Appraising in a "Crazy" Market


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Appraising in a “Crazy” Market

by Isaac Peck, Editor 

In mid-2021, Freddie Mac published an article titled “Appraising in a Rapidly Changing Market,” authored by Scott Reuter, Freddie Mac’s Single-Family Chief Appraisal Officer.

The article piqued my interest for a number of reasons, chief among them being that the article points out that between 2013 through 2019, the “annual average” of appraisals which came in below contract price was between seven and nine percent. In April and May of 2021, the number of appraisals coming in below contract price had risen to  20 percent.

That’s a pretty stark increase. Such a stark increase, in fact, that Freddie Mac thought it was worth publishing an article addressing how appraisers can “keep up with the market.”

The reason this is so interesting to me is that I’ve attended several national conferences, over the last five years especially, where executives from Fannie Mae and Freddie Mac (the GSEs) have openly chided appraisers about “anchoring” and “contract price confirmation bias.” These criticisms are usually voiced over PowerPoint slides depicting bell curves and cute “anchoring” graphics that show how the appraised value changes when the contract price is known to the appraiser.

But today, in a real estate market that is appreciating in an incredibly rapid and unpredictable way, appraisers are coming in below the contract price up to 20 percent of the time.

When contrasted with the previous anchoring criticism leveled against appraisers by the GSEs, could this be a positive indication? A sign that appraisers are not just rubber-stamping values after all—but instead are acting with integrity and thinking for themselves?

To better understand Freddie Mac’s perspective, I sat down with Scott Reuter, the author of the article in question.

Fast, Fast, Fast

One of the key points that Reuter makes is that the market has been moving so fast that it makes it difficult for appraisers to capture the market’s rate of growth if they are not paying very close attention to pending sales and making time adjustments, even for time periods as short as 15 or 30 days.

“In many cases, closed sales aren’t keeping up with contract prices because the meeting of the minds that happened on a closed sale might’ve happened one, two or even three months before the sale actually closes. In other words, by the time a sale closes, the market has likely already moved substantially. This is especially true in a market that is moving 18 to 20 percent per year. 18% in one year equates to 1.5% per month,” says Reuter.

The hope is that this is causing appraisers to see time or market condition adjustments in a whole new light. In other words, the use of adjustments is now becoming necessary in shorter and shorter periods of time. “A lot of appraisers are still saying that they won’t adjust a comparable if it’s only a few months old. However, with the market changing so rapidly it is clear that closed sales transactions are lagging. We’ve really been trying to drive that point home in our messaging to appraisers,” reports Reuter.

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Reuter says it is noteworthy that only one in four appraisers are actually developing and applying time or market condition adjustments. “To not be considering a time adjustment in today’s market is concerning. We know appraisers are busy; we know there’s a capacity strain on appraisers. Appraisers have to deal with a lot. But there is a strong need to slow down just a bit and make sure we’re really doing the appropriate analysis when we put these appraisals out,” argues Reuter.

Also keeping your bearings in a “crazy” market involves more than just making time adjustments, according to Reuter. “Appraisers also need to look for other indicators—more current indicators—that can help them develop value in a rapidly changing market. One of my family members just bought a house in West Lafayette, Indiana. On their first day in the car to see homes for sale, they went to see four homes, and two of the homes sold while they were driving to go see them. So appraisers need to look at all property type movements, including what the general inventory supply and price movement is, what are the market conditions, and how  fast is the market moving,” Reuter says.

With closed sale transactions lagging current trends, Reuter advises appraisers to look at all market behavior, not just the behavior reflected by closed sales.

These sources of information include:

  • General market inventory
  • Trends in listing prices
  • Contract-to-listing ratio (pending sales)
  • Contract dates vs. closes dates (market change
  • Exposure time and marketing time
  • New construction patterns
  • Number of available competing properties

Trends derived from such sources can provide valuable augmentation to the closed sales data, according to Reuter.

Another recommendation that Reuter has for appraisers is to consider whether market conditions make it more appropriate to reconcile near the top of the indicated value range rather than at the midpoint. “This is another area where our review data shows a common behavior for appraisers to typically reconcile at or near a mid-point value indication, regardless of current market trends,” writes Reuter in his original article.

When asked about a criticism of appraisers anchoring on contract price, Reuter points out that the contract price is a very important data point. “Many appraisers put a lot of weight on the contract price and rightly so. It is a data point and it should be considered as it represents a meeting of the minds in the marketplace,” says Reuter.

To read Freddie Mac’s original Article, visit

Stay safe out there!

About the Author
Isaac Peck is the Editor of Working RE magazine and the President of OREP, a leading provider of E&O insurance for real estate professionals. OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of CE at no charge for OREP Members (CE not approved in IL, MN, GA). Visit to learn more. Reach Isaac at or (888) 347-5273. Calif Lic. #4116465.

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Comments (5)

  1. When these over priced closed sales go into foreclosure the GSE will say your time adjustments were wrong, now pony up your E&O

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  2. At a time when appraisal waivers were going through the roof, many sales were without a home inspection, and homes were bid up to spectacular levels, Scott thinks the appraisers are not keeping up the market values because 20% of appraisals come in under contract price?

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  3. Well done Isaac with the astute observation about the inconsistency between the concerns about anchoring versus the concerns about appraisals below the contract price. I think the criticism about the lack of time adjustments depends entirely upon the comparable selection. While adjustments tend to be made on a monthly basis, the rapid change in pricing often reflects more of a ‘stair-step’ than a straight line. If the comparables are very recent, then it may be completely reasonable to assert that those comparables contracted during similar market conditions and are thus on the same ‘step’ as the market as of the effective date. There is certainly valid criticism from the perspectives of both anchoring bias in some cases and the lack of market conditions consideration in other cases. I think it is best to be careful not to paint with a broad brush.

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  4. Many real estate agents I have spoken with in the past week who have been in the business for 30+ years are stating the market has stopped increasing in most makes and they expect a decline in the coming months. Also, in our current market where buyers are waiving appraisals and contract prices are well over list prices and buyers are paying the difference between appraised value and contract price in cash, are these sales truly Fair market value sales? It does not appear to meet the definition.

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  5. by Rachel Massey

    Thank you for this piece. I was particularly heartened to see the comment about contract to listing ratios. This is the first place to see changes occurring in the market in terms of buyer activity. With the recent rate increases, we may see this ratio start to decline, which should have all of us paying attention.

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