The sensible order is often both: an independent value first, so you know the as-is figure, then two or three broker opinions to compare marketing plans and asking prices against it.
That order changes the broker conversation. Instead of asking what the building is worth, you ask how a broker would close the gap between $1.59 million today and a higher price after lease-up, what it would cost and how long it would take. That is a question brokers are good at answering.
What an independent number needs
An independent valuation is only as good as the paper behind it. Before the work starts, gather:
- Every current lease, with all amendments and side letters
- The rent roll, dated
- A trailing twelve months of income and expenses
- The latest property tax notice
- Loan terms, if a refinance is part of the question
- Any broker opinions you already have, so the gap can be explained line by line
Missing items do not stop the work. They are listed in the memo as gaps, with a note on how each one could move the number, rather than filled in with a guess.
Where to start
If you have a broker’s number in hand and a decision ahead, a valuation snapshot tests it against the leases and local sales in 5 business days from complete documents, from $950 per property (indicative). The fee is credited in full against a valuation advisory report ordered within 60 days. Start with a free 30-minute scoping call, which ends with a fixed-fee quote in writing.
