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USPAP doesn’t mention time adjustments. They are not useless or unnecessary. Measuring and analyzing changes in market conditions are critical and fundamental to real estate appraisal. Indeed, they are the foundation of an accurate opinion of value. This is simply because such a value conclusion has as its base a specific date in time. This is the effective date of appraisal. So, from within the neighborhood boundaries appraisers delineate at the beginning of the appraisal report, they must analyze sufficient sales data.
To do what? To determine if there have been any changes in market conditions over the passage of time. Typically, this time starts when the comparable goes under contract. Then it ends on the effective date of the appraisal. Has the market has measurably changed over that period? That change means the appraiser should market-adjust the comps up- or downward, as the market demands.
Again, USPAP doesn’t mention time adjustments. But this raises the question of which time period should the appraiser measure? As you’ll understand from the podcast, the GSEs assume the appraiser will measure the subject’s relevant market(s) over at least twelve (12) months. There is no black-and-white answer to the question, “How far back should I go for time adjustment data?” 12-months is a minimum, however.
Since USPAP doesn’t mention time adjustments, assume a twelve percent (12%) net increase over that one (-1-) year period. Assume prices increased twelve percent (12%) from January to August but went flat as of September 1st. If a comp went under contract September 14th, closed escrow November 27th, and the effective date of your appraisal is December 23rd, your time adjustment would be zero (-0-). The market went flat three (-3-) months ago. This is, therefore, the difference between the annual change per year and any current market trends.