A Seller’s Market: What Does It Mean for Appraisers?

As an appraiser, you’re already familiar with buzzwords like seller’s and buyer’s markets. A seller’s market indicates demand is high and inventory is low, while a buyer’s market means inventory is high and demand is low. Interest rates impact the housing market significantly — demand can rise or fall any time they go up or down.

When the market enters a phase more favorable to sellers, appraisers may find themselves caught in a crossfire between what buyers think is fair and what the homeowner expects. The work you receive can vary widely depending on the current environment. Navigate a seller’s market by considering the following.

1. Rising Property Values

Fannie Mae predicts home prices will increase by 3.2% in 2024. Whether growth is rapid or slow, values trend up most of the time. When it’s a buyer’s market, property values may rise more steeply and impact the going rate for a home. A single-family house may sell for thousands more from one month to the next.

Keeping up with rapidly increasing values is challenging for most appraisers. Lenders want to finance a home for an amount they can recoup should the borrower default. However, markets fluctuate widely, particularly in high-demand markets with excellent schools or near desirable neighborhoods.

2. Difficulty Finding Comps

You might have difficulty finding comparable properties to base your valuation on in a buyer’s market. In a low inventory situation, numerous people may be interested in a single listing. If multiple offers come in, the parties can get into a bidding war, driving the price up beyond what the market typically sustains.

One excellent resource is local real estate agents. Create connections so you can find out what other homes in the neighborhood are going for. Is there a similar one in a nearby location that sold recently? You can pull the comps on it for reference.

Consider special features of the neighborhood or area that make it more desirable. You may need to get creative in a fast-paced environment.

3. Faster Turnaround Times

In a seller’s market, the lending institution and homeowners may demand faster turnarounds to push the sale through before the market fluctuates. If you’re debating whether you’re in a seller’s market, use the market absorption formula to decide. Divide houses sold in 30 days by the number of homes listed. If rates are over 20%, you’re in a seller’s market.

You still have to take the time to factor in everything that impacts a home’s value. Due to such low inventory in a buyer’s market, you may have more looming closings. People are eager to snatch up anything listed and close on it quickly. Asking for additional time doesn’t sit well with the buyers or sellers but is sometimes essential to complete a fair evaluation.

4. Long Waiting Lists

There are only so many trained appraisers available, so you may have a long waiting list. Although appraisers want to help people get their report back and move into their new home, you must take the time to research and offer a fair analysis of the property.

You can send assistants to gather details and speed up the process. Work with the bank to schedule closings a bit further out so you have time to collect data and complete the necessary paperwork.

5. Pressure to Appraise at Buying Cost

When buyers enter bidding wars, the market value might not align with the property’s cost. With the median home price at $400,000 and average wages around $20 per hour, many young people can no longer afford home ownership.

The housing shortage leaves many anxious buyers desperate to own something and build equity but paying more for dwellings than they should. Appraisers have a moral obligation to ensure a home is worth the loan.

In a perfect world, the house will compare to the offer the people made or slightly under. In a buyer’s market, such figures are rarely that perfect. You must talk to the lender and other experts to determine what valuations are fair in the rapidly shifting real estate business.

6. Rapidly Shifting Market Trends

A buyer’s or seller’s market can shift rapidly, so appraisers must stay up to date on market trends. Pay attention to what the Federal Reserve does with interest rates. Increases and decreases can affect what homes are worth by impacting demand. Higher interest rates can put homeownership out of people’s reach because of the rising payments.

Finding current comps is crucial to factoring what a home is worth at a given moment. Pay attention to patterns — average increases over the years present reliable measures of a home’s worth on the closing date.

7. Disagreements Between Buyers and Sellers

Competing real estate agents may throw the appraiser’s name into disagreements between buyers and sellers. In a buyer’s market, the new homeowner is likely paying more for the property than they’d like. Young couples on a budget may have thinly stretched finances.

The seller wants all the equity they can get out of their home. They may be moving to another one — which is even pricier — or relying on the money for retirement. Ignore disagreements about the home’s value while doing your appraisal. Even if the homeowner is present, engage only in small talk, and avoid throwing out possible figures or comparing their home to another that recently sold or is for sale.

Their drama is not your problem. You have one job and personal feelings aren’t part of the equation.

The Keys to Excellent Appraisals in a Buyer’s Market

Adapt to changing market conditions by staying on top of what’s trending. Be transparent about the data you use and the standards applied. If anyone has questions about the final valuation, pointing them back to the formulas and data avoids conflict.

Stay informed as closing nears. Although they aren’t common, sudden market shifts can change a property’s appraisal. Appraisals are a numbers game, so focus on the facts and figures, and ignore elements not impacting the math.