Do Real Estate Appraisers Consider Inflation?

While inflation has not been an issue for some time there have been recent reports that discuss the fact that inflation has started to creep back into our economy in early 2015 and I have been asked by owners and buyers of residential and commercial real estate if appraisers consider inflation during the appraisal process.

Appraisers understand that there are different appreciation rates for residential and commercial properties and that the rates vary by zip code area within any City that is considered.  Title companies and Realtor’s often publish “heat maps” that display the zip code areas with dark red color where the highest appreciation rates are.

If individual cities are compared there will also be a difference in price trends that can be readily identified.  One City may report increasing prices while another may report decreasing prices.  Appraisers also realize that if a zip code area, say 89002, has recorded an increase in home prices of 10% over the last year that the increase reflects changes in supply, demand and inflation.  Appraisers understand that, unless specific research is completed, there is no way to allocate price changes like a 10% increase in values specifically to inflation.

If inflation information is published it is likely that an appraiser will have read the reports or the news articles that discuss it.  Inflation information is not likely to find its way into most residential appraisals.  Commercial appraisals consider capitalization rates and discount rates in the income approach that are derived and often directly affected by inflation and thus finding a discussion of how inflation has affected value is likely.

Appraisers track home prices and many appraisers are provided or have access to data that details zip code specific sales price information over time.  Thus they can identify increasing or decreasing sales price trends.  For appraisers it’s more important to be able to conclude an appropriate market value based on recent sales prices, income and cost data and not as important that they know how inflation has played a part in their concluded value.

It’s my opinion that real estate appraisers consider and often discuss inflation in their report and they often explain how it factors into their appraisal conclusions.  It’s less important in a single-family residential report, but the inflation does get considered since it has a direct impact on the sales prices paid for comparable homes.   

For more appraisal information contact Glenn Rigdon, MA, MRICS, ASA a Las Vegas / Henderson Nevada appraiser via email at grigdon@cox.net or via his business website Horizon Village Appraisal (http://www.horizonvillageappraisal.com), or you can also click on “Contact Us” on the home page of this website.

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