Q: How does an appraiser determine if a neighborhood's "supply and demand" are in balance?
A: The appraiser must examine the absorption rate of the area. The absorption rate is the rate in which properties are sold in a given market or the average number of properties sold during a period of time versus the current inventory of properties in a market. Analyzing the supply and demand of an area helps the appraiser determine if property values are increasing, stable or decreasing. If there is an oversupply of properties in a market, average exposure time will increase which typically results in sellers reducing prices in order to market their property more competitively. This is considered to be a buyers market. If there is a shortage of properties, exposure time typically will remain low resulting in a sellers market where multiple offers for properties are common place.
Contributed by Chuck Novak, Forysthe Appraisals. For more info click here:
forsytheappraisals.com.
