In real estate, determining what someone will pay for an asset is the first course of action in the sales process. It all starts with the estimated and projected value of the (in our case, hotel) property. We are asked many times weekly and monthly to provide what we call a BOV. This stands for brokers opinion of value. This is not a sheet of paper with numbers on it, rather it is a 35-page book on the methodology of how we determined the applicable value for a hotel.
There are certain properties and certain times where as a broker, you just scratch your head on value and just put it on the market to see what someone will pay. Case in point was a foreclosed hotel in Vermont that was closed and environmentally contaminated. The property had Legionnaires’ and friable asbestos. Legionnaire is an airborne bacterium caused by standing water, mildew and mold. This was the worst property I had ever worked on. The lender was one of our biggest clients, so I couldn’t just punt the ball to someone else. I had to button my chin strap and get on it. I flew up to see the hotel and the address was so remote, it wouldn’t even show up on GPS. Once I found the place, there was guard outside to help you “suit up, mask up” before going inside. I had just spent 800 dollars getting there but there was no way I was going in that building. My 800 dollars was just so I could say I had been to the hotel. Ha
I remember the guard asking me if I wanted to go inside and I said, no,,,, I think I am good. He looked at me like, “why did you even come up here?’ No kidding, our, BOV value we told the client was, zero. Yes, zero. Nada, goose egg, donut. Zero! Well, if you are a broker, when you sell/ give something for free,,,,,you don’t make any money! Ha. Our strategy was to earn a long-term relationship with the client by getting them out of this deal, so after we gave our zero value, we told the client we were going to get them out of the hotel even if we didn’t earn anything to demonstrate our commitment. The client loved us for this commitment and we started the marketing process with the goal of giving it away if we had to.
Well fast forward to the marketing process. We put a price (not zero) on the hotel for marketing purposes and it wasn’t a week later, we get a call from a buyer living in Florida that had grown up near the hotel and his family had eaten in the hotel every Sunday when he was a boy. He has an emotion attachment to the property. He wanted it because it reminded him of his childhood. He offered to buy the hotel with no contingencies and paid a big number for the hotel and was just as happy as he could possibly be.
We earned that client’s business and favor and have since sold 60+ hotels for them. I guess our strategy worked.
It did teach me a big lesson. The actual value of real estate is in the eyes of the buyer, not us as the broker. This is the point; a buyer never buys anything without some emotional connection or reason. That my friend is why we as brokers do the best we can to estimate a property’s value but always realize the ultimate valuation, is what the market will pay. KT