How To Determine The Highest And Best Value For Your Property
If you’re selling a property, one of the first questions you’ll want answered relates to the value of the property. When you know an estimate for what the asset is worth, you can decide on a selling price. As a starting point, you can work with a broker to get a broker’s value of opinion. Keep in mind, however, that these assessments often vary and will depend on a number of factors, including the broker you’re working with and the assumptions that are used.
Follow these steps to learn how to best determine the value of your property:
1. Work with the Right Broker
An experienced broker who is actively transacting in the marketplace will have insights into recent trends and prices. With this knowledge, they are more likely to be able to provide a reliable broker's opinion of value for your property. A great broker might be able to see opportunities that could be presented to the buyer, such as air rights, financing options, or possible tenants. Sharing this knowledge could increase the selling price, as buyers might be willing to pay more for a property’s potential return.
2. Understand a Broker’s Opinion of Value Versus an Appraisal
A broker’s opinion of value is an estimate provided by a broker, whereas an appraisal is conducted by a licensed appraiser. An appraisal must follow set guidelines and may be required for financing or legal reasons. When preparing to sell a property, a broker’s opinion of value is often sufficient to start the sales process. Brokers may have access to real-time data that can be used to inform their valuations, which can be more current compared to appraisals that may rely on past sales.
3. Consider the Property’s Highest and Best Use
The asset type of your property and how buyers use it will impact the value. Brokers will typically look at comparable sales, along with opportunities to reposition the property, such as converting it for a different use or attracting a specific type of buyer. An end user might be interested in using the property for their business and be willing to pay more for the building. I discuss more ways to reposition a property in Step 8 of my book, “The Insider’s Edge to Real Estate Investing.”
Brokers will also consider the cap rate as an important metric. The cap rate is based on the net operating income divided by the current market value of the property. A broker who understands cap rates in your area can help find the right assumptions to use. You can learn more about cap rates in this article, “5 Factors That Help Determine Cap Rates.”
4. Focus on Realistic Projections
For a broker’s opinion of value to be useful, you’ll want it based on the most accurate projections possible. Brokers who look for relevant information and aim for a realistic value can help you find the right starting price for your property. My team at Avison Young has tracked the last 100 properties that we’ve sold and reconciled the value in the broker’s opinion to the value the properties sold for. We found our broker’s opinion of value were within 5% of accuracy for these 100 properties.
5. Look for Detailed Analysis
When you’re evaluating numbers related to a property, you’ll want signs that the figures can be backed up with strong data. A great broker will often provide detailed information to support the projections used in their opinion of value. This might include a snapshot of current conditions and details about similar properties that sold recently, such as the tenancy or price per square foot. Ensuring that the analysis is thorough and substantiated can help avoid overpricing or underpricing the property.
When determining the value of your property, work with an experienced broker who actively transacts in the market and can provide a broker’s opinion of value. Look for criteria that considers how buyers might use the space and ways to add value to it. Also check that the projections given are backed up with relevant data and are realistic. Once you’ve found the estimated value of your property, you can move forward with the next steps of the sales process to get the best outcome possible.