How time adjustments work
One area that’s widely misunderstood, according to Barker, is how appraisers handle what’s known as a “market in transition” – a term used to describe any market that’s actively moving either up or down, rather than holding steady.
When a market is declining, an appraiser will look at recent comparable sales and may find them running below the agreed purchase price. The appraiser then applies downward time adjustments – adjusting values based on where trend lines are heading, not just where recent sales have come in.
The same approach applies in rising markets. “If you have a market that’s increasing significantly, you have the same situation – offers and accepted purchases occurring, and then you look at recent sales and they’re lower because the market’s increasing,” Barker said. “So it really works both ways.”
Read more: How an appraisal gap impacts your mortgage
In a declining market, appraisals that come in below purchase price directly affect loan-to-value rations – which determine how much a borrower can lend against the property. “You’ll often see purchase transactions renegotiated based on appraised value,” Barker said. “Or buyers bring more money to the table, or they just have to understand the purchase price they’re paying.”
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