Understanding Real Estate Appraisals: How Property Values Are Determined
If you are buying, selling, refinancing, settling an estate, going through a divorce, or simply trying to determine what your property is worth, a professional real estate appraisal can provide an independent and well-supported opinion of value.
An appraisal report is much more than a number at the bottom of a page. It explains the property being appraised, the market in which it competes, the sales and other data considered, and the reasoning used by the appraiser to develop an opinion of value.
For property owners throughout Central Wisconsin, understanding what goes into an appraisal report can make the process much easier and help you better understand the final value conclusion.
What Is a Property Valuation Report?
A property valuation report, commonly referred to as a real estate appraisal report, is prepared by a licensed or certified real estate appraiser. The purpose of the report is typically to develop an opinion of the property's market value as of a specific effective date.
Depending on the property and intended use of the appraisal, the report may include:
A description of the property, site, improvements, and overall condition
Information about the neighborhood and surrounding market area
Analysis of recent comparable sales
Discussion of current market conditions and value trends
Zoning, flood zone, easement, access, and other relevant site considerations
One or more recognized approaches to value
Adjustments for differences between the subject and comparable properties
Photographs, maps, sketches, and other supporting information
The appraiser's final opinion of value and reconciliation
The goal is to provide enough information and analysis for the intended user to understand how the appraiser developed the value conclusion.
Why Are Real Estate Appraisals Important?
There are many reasons someone may need an independent property appraisal, and not all of them involve obtaining a mortgage.
We regularly see appraisals needed for:
Buying or selling real estate: An appraisal can help establish a reasonable market value before negotiating a purchase or sale.
Estate and date-of-death valuations: A retrospective appraisal may be needed to establish the property's value as of a previous date for estate or tax purposes.
Divorce and property settlements: An independent appraisal can provide a supported opinion of value when real estate needs to be divided or considered as part of a settlement.
Private sales and FSBO transactions: Buyers and sellers can obtain an independent opinion before agreeing on a price.
Tax assessment appeals: An appraisal may provide additional market evidence when a property owner believes an assessment does not accurately reflect market value.
Financial and legal planning: Attorneys, accountants, financial professionals, and property owners may need an appraisal for a variety of planning purposes.
Mortgage lending: Banks and other lenders commonly require appraisals as part of their lending and risk-management process.
Regardless of the reason, the purpose of an appraisal is to provide an independent opinion supported by market evidence rather than simply relying on an asking price, assessed value, automated online estimate, or someone's personal opinion.
How Do I Get a Property Appraisal?
The first step is finding a Wisconsin licensed or certified appraiser who has experience with your type of property and geographic market.
The process generally includes:
Contacting the appraiser and explaining the property and why the appraisal is needed.
Identifying the intended use and effective date of the appraisal. This is especially important for estate, divorce, litigation, and retrospective assignments.
Inspecting the property, when an interior or exterior inspection is appropriate for the assignment.
Researching the market, including comparable sales, listings, market trends, public records, MLS information, and other relevant data.
Analyzing the property and comparable sales and making market-supported adjustments where appropriate.
Preparing the appraisal report with the appraiser's analysis, supporting data, and final opinion of value.
Working with an appraiser who understands the local market is particularly important in Central Wisconsin. Values can vary considerably between communities and even within relatively short distances.
Rural acreage, waterfront property, lake access, agricultural land, outbuildings, manufactured homes, condominiums, and unique residential properties can require a much broader and more specialized analysis than a typical subdivision home.
How Do Appraisers Determine Property Value?
There is no single formula that determines what every property is worth. Appraisers analyze the property and market using recognized valuation methods, with the appropriate approach depending on the type of property and assignment.
Sales Comparison Approach: Comparing the property to similar ones recently sold nearby. Adjustments are made for differences in size, condition, or features.
Cost Approach: Estimating the cost to replace the property minus depreciation. This method is often used for new or unique properties.
Income Approach: Used mainly for rental or commercial properties, this calculates value based on expected income generation.
Why Can Two Appraisals Have Different Values?
An appraisal is an opinion of value based on market evidence and professional analysis. It is not an exact calculation.
Two competent appraisers may reach somewhat different conclusions because they selected different comparable sales, analyzed certain property characteristics differently, or completed their appraisals as of different effective dates.
Real estate markets also change over time. A sale from a year ago may require consideration for changing market conditions, while a more recent transaction may better reflect current buyer behavior.
The important question is whether the appraiser's conclusions are reasonably supported by the available market evidence.
How to Review Your Appraisal Report
When you receive an appraisal, take some time to review the report rather than looking only at the final value.
Pay particular attention to:
The property description and reported characteristics
The effective date of the appraisal
The comparable properties selected
Significant adjustments
Market-condition or time adjustments
Extraordinary assumptions or hypothetical conditions
The reconciliation and final opinion of value
If you believe important information is incorrect or was overlooked, contact the appraiser. Providing specific factual information is generally much more useful than simply disagreeing with the final value.
Local Market Knowledge Matters
Central Wisconsin contains a wide variety of real estate markets. A property in Green Lake may compete in a very different market than one in Wautoma, Princeton, Ripon, Berlin, Montello, or a rural township only a few miles away.
The same is true for waterfront properties. Frontage on Big Green Lake, a smaller recreational lake, a river, or a private pond does not necessarily contribute the same value.
Acreage can also have dramatically different utility depending on whether it is agricultural, recreational, wooded, wetland, buildable, or simply excess residential land.
These are situations where local market knowledge and careful comparable-sale selection become particularly important.
A Property Appraisal Is More Than a Value
A well-developed appraisal should tell the story behind the value.
It should explain what the property is, the market in which it competes, the sales that provide the best evidence of value, and how the appraiser reconciled that information into a final opinion.
For property owners, attorneys, lenders, accountants, buyers, and sellers throughout Central Wisconsin, an independent real estate appraisal can provide a credible basis for making important financial and real estate decisions.
When the value of a property matters, having an experienced local appraiser analyze the market can provide information that an automated valuation, tax assessment, or online estimate simply cannot replace.
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