Published by Forbes.com | July 7, 2024
If you're selling a property, you'll want to evaluate the highest and best value, which can lead to the highest selling price.
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.”
