An Overview of the Appraisal Process

Acquiring a house is the most serious financial decision some could ever encounter. It doesn't matter if it's a primary residence, a second vacation property or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple parties to pull it all off.


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Most people are familiar with the parties taking part in the transaction. The most recognizable entity in the exchange is the real estate agent. Next, the bank provides the financial capital needed to fund the transaction. The title company makes sure that all requirements of the transaction are completed and that a clear title transfers to the buyer from the seller.

So who's responsible for making sure the value of the property is consistent with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer might expect to pay - or a seller receive - for a property, where both buyer and seller are informed parties. A professional Wisconsin licensed appraiser from Central State Appraisal will ensure you as an interested party are informed.

The inspection is where an appraisal begins

Our first responsibility at Central State Appraisal is to inspect the property to ascertain its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they really are there and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the floor plan, ensuring the square footage is correct and conveying the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the property.

Once the site has been inspected, an appraiser employs two or three approaches when determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

This is where the appraiser gathers information on local construction costs, the cost of labor and other factors to derive how much it would cost to build a property comparable to the one being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers get to know the communities in which they appraise. We thoroughly understand the value of specific features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, an additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject.

For example, if the comparable property has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. The sales comparison approach to value is most often awarded the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third method of valuing a house. In this scenario, the amount of revenue the real estate produces is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Coming Up With the Final Value

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property could sell for in an open market. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. It all comes down to this: An appraiser from Central State Appraisal will help you discover the most fair and balanced property value, so you can make profitable real estate decisions.