Nuts and Bolts of Property Appraisal

 Debbi Conrad  |    March 05, 2015

The appraisal process

In order to reach an opinion of value, an appraiser goes through an investigative and analytic process.

Inspect: If an appraisal requires an interior inspection, an appraiser will contact the listing agent or the seller to schedule the inspection.

Research: An appraiser will research county and municipal records, MLS records and other data services for information and documentation concerning the subject property and market area. 
Comparables: An appraiser will review recent sales and listings of properties that are comparable in terms of physical and functional attributes. These ‚Äúcomps‚ÄĚ have utility, quality, age and amenities similar to the subject property and ideally are located in the subject property‚Äôs market area. In markets where few sales have recently occurred, comps may be from similar neighborhoods located some distance away. The appraiser then must make monetary adjustments to account for differences between the comps and the property being appraised.¬†

Three valuation approaches

  1. The sales comparison approach is often the primary approach used for residential property. It utilizes recent sales of comparable properties. An appraiser will analyze and compare characteristics that include the living area of the home, land area, style, age, quality of construction, number of bedrooms and bathrooms, presence or absence of a garage, and other factors. 
  2. The cost approach is the appraiser’s opinion of the current replacement cost of constructing a reproduction of the existing structure, less any estimated depreciation, plus the value of the land. The cost approach is valuable when appraising newer homes with little or no depreciation. 
  3. The income approach is most often used in appraisals of multi-unit properties where income is a factor in the decision-making process.

After data collection and analysis, the appraiser develops an opinion of value by considering and reconciling the value(s) indicated by the sales comparison approach, as well as the cost approach and/or income approach, if applicable. The appraiser will present his or her findings and conclusions in a report to the client (lender).

There is no single standard appraisal report form, format or style. However for residential mortgage lending, Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase mortgages on the secondary market, have developed residential appraisal report forms that are commonly used. The Uniform Standards of Professional Appraisal Practice (USPAP) require all appraisal reports to contain sufficient information to enable the intended users to understand the report properly.

Myths and misunderstandings about appraisals and real estate purchase loans

Myth: Appraisers set the value of the home.
Reality: Appraisers do not set the value nor is it their function to confirm a sales price. Appraisers provide an opinion of value based on current market conditions.

Myth: The buyer hires the appraiser.
Reality: When an appraisal is used to obtain an opinion of value of a property for loan purposes, federal regulation requires the lender to order the appraisal. The lender contacts a state-licensed or certified appraiser and identifies the property and the intended use of the appraisal. The appraiser determines the appropriate scope of work for the assignment, including the type of property inspection (interior, exterior only or none), what approaches to value are required, and any lender-specific requirements. In some cases, the lender may order the appraisal through an agent, such as an Appraisal Management Company. 

Myth: Real estate brokers cannot talk to appraisers.
Reality: On the contrary, real estate brokers may provide information and communicate objectively with appraisers as long as brokers do not attempt to unduly influence the result of the appraisal. Brokers may wish to compile an ‚ÄúAppraiser‚Äôs Package‚ÄĚ available for the appraiser at the property. The package could include plats, surveys, deeds, easements, encroachments, covenants, homeowner association documents, floor plans, specifications, any rental history, inspection reports, neighborhood details, recent similar-quality comparables, a detailed list and dates of upgrades, remodels and costs, and energy-efficient green features. The broker could also meet the appraiser at the property and answer any questions an appraiser might have about the property or neighborhood. The broker, though, should allow the appraiser the necessary space and time to complete the inspection and keep in mind that anyone with an interest in the transaction may not intimidate or bribe the appraiser. More information on communicating with an appraiser may be found at

Myth: There is nothing real estate brokers can do about a completed appraisal if they have concerns.
Reality: An appraiser may not discuss the results of the report with anyone but the client who ordered the appraisal. In order to ask an appraiser to correct errors in the appraisal report or consider additional information, the broker should contact the appraiser‚Äôs client, preferably in writing. The lender ‚ÄĒ not the buyer ‚ÄĒ is the appraiser‚Äôs client as required by federal banking regulation even though the buyer usually is the one who ends up paying for the appraisal report.¬†

Myth: Appraisers ask for a copy of the offer so they know how much the parties want the property appraised for.
Reality: USPAP and other lender standards require that appraisers ask for a copy of the offer. The appraiser compares the terms of the offer with what is typical in the market and must verify if the property seller is the owner of record. The offer includes information such as the interest rate, down payment, seller contributions and personal property items that might be included in the sale. The appraiser confirms whether he or she was able to analyze the offer in the appraisal report.

Myth: The buyer must ask for the appraisal report and won’t receive it until after closing.
Reality: The Equal Credit Opportunity Act and the associated federal regulations require creditors to automatically send a free copy of home appraisals and all other written valuations on the property after they are completed, regardless of whether credit is extended, denied, incomplete or withdrawn. The lender must provide free copies of all appraisals and other written valuations such as automated valuation model reports or broker price opinions developed in connection with an application for a loan to be secured by a first lien on a dwelling, and notify applicants in writing that copies of appraisals will be provided to them promptly after the reports are completed or three days before the loan closes, whichever is earlier. The applicant may be asked to ‚Äúwaive‚ÄĚ the right to get a copy of valuations three business days before closing, but if the loan closes, a copy must be provided no later than closing.

Myth: Appraisers don’t have to be local and live within the market area.
Reality: Appraisers are required to be competent in the geographic area in which they are working. Some appraisers work in cities and counties beyond their residence but are knowledgeable about those specific areas. If an appraiser is not competent to appraise in a given market area, contact the lender who is the appraiser‚Äôs client or file a complaint if the appraiser continues with the appraisal. The USPAP Competency Rule provides, ‚ÄúAn appraiser must: (1) be competent to perform the assignment; (2) acquire the necessary competency to perform the assignment; or (3) decline or withdraw from the assignment.‚ÄĚ The comments to this section state: ‚ÄúCompetency may apply to factors such as, but not limited to, an appraiser‚Äôs familiarity with a specific type of property or asset, a market, a geographic area, an intended use, specific laws and regulations, or an analytical method.‚ÄĚ

What are the different categories of real estate appraisers in Wisconsin?

Licensed appraiser: A licensed appraiser may conduct appraisals of complex one-to-four family residential property having a transaction value of not more than $250,000; non-complex one-to-four family residential property having a transaction value of not more than one million dollars, and commercial real estate having a transaction value of not more than $250,000. A financial institution may presume that appraisals of one-to-four family residential properties are not complex, unless the institution has information that a given appraisal will be complex. Wis. Admin. Code § SPS 85.500.

Certified residential appraiser: A certified residential appraiser may conduct appraisals of one-to-four family residential real estate without regard to transaction value and of commercial real estate having a transaction value of not more than $250,000. Wis. Admin. Code § SPS 85.400.

Certified general appraiser: A certified general appraiser may conduct appraisals of one-to-four family residential real estate and commercial real estate without regard to transaction value. Wis. Admin. Code § SPS 85.300.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.

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