How does market risk affect property values?

Market risk significantly impacts property values as it encompasses the potential for fluctuations in value driven by economic conditions, consumer demand, and broader market trends. This risk includes variations that arise from factors such as changes in interest rates, shifts in the local economy, employment rates, and general market sentiment. When economic conditions are strong, demand for properties typically rises, leading to increased property values. Conversely, during economic downturns, demand may decline, resulting in decreased property values.

This consistent interplay of supply and demand underscores the nature of market risk and its direct influence on the real estate market, making it a key consideration for appraisers. Understanding market risk allows appraisers to assess the current market dynamics, anticipate changes, and make more informed appraisals that accurately reflect potential value fluctuations influenced by these external factors.