Appraiser: It’s very hard to judge property values


In a dense but revealing blog post of the National Association of Realtors (NAR), Jerome Nagy writes about the difficulty of establishing the value of a property in today’s market.

It is, he says, a common misconception that the price on which a seller and buyer agree is the value of an apartment, townhouse or single-family dwelling.  He declares:

It has always been a challenge for appraisers to identify value and support their opinions of market trends where neighborhood prices are in a state of flux. Today, this challenge is more widespread than perhaps any other time in history as neighborhoods and markets that were previously declining are now stable if not recovering.

Difficulties arise when a market “bounces,” Nagy writes in his NAR blog post, going on to say that it can be impossible to adjust for changing market conditions when no sales data yet exist for comparable properties.

Most lenders instruct appraisers to go back a year for comparable sales but only three months in declining markets, according to Nagy.

“For the appraiser, identifying and proving a trend rather than just one sale is what is necessary for the appraisal to be accepted,” he observes.  “Unfortunately it takes time to develop a trend – spotting a trend and proving it are very different things.”

Lenders ask appraisers to indicate whether markets are declining, stable or increasing, Nagy notes, adding that a declining market is difficult largely because there is no single accepted definition in the industry.

Moreover, the writer says that defining a market and a neighborhood is a gray area.

Some appraisers may define the market and the neighborhood as the same geographic boundaries while others will distinguish between the two. It is possible for a market to be declining while a neighborhood is stable or even improving and vice versa.

Appraisers have come under severe criticism since the Home Valuation Code of Conduct was implemented three years ago.

The measure basically enabled appraisers to work on 10 or 12 properties a day, an all-but-impossible volume to complete accurately.  It also tended to favor out-of-town appraisers with little, or no, understanding of a city or borough, let alone neighborhood.

It is no wonder, then, that Nagy has placed so much emphasis on the difficulties of assessing market conditions.  His concern is, in my view, well placed.

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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

M: 347-886-0248
F: 347-438-3201
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