How do appraisers adjust for market changes over time?

A sale is a snapshot, and the market keeps moving

Every comparable sale is a photo of the market on the day a buyer and seller agreed on a price. By the time I use it, the market may have moved. A time adjustment, also called a market conditions adjustment, brings that old snapshot up to the appraisal's effective date.

Fannie Mae's Selling Guide is specific about the window. The appraiser has to analyze changes from the time the comparable went under contract to the effective date of the appraisal. Not the closing date. The contract date is when the price was set, and closing just makes it official, usually after a few weeks of paperwork and at least one panicked email about a missing signature.

The guide also asks appraisers to report the contract date and the closing date for each comparable, by month and year. If the contract date is unknown, the appraiser enters "Unk." That detail matters. A sale that closed in June may have gone under contract in April, and in a fast market April was a different world.

No adjustment is still a decision that needs proof

This is the part loan officers should know cold. Fannie Mae's guide says time adjustments, "or the lack thereof, must be supported by evidence." A row of zeros on the market conditions line is a claim. It says the market was flat. That claim needs support, the same as a 4% adjustment does.

The guide also says the report must contain the market analysis that supports the trend, explanations are required in all instances, and the appraiser should summarize the evidence and describe the data sources, tools and techniques used.

This was not always followed. In its September 2021 Appraiser Update, Fannie Mae said that when appraisers marked property values as increasing, "only a small fraction included time adjustments." It also called the belief that Fannie Mae does not allow time adjustments a myth. Checking the Increasing box and then adjusting nothing is like a weather report that says "heavy rain" and tells you to leave the umbrella at home.

There is one sensible exception built in. A comparable with a contract date that is recent compared with the effective date will likely not get a time adjustment, because there may be no measurable change in that short a stretch. Recent means recent, though. A comp that went under contract eight months ago in a moving market is not recent because it feels recent.

The tools appraisers use to measure the change

Fannie Mae lists several acceptable ways to support a time adjustment:

• Other comparable sales and contracts. Fannie Mae prefers support from other comparables whenever possible.
• Paired sales. Two sales of similar homes, or the same home sold twice, at different times. The difference, after accounting for other changes, shows how prices moved.
• Home price indices (HPIs). Fannie Mae says using HPIs to support time adjustments is consistent with its policy.
• Statistical analysis and modeling. Tracking median prices, price per square foot or sale-to-list ratios over time for a defined set of competing homes.

The best support usually uses more than one tool. If a home price index, the trend in similar local sales, and a handful of paired resales all point the same way, the adjustment is on solid ground. If they disagree, the appraiser has to explain why one deserves more weight. Usually the measurement built on more sales and closer competition wins.

Why a 12-month trend can give the wrong answer

Fannie Mae gives this exact warning. A 12-month value trend may show prices rising overall, while the market was stable or even declining between a particular comp's contract date and the effective date. Applying the annual rate across the board would then over-adjust that comp.

It works the other way too. Prices can be flat for most of the year and then jump in the last two months. The annual average waters that jump down to almost nothing.

That is why I read the market in real time. I start with the shortest window the data can support, 30, 60 or 90 days, and work outward only when there aren't enough sales to say something reliable. If the short window is too thin, I show that it is too thin, instead of just saying so, and I explain what gives me the current read instead. A lazy 12-month average is easy to calculate and easy to defend at lunch. It is not always the market.

A simple hypothetical, start to finish

Say a comparable went under contract five months before the effective date. Similar homes in the neighborhood show prices rising about 1% a month over that stretch, and two paired resales of similar homes back that up. A regional home price index points the same direction.

The appraiser would adjust that comp up by roughly 5% for time, show the sales and index behind the rate, and explain why the window fits this comp's contract date. A comp that went under contract three weeks ago might get no adjustment, with a comment explaining that there is no measurable change in that short a period.

Now change one fact: the last two months were flat after a strong spring. The same 1% rate applied straight across would over-adjust the most recent comps. Each comp's own window has to be checked. That is the whole point of the contract-to-effective-date rule.

What to check in the report

For loan officers, agents and homeowners reading an appraisal, here is a quick checklist:

1. Is the market trend described? Look for comments on whether values are rising, stable or falling, and what data shows it.
2. Are contract dates reported? Each comp should show the contract and closing month and year, or "Unk" if the contract date was not available.
3. Is the time adjustment explained? A rate should come with its source: local sales, paired sales, an index or analysis.
4. Are zeros explained too? "No adjustment needed" should come with a reason.
5. Does the window match the comps? If the report uses a 12-month trend for a comp that went under contract last month, ask why.

If something is missing, the fix goes through the lender as a reconsideration of value with specific evidence, not a phone call asking the appraiser to "bump it up for the market."