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Appraising Well in a Fast-Changing Market

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What should an appraiser know before signing an appraisal report and giving a professional opinion on value? Almost everything. Many appraisers working in today’s market are trying to understand how important this is.

I started thinking about this when I saw the news from the National Association of Realtors. The current real estate market is not balancedTheir public website says June 2022 will see a three-month supply of existing homes for sale. This month’s supply reading remains 0.9 months lower than he was in 2019.

I stand with many who believe the market will continue to feel price pressure, at least until inventory levels start to return to normal (at least 2019 or early 2020 levels).

While it may not seem so at first, this is important information for appraisers.

Why Inventory Levels Matter to Appraisers

According to the Uniform Standards for Professional Appraisal Practices (USPAP), a rule that all professional appraisers must follow, appraisers should consider all market trends and other effects on property values ​​in their valuation opinions. must be placed in USPAP Rule 1-3(d)(v) makes this clear.

Inventory levels affect property valuations, at least in the short term. Appraisers take this into consideration and are trusted voices of reason when industry insiders release news, whether it be NAR, Zillow, Case-Shiller, or anyone else with some data and indices. must be

Find out why loan officers, realtors, or buyers disagree with the appraiser’s conclusions.

Consumers today have so much data available from so many sources. They can browse his websites for Redfin and other big real estate companies and get very compelling data. This data could lead him to believe that his home is worth 30% more than he did at the time of purchase, given the current trendline.

For real? It may be, but it is a professional appraiser who measures it. Raters should keep several things in mind when analyzing suitable data.

Real estate appraisal in a rapidly changing market

The first thing I would say about this is that the age-old rule that the best defense is a strong attack applies. In addition, professional appraisers should already be aware of what is available to market participants. Appraisers track such data. It’s just part of our job.

Second, what most people who track this data already know is that this data and all the indicators that come from it lag behind as indicators of the health of any particular market. . The data displayed is typically several months old. In a rapidly changing market like ours, it can often be too old.

Like other data we use in our analysis, such as marketing hours, exposure times, and inventory levels, market value indices are taken into account when developing our professional opinion on value. Not all data is brand new, but it all enters our consciousness and becomes part of our decision-making process.

Consumers, and possibly other industry professionals, typically do not behave that way. They look at the index and start scribbling numbers on the back of the envelope. There’s a reason lenders don’t lend money, based on analysis made by people interested in real estate and transactions.

The third thing professional appraisers should keep in mind is that this market is changing rapidly. Even if the market doesn’t seem to be changing rapidly, there could be an event that could change everything in a very short period of time, such as a global pandemic or a sharp rise in borrowing costs.

This means we need to be the voice of reason in the long run. Looking at month-over-month or year-over-year property valuations in a given area may seem dramatic, but not so much when looking back over time. Looking at trend lines going back many years often gives a perspective not often seen in typical report-style output.

Failure to do so can skew high or low value, exposing the lender’s clients to additional risk. You may also spend more time responding to revision requests and reporting rework.

Does this mean that current data, including market indices, should be discounted or ignored? Of course not. As a professional real estate appraiser, that means adding that data to all the other information we track, leading to a supported opinion of value developed according to agreed standards. It’s a way to protect the industry from risk when things are changing rapidly like

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