Broker Price Opinion:
If you aren’t having a property appraised for lending purposes, and you just want to know what your property’s worth you may save yourself several thousands of dollars by getting a Broker’s Opinion of Value (BOV) or Broker’s Price Opinion (BPO). These two opinions of value (basically the same thing with different names) are written by real estate brokers. Typically, it is a one page letter stating a value or value range. However, the value estimate or range is only as good as the broker who estimated it, based upon their research of comparable sales, and their knowledge and expertise of the church real estate market.
Dennis Ehrman is a certified BPO specialist. Call Dennis to schedule a BPO appointment today.
What is an Appraisal?
By definition, an appraisal is simply stated as an unbiased opinion of value. Unfortunately, many values given are biased opinions. Buyers and sellers have opinions of the value of a property, and these value estimates are “appraisals” per definition. But these opinions are not usually supported by comparable sales or a knowledge or expertise of the church real estate market. Typically, an oral opinion of value is given with little or no support.
How is an appraisal determined?
A church building is difficult to appraise. It often does not have close comparisons that were recently sold in the market place and the type of construction of comparable buildings is still unique to each building.
Buyers and sellers have varying opinions about what the church property is worth. But when someone says “Our appraised value is “x”, what does that really mean?
Some questions that must be answered in an appraisal are:
- How was that price determined?
- Where did that number come from?
- Who estimated that value?
- What is the value based on?
- Was it supported with “comparable sales”?
- Were the sales really comparable?
- Has the economy changed since the comparables were sold?
- Have the local demographics changed?
- Is there more or less competition for services in the area?
- Will the surrounding population support another church?
- Was the value a “guestimate”?
- Was the cost based on the cost of new construction?
- Was depreciation applied?
- Was the cost a “replacement cost” for property insurance?
- Does the appraisal include the land value and the site development costs?
- Does the location add or depreciate the cost of construction?
- Was the cost of architecture and engineering included?
- Does that include the furniture and the sound systems?
- Is the architecture obsolete?
- Are there delayed or hidden maintenance issues?
- Is the title clean, or are there encroachments or liens on the title?
- Can the land be subdivided?
- Is there opportunity to expand in the future?
- Is there adequate parking?
- Are all the properties in the area more depressed in value?
- Is there a greater demand for existing church buildings because of stricter zoning regulations?
- Is the architectural style outdated or popular?
There are differing kinds of appraisals for the same property.
- A Market Appraisal will predict the most likely selling price in a fair market.
- An appraisal for fire insurance will exclude the value of the land, foundations, sitework and architectural services because that cannot be lost in a fire.
- A government appropriation appraisal may include all the above plus the cost of moving.
- A construction replacement cost appraisal may be valued at much more than the building could sell for.
- A tax appraisal may be undervalued to appease the public.
- A bank appraisal may depress the appraised value to protect the interest of the bank’s risk for mortgage recovery.
- A realtor’s listing appraisal may be low to facilitate a quick and sure sale, or too high to out bid other realtor’s valuations and give a false hope.
Ideally, a good market appraisal considers all the above in an accurate assessment of supply and demand, and can predetermine what the property will sell for. But you cannot buy a guaranteed appraisal.
Two of the most common values quoted as appraised values are from tax assessors and insurance companies. The tax assessor’s office has a value assigned to each property for the purpose of assessing taxes. This value is an assessment value. It is not a market value and typically has no market data support because churches are tax exempt and are not part of the tax base for the county. Insurance companies also assign value to a property. This is an insurable value and is not a market value or the price that a church can be bought or sold for.
So you think you need an appraisal?
If the purpose for an appraisal is to obtain a loan, you’ll probably need a written appraisal by an MAI appraiser. The commercial appraiser will complete a written appraisal report and typically charge several thousands of dollars. However, it is often required before a property can be bought or sold because the buyer’s financing requires it. What you need to know is that the maximum amount that can be borrowed to purchase a property is based upon the estimate of value.
The appraiser utilizes three approaches or methodologies to estimate a property’s value: income, sales comparison and cost. Since churches are not sold based upon their income producing capabilities, this approach is not applicable. The sales comparison approach is based upon sales of other comparable properties. For pre-owned properties this approach should be given the most, if not, all the weight in an appraisal. The cost approach is primarily used for new properties. If a property is not new, depreciation must be estimated in this approach and can easily distort this as an indicator of value. As such, this value indicator is very aggressive and tends to be very high.
If you aren’t having a property appraised for lending purposes, and you just want to know what your property’s worth you may save yourself several thousands of dollars by getting a Broker’s Opinion of Value (BOV) or Broker’s Price Opinion (BPO). These two opinions of value are basically the same thing with different names, written by real estate brokers. Typically, it is a one page letter stating a value or value range. However, the value estimate or range is only as good as the broker who estimated it, based upon their research of comparable sales, and their knowledge and expertise of the church real estate market.
If you have already had a written appraisal by an appraiser, I recommend that you read it carefully and review the value estimate.
First check the date of the estimate. Real estate values can change quickly. Projections from the past may be radically adjusted in some areas and neighborhoods. An outdated appraisal may be very misleading.
Secondly, determine if the value estimate was primarily based upon the sales comparison approach or cost approach. If it’s based on the cost approach and your church is more then a couple years old then you need to realize that this value is based upon an estimation of depreciation which can distort it as an indicator as to what your property can actually be bought or sold for.
Thirdly, I recommend that you review the specific comparable sales in the report, analyze them yourself, and ask yourself “If these comparable sales are chosen, are they truly comparable to our facility?” Generally, different neighborhoods and different suburbs have unique value structures, and properties across the street may be part of a different pricing framework. Facilities that seat 300 aren’t really comparable to a facility that seats 750. If one church does not have sufficient parking and your property does, how does that affect value? Did the appraiser account for this difference accurately? A 5 year old property with 30,000 SF that has numerous classrooms and a gym is not necessarily comparable to another 30,000 SF property with a huge sanctuary and doesn’t have a numerous classrooms and a gym. These differences and several others make estimating the value of churches very difficult.
Finally, keep in mind that since banks and financial institutions base the buyers maximum loan amount on a percentage of the appraised value or sale price, appraisers may have a tendency to appraise the property as high as possible. However, when church sellers then try to sell their properties for such inflated values, a realization occasionally occurs that maybe the appraiser’s value conclusion is an over-inflated value and not truly what the property can be been bought or sold for.
Keep in mind that agents, appraisers, buyers, church members, etc have an opinion as to what a property’s worth, but only a ready, willing and able buyer and educated seller can truly determine a property’s worth. Estimating the true value of a church should be done with the assistance of Church Real Estate Professionals. The marketing, buying and selling of churches is a specialized area of real estate.
Church Building Consultants Realty is here to help the church that is buying, selling, or leasing real estate. Our team of experienced church real estate brokers, land planners, builders, church growth experts, church financiers and appraisers will all work in collaboration on your transaction. Expect complete and expert service. We know the Lord wants to bless both the churches in a real estate transaction.
Dennis Ehrman is President of Church Building Consultants, a financial consulting, real estate and architecture design/build firm. He and his staff have designed or built over 200 church projects, and he has worked as an underwriter with Commonwealth Church Finance. He is a graduate construction engineer, holds a Masters in Business Organizational Behavior, and has extensive studies in Bible, Theology, and Church History at Moody Bible Institute. He serves as an advisor and teacher at Wayside Cross Ministries, past President of the Board of Wheaton College Community School of the Arts, and has served as Church treasurer and trustee.