
Appraisers face a constant challenge: the need to provide accurate property valuations amid changing conditions. Housing markets often experience significant shifts, and failure to account for these changes can lead to inaccurate appraisals. Lenders and homeowners rely on appraisers for reliable, evidence-based property value assessments, underscoring the importance of accounting for market/time adjustments in appraisal reports.
Recent updates to appraisal requirements by secondary market agencies Fannie Mae and Freddie Mac highlight the importance of market trend analysis. Fannie Mae and Freddie Mac require appraisers to clearly identify market trends and apply specific time adjustments to comparable sales data based on these trends. The appraisal report must include the methodology used to determine these adjustments to ensure accuracy and transparency.
Understanding Market Adjustments
Market adjustments are modifications made to comparable sales data to account for changes in market conditions between the comparable property’s sale date and the appraisal date.
As Scott Reuter, single-family director of valuation at Freddie Mac, explains, “Accurate reporting of market conditions is vital to ensuring credible valuations. Whether property values are increasing or decreasing, changes in market conditions that are not yet evidenced in closed sale transactions require additional research and analysis.” In cases of property value appreciation, a time adjustment is necessary to align the appraisal with the upward market trend. Conversely, in a declining market, appraisers may apply a negative adjustment to avoid overvaluing a property.
The Challenge of Time Adjustments
Despite the importance of time adjustments, many appraisers struggle with making them. Further complicating the issue, factors such as a rural area or unique property type can result in less recent sale data for appraisers to use.
Learn More
Join NAR’s no-cost webinar, "Discover AI Tools for Appraisers.” Jim Amorin, author of The Generative Shift, Preparing Appraisers for Artificial Intelligence Models like ChatGPT, and Joshua Walitt, educator and principal consultant at Walitt Solutions, will explore how to use AI tools to develop adjustments—and ensure the information you’re getting with those tools is accurate. The webinar is Thursday, Jan. 30, 2 p.m. ET/1 p.m. CT. Register here.
“The issue of missing market condition [date and time] adjustments in appraisal reports has become a major problem in some cases,” says Joshua Walitt, principal consultant at Walitt Solutions, a valuation consultancy based in Grand Junction, Colo. Older sales data may sometimes be the only option, but if appraisers do not adjust for market changes, they risk inaccurate property valuations.
“The appraiser’s task of accurately estimating a current property value is intrinsically challenging because comparable sales occurred in the past while markets are continually changing,” notes Lyle Radke, principal of collateral policy for Fannie Mae.
Technology’s Role in Enhancing Accuracy
Making accurate market adjustments requires a data-driven approach. Walitt emphasizes the need for a consistent, data-backed process that ensures unsupported or personal opinions are left out of the process.
“Through our ‘Investigate Your Appraisal: Report and Support’ workshops, we help appraisers understand how to effectively use technology and market data to improve their work,” Walitt says. His course and others—like Appraiser eLearning’s “Selecting and Supporting Market Adjustments” and George Dell’s “Stats, Graphs, and Data Science”— not only provide the basics of how to derive market adjustments and extract them from available market data but also show appraisers how to harness technology within this process.
Jim Amorin explores these tools in his article, “Supporting Market Conditions Adjustments: A Comprehensive Guide for Appraisers.” He provides practical workbooks and models for appraisers to integrate into their workflow. Furthermore, various software providers offer adjustment calculators that help appraisers apply market adjustments quickly and efficiently. Often integrated with appraisal reporting software, these tools can streamline the process and help appraisers adhere to industry standards. Lyle Radke says, “With market trend data abundantly available today, time adjustments have become easier for appraisers to derive, use and defend, which would result in better supported, more credible appraisals and increased public trust in appraisers.”
Emergence of Artificial Intelligence
The importance of accurate, market-based adjustments in real estate appraisals has never been greater. With property values always in flux, appraisers must ensure their valuations reflect current market conditions.
As technology evolves to support appraisers’ work, tools like artificial intelligence are increasingly being integrated into the process. AI can enhance efficiency and accuracy, but as Michelle Czekalski Bradley, chair of the Appraisal Standards Board, recently pointed out, appraisers must use these tools ethically and responsibly.
“Technological advances are rapidly transforming not only our profession but the world at large, and generative AI is increasingly becoming a standard tool,” Bradley says. However, she stresses, “appraisers must remain vigilant, ensuring that AI enhances rather than replaces human expertise.”