Can Appraisers Use Pending Sales in a Home Appraisal?

A property appraisal provides an independent opinion of a home’s market value. This assessment is a component in real estate transactions, including purchases, sales, and refinances. The appraisal helps lenders determine the collateral value of a property for a loan, and provides buyers and sellers with an objective valuation. Appraisers primarily rely on “comparable sales,” or “comps,” which are properties similar to the subject property that have recently sold in the same area.

Defining Pending Sales

A “pending sale” indicates a seller has accepted an offer, and the transaction is moving towards finalization but has not yet closed. This status differs from an “active listing,” which is available for offers, and a “sold comparable,” which is a completed transaction. While a property is pending, various conditions, known as contingencies, are addressed. These can include the buyer securing financing, a satisfactory home inspection, or the property appraising at or above the agreed-upon price. If these conditions are not met, the sale can terminate, with common reasons including financing issues, significant inspection problems, or a low appraisal.

Appraisal Guidelines and Pending Sales

Appraisers are permitted to consider pending sales when forming their valuation conclusions, as professional standards like the Uniform Standards of Professional Appraisal Practice (USPAP) acknowledge their insight into current market conditions. While appraisers prioritize closed sales due to their definitive nature, pending sales offer a more immediate reflection of buyer behavior and market trends. Pending sales often serve as supporting data to corroborate values from recent closed sales, helping appraisers assess market direction when closed sales do not fully capture current activity. Appraisers are generally required to include a minimum of three closed sales in their reports, but they can integrate pending sales.

Challenges and Necessary Adjustments

Using pending sales presents challenges because the final sales price is not yet confirmed and the transaction remains subject to contingencies. For instance, if a home inspection reveals defects, the buyer might renegotiate the price or withdraw their offer. Similarly, if an appraisal comes in below the contract price, the buyer’s lender may not finance the full amount, potentially leading to renegotiation or cancellation. Appraisers account for this uncertainty by verifying contract details and understanding remaining contingencies. They apply qualitative adjustments to pending sales, acknowledging their less definitive nature and ensuring the data supports the valuation without being treated as a guaranteed price.

When Pending Sales Offer Key Insights

Pending sales become valuable in dynamic market conditions where recent closed sales may not accurately reflect current values. This includes rapidly appreciating or depreciating markets, or areas with limited inventory. In such environments, pending sales offer the most up-to-date snapshot of what buyers are willing to pay and what prices are being accepted. For example, if closed sales are several months old, pending sales can indicate price trends, helping an appraiser make appropriate time adjustments to older comparable data. By considering pending sales, appraisers gain a more current understanding of market sentiment and demand.