Thursday , 3 December 2020

Hot Pockets & adjusting for an increasing market

This article was originally published HERE. For more articles from Ryan Lundquist, you can visit

Hot Pockets. Yep, I’m about to use them to explain the housing market. That either makes me deeply creative or really immature. I’ll let you decide. On a serious note though, let’s talk about this analogy and consider the importance of giving value adjustments to comps during an increasing market. As always, I’d love to hear your take in the comments below.

Hot Pockets analogy: The real estate market is like a Hot Pocket taken out of the microwave a tad too early. Some portions are blazing hot while others are only warm or frozen. Like a Hot Pocket, we can say the real estate market is “hot” overall, but it’s definitely not the same temperature in every neighborhood or price range.

Thoughts on making adjustments in an increasing market:

  1. Changing Market: If the market has changed since the most recent sales got into contract, a value adjustment may be needed. In other words, if the market is now higher or lower than the sales, we can account for that in an appraisal (or listing) by making an up or down value adjustment to the comps. Of course there needs to be support for making such an adjustment. We can’t just say, “There’s no inventory, so value must be higher”. We need to rather find support in the market (see #2 and #3).
  2. Pendings vs. Sales: There are many signs of an increasing market, but one of the best things to do is compare competitive pendings and sales. Are pendings getting into contract at higher levels? The other day I appraised something where pendings were about 3-4% higher than similar sales from December, so I ended up giving a 3-4% upward adjustment to a couple of sales I used from November and December. I didn’t have many recent sales to work with unfortunately, but comparing a few older sales with a few current pendings helped me see the current market. Remember, the entire county might show certain trends, but we have to look in each neighborhood to find neighborhood trends (which could be different).
  3. Contract Date: When making adjustments we need to look at when the comps got into contract. One comp may have a contract date four months old, while another is from 40 days ago. The change in the market could easily be different for each comp, which means it’s okay to give big adjustments to some comps and smaller ones to others (or no adjustment).
  4. The Real Price: In an increasing market it’s very helpful for appraisers (and agents) to know the exact price of pending “comps” where possible. After all, we might see something listed as “pending” in MLS, but the real contract price could be higher or lower. On one hand appraisers might give less weight to pendings because we don’t know the precise dollar amount in many cases, though when agents divulge the exact contract price and terms, it can help appraisers give even stronger weight to pendings in the neighborhood.
  5. Imperfect Data: It would be nice if all neighborhood data was perfectly aligned, but sometimes it’s conflicting, which means we have to use good judgement. Does that one high sale or pending really reflect the market or not? Is it reasonable? Do those two lower pendings mean the market is starting to soften? Did the hefty credit to the buyer in that one comp inflate the sales price? At the end of the day we have to spend time weighing both sales and listings to see the market, which means sometimes we end up throwing out certain sales because they’re outliers more than anything.

I hope that was helpful.

Questions: When was the last time you ate a Hot Pocket? Anything else you’d add to this post? I’d love to hear your take

Have content of your own that you would like to submit? Email

You are encouraged to leave relevant comments but engaging in personal attacks, threats, online bullying or commercial spam will not be allowed and will be removed and/or blocked from our website. All comments should remain within the bounds of fair play and civility. Feel free to express yourself but keep an open mind toward finding value in what others say. To mark a comment as inappropriate, click the flag symbol in the upper right corner of the comment.


About Ryan Lundquist

Ryan Lundquist
Ryan Lundquist is a certified residential appraiser in the Sacramento area. Ryan runs the Sacramento Appraisal Blog, which is a top-ranking appraisal blog in the United States. He has been quoted in local and national publications and has been involved with the Sacramento Association of Realtors for nearly a decade. Ryan is also a board member of the Real Estate Appraisers Association of Sacramento. His clients include home owners, real estate agents, governmental agencies, attorneys, and lenders. Ryan also won the Affiliate of the Year award in 2014 from the Sacramento Association of Realtors.

Check Also

Rising Sea Levels Threaten Affordable Housing Supply

Flooding and other natural disasters are increasing due to carbon emissions and climate change, scientists …


  1. Avatar

    One of the issues is that agents are often shy about giving data for pending sales. I give no weight to active or pending sales in my appraisal process, because frankly, the listed price is typically significantly different than the final sale price in my coverage area. I’ve had agents list a home for tens of thousands below market to try to incite a bidding war, and I’ve seen listings posted for what can only be called ludicrous. Yet they both go into contract, so how am I to know if that represents a new trend in market values? The answer is that I can’t know, and rather than include misinformation in my report, I’ll stick with the factual data supplied by the closed sales. As I call all of the agents on my comps, and I am an agent myself, I have an idea of market direction anyway just from the conversations with those agents. But that’s typically a “feeling” about the direction, not a fact. For me, closed sales rule the report. Active listing and pending sale properties are there just to make the underwriter tingle, and I wish we’d go back to the days of closed sales only. The others are a waste of time and ink, in my opinion.

    • Avatar

      I never include active or pending listings either. If they ask for them in the order, I turn the order down and tell them why. I make the decision to include them or not which is very rare that I do include them, unless it is an FHA in declining market. FHA requires it then. I agree that they are meaningless.

      • Avatar

        I have a few clients (VERY FEW) who will send back a revision because a listing is lower than the appraised value – the rule of substitution- I say, It is a listing, not a sale- once it is a sale, I will consider . I don’t have enough work to turn folks down like Matt just because they ask for a listing – wish I did.

        • Avatar

          Not including listings or pending sales in your report is just lazy as far as I am concerned. These help to solidify your value. If you know your market well, you know when a comparable is listed well out of the competing market and you do not use it. Matt, you are correct that you do not know the exact sales price for listings and pending sales but it at least shows a trend and helps to strengthen your report. FHA says that you can give weight to pending sales if need be due to an increasing market and a lack of good comparable sales. So, why not do it for all of your appraisals and not just because FHA “makes you”. Obviously FHA has a good reason for this information.

          • Avatar

            I totally agree Matt.

          • Avatar

            The only trend it shows is that agents will do whatever they think they need to do to get the commission. They’ll take a listing for well over market value just to get the listing. It called “buying the listing” and it’s done here in the Silicon Valley every day. These listings or pending don’t point to a trend, they point to whatever the agent wants them to. The sales are the trend, and indicate what’s happened. You’d need a crystal ball to know what’s going to happen with a listing, and they don’t provide those in the appraisal package (yet). Lazy? How about realistic.

          • Avatar

            Apparently you think all realtors should be censored like the appraisers. You seem to be of the belief that all realtors do this and that is simply not true. Like I said earlier, if the listing is way out of whack, I do not use it. Again, you should know your market well enough to be able to tell if a listing is unrealistic for the neighborhood. Also, it does show a trend whether you are willing to believe it or not. Why does FHA request this? Do you think they just want you to do more work or are they also trying to find a trend?

        • Avatar

          Taco, keep using listings, nothing wrong with it and if fact may save your butt in court one day. Just my humble opinion.

  2. Avatar

    Hi Ryan, good thoughtful article. I am in 100% agreement in analyzing the contracted properties as well. It is really important to look at median contract prices versus recent median asking prices (of the sold properties) and really telling when you start to look at median prices of those properties NOT under contract. Good job.

  3. Avatar

    I live In a nondisclosure state where the agents are not allowed to provide a contract price or terms until the sale closes

  4. Avatar

    I have no problem at all using listings in a report and I will explain why. First of all, after I post the listings, I can make a comment in the report that they were included at the request of the client, but no weight is given to the listings since they have not yet sold. However, it can show that there is recent activity in the market in which you are appraising. If you have 30 sales over the past 6 months and currently there are 30 listings but 20 are pending sales, guess what this market is increasing. If you have 30 sales over the past 6 months and 30 listings with only say 5 to 10 pending sales, one can ascertain that the market is fairly stable. I think it definitely wont hurt your report and you are showing the client and users of the report what the market climate is. Don’t you show the number of listings in the MC addendum??? What is the difference? I am not afraid nor does it bother me to include listings or pending sales, it is just another aspect of the current market.

    • Avatar

      Well said Scott.

    • Avatar

      Scott, just because you have a high number of listings in contract doesn’t mean the market is increasing, it just means the market activity is increasing. During the recovery, when we had the investor boom, homes were selling fast, but at low values. There was no value increase, just an abundance of properties purchased for cheap to flip. I service areas in the Silicon Valley area today that have a great amount of activity, but still show stable values. I’d rather put an extra sale or two in the report than to waste my time trying to prove to some underwriter sitting at a desk in Texas that the market is what I say it is. Future market conditions, well, if I could predict that, I wouldn’t be appraising today. I’d be enjoying the millions of dollars I made in the market in the first half of the last decade. Market speculation is for fools, and they’ve been saying for three years that this upswing will crash again, and it’s already supposed to have happened for years. They don’t know, they guess, which is what you’re doing when you put weight in an active or pending sale without having hard contract data.

      • Avatar

        Everett, I respectfully disagree with part of your statements. The idea that increased listings indicates the market is increasing is true, but I never said that, read my post again. I stated if you have a large number of listings with a larger percentage of those under contract it could indicate an increasing market. You were speaking about flipping. I am not referring to purchases of reo properties or distressed sales. I am referring to true arms length transactions. How can you say a market is not increasing with over 50% of listings are under contract at the time you do your report. Now, the market may have not been increasing back 9 to 12 months ago, but as of the day of your report, the market indicates they are. Remember, an appraisal is a snapshot in time. Not only do you mention trends over the prior 12 months, you must give the accurate description of the market on the date of your report. Therefore, if there is a large number of recent listings and they are over 50% under contract, something is making this happen right? Again, assuming they are mostly arms length sales. I wouldn’t know how to act in an area like silicon valley where you have thousands of sales and listings to play with. I live in Northwest SC at the base of the Blueridge Mountains. It is very rural for the most part and towns are very small. It is nothing for me to appraise in towns of populations of 500 or less people. Finding 3 good sales is like finding needles in the often mentioned haystack is sometimes daunting. So to provide listings is often the only extra data I have to support my opinions of value. I think what we miss as appraisers is the value of listings and properties under contract. What this data can tell you is the marketability of your home that you are appraising in a certain market area. If the listings you find are very similar to your home and are under contract in your market area with a low number of days on the market, this can give proof that the subject is fully marketable in the market area. If the listings you find of similar properties are on the market, not many are under contract and the ones that are under contract have been on the market for a long period of time, this can tell you that there may be a marketing problem with the subject. Don’t be too quick to discount the value of listings. Some things you mentioned I do agree with completely. Id much rather have an extra good sales or two than listings but they do have a purpose. I also agree that we cant predict the future, if I could Id got lay a hundred thousand on the roulette table. LOL. We can state our opinions and say that those are based on current market data but we are not promising anything. One thing, many appraisers and underwriters forget is that an appraisal report is an “opinion” of value, not a concrete fact. No appraiser can do that. If you put any verbiage to that fact in your report, look out because an attorney will shred you in court. Another thing you said and I fear you may be right, is another crash. I can already see the recovery is going too fast, Id much rather see it stay stable and gain some solid foundation, but greedy investors, banks etc love surges in values because it makes them rich. Ok, ill shut up now. Everett, in case you haven’t figured it out, I love to debate. I appreciate your opinions. We don’t have to agree, but we can have fun trying to make our points.

  5. Avatar

    Marketing times, supply and absorption are generally considered leading indicators rather than indicators themselves. An increase in the number of properties under contract suggests an increase in demand but may not mean there is a corresponding increase in prices. Leading indicators often precede price increases or decreases but are not measures of any increase. There is no accurate method of measuring appreciation or decline from an increase in marketing times or list to sale ratios.
    Using pending sales to make market condition (time) adjustments is a bit speculative in my book. Let’s assume the listing agent for the property under contract sent you a copy of the contract, so you know all the terms; concessions, repairs, etc.. There is no certainty the sale will close with those terms. If this listing is priced 3%-4% higher than sales 5 months ago, will it appraise? Four percent over five months is a 9.6% annual increase. Will the contract be amended with concessions or repairs?
    Leading or predictive indicators are great for insight into supply and demand but they are not actual measurements of price trends. The best indicators typically are price trend analysis, flips and paired sales. If a 1,500 sf 3 br 2 ba rambler sells 4% higher than an identical sale 5 months ago, then I’m a bit more comfortable making that adjustment. However, even then that is one lone data point and not exactly a trend. Better still is if the same rambler sold 5 months earlier in the same condition, but that too is only one sale.
    Most frequently I measure appreciation one of two ways, a year over year comparison of the average price per square foot or $psf of the past 3 months compared to same 3 month period the year before. I use $psf because it accounts for changes in the average house size. Year over year is great because it allows for a larger set of data. The large number of data points is less skewed from outliers or anomalies. The weakness of year-over-year is that it is slow to recognize recent changes in the market. The mean or median price for one year may be higher even though the trend (increase or decrease) stopped months ago. Comparing the same quarter to the year prior accounts for seasonal differences but is a much smaller snapshot of the market. It is still far better than the 1004MC which does not account for seasonal differences or changes in the average size house or other significant characteristic.
    Lately I have been graphing the MLS data to get a better understanding of prices over the past 2 or 3 years. It helps me make sense of the data and provides a clearer picture for the intended users of the appraisal. It’s relatively easy to due since most MLS systems now allow you to download the data into Excel. One trick is to add a polynomial regression trend line to the graph. Straight line graphs only show up or down, they don’t show changes over the measurement period. A polynomial trend line will show when the change in the market takes place and which way it’s headed.

Leave a Reply

Your email address will not be published. Required fields are marked *