Making Sense of CRE Valuations in Real Estate Deals

There’s more than one way to value a property, and each method relies on different assumptions and levels of rigor. We often hear questions from investors about what these valuations actually reflect, how they’re used by sponsors, and when they should factor into an investment decision.

One common example is a broker’s opinion of value (BOV), which sponsors often use to support a decision or frame an opportunity for investors. You might encounter BOVs in deal memos, quarterly updates, or during conversations with brokers or sponsors.^1^

Investors may also come across formal appraisals. These are more structured, typically completed by licensed professionals, and often carry more weight — especially in debt underwriting.^2^

For investors, the key is understanding what these tools are and when they’re most commonly used and determining how much confidence they want to place in them. This piece offers a quick breakdown of BOVs and appraisals, including where each fits into a deal timeline and what caveats are worth keeping in mind.

What Is a BOV?

A broker’s opinion of value is an estimate — typically from a commercial real estate broker — of what a property might sell for in the current market. It’s often based on local comps, recent transactions, and the broker’s read of demand and pricing in the submarket. It’s fast, low-cost, and directional.^3^

That often makes it useful in early-stage underwriting, when sponsors are trying to gauge whether a deal pencils out. It’s also common when sponsors are considering a refinance or weighing whether to sell. Because BOVs don’t follow a standardized methodology and aren’t regulated, they can vary in quality depending on the broker and their motivations.^4^

If a sponsor is leaning heavily on a BOV to support a specific course of action, it’s worth asking questions: Who provided it? What comps were used? Was it based on a walkthrough or just desk research? And, perhaps most importantly, how recent is it?

What Is an Appraisal?

An appraisal is a more formal valuation conducted by a licensed third-party appraiser, usually using one or more standardized approaches: income capitalization, sales comparison, or replacement cost.^5^ Lenders typically require appraisals for loan origination or refinancing, and in those contexts, the valuation carries more legal and regulatory weight.^6^

Compared to BOVs, appraisals generally tend to be more conservative. They follow set methodologies and draw on a more structured review of the property’s financials, physical condition, and market position. But they’re still just models — and they depend on inputs like projected rents, vacancy rates, discount rates, and cap rate assumptions.^7^

Appraisals are useful for establishing a baseline, especially when assessing loan-to-value (LTV) ratios ^8^ or how much equity might be at risk. But investors should remember: the number in an appraisal is still an estimate, not a guarantee of what the asset would sell for in a live market.

When Each Is Relevant

BOVs are often used in the early stages of a deal to inform a potential acquisition price or exit scenario. They’re also sometimes used to support decisions during the hold period, particularly around refinancing, recaps, or hold/sell analysis.

Appraisals are more likely to show up during financing events, especially when debt is involved. You may see an appraisal attached to refinance updates or referenced at sale if a lender is part of the capital stack.^9,10^

In some cases, both may appear at different points in the lifecycle of a deal.

How Investors Should Read Them

Both BOVs and appraisals can be helpful, but neither should be taken at face value. They're tools, not verdicts. If a sponsor is using one to justify a decision, look at the context: When was it done? Who conducted it? What assumptions does it rely on? How has the market moved since?

It also helps to consider what the valuation might be leaving out. Is it based on the income the property is generating today, or on future projections? Does it assume the building is fully leased, even if it’s not there yet? And does it match what you’re seeing in broader market trends, like rising vacancy rates or falling sale prices in the area?

For more on common investing terms, key practices, and how to make sense of them, visit Crowd Street’s glossary for private market investors and explore our full resource center.