For the most part, broker opinions of real estate value can be useful as a gauge or to estimate a value range. But they rarely substitute for an actual appraisal
At least some of the reasons for the use of a detailed appraisal are as follows:
- For lending purposes, banks and financing sources only accept appraisals. In fact, these types of appraisals are the most comprehensive of any appraisal.
- If done in conjunction with fairness opinions, public company transactions, eminent domain and charitable contributions, broker values are not acceptable. In addition, Courts will not accept them into evidence.
- Broker opinions are based solely on market asking prices and sales. If the subject property is unique or comparable sales are lacking in a local market, the opinion lacks credibility.
- Properties for which broker opinions are tenuous or usually not valid include the following: schools, churches, government facilities, conservation easements, utilities and very large manufacturing facilities, among others.
- An essential part of a credible appraisal is the income approach. A careful analysis of NOI or net operating income is essential. Additionally, a critical component of this appraisal technique is a thorough search to determine an appropriate discount rate, with which to convert the NOI into value.
When in doubt, always opt for the appraisal.