A market adjustment is a change in market parameters or conditions brought about in response to one or more market signals (including price changes from shifts in supply and demand). These changes are typically characterized as cycles, fluctuations, or trends.
For example, if a large amount of new construction takes place within a particular submarket, a market adjustment may be a decline in asking rents of existing space in order to compete for tenants with the new space.
Regulations can also cause market adjustments. Changes in interest rates often impact supply and demand in the real estate market. If interest rates begin to adjust up, mortgages will likely follow. This tends to decrease the number of mortgage applications, leading to slowing demand for homes.
The opposite takes place as rates fall. In addition to the demand for homes increasing, refinancing goes up. Property owners who may have been thinking about selling might instead remain put because of lower rates on their mortgage. This also increases demand since it holds back supply.
Another regulatory-related effect is the tightening of credit by lenders. If demand is there, but people are having difficulty getting approved for a mortgage, there will be few buyers available due to stricter lending standards.
There are also market adjustments on single properties due to appraisals. Whether the appraisal is correct or not can be debated. Some mortgage companies will send out their appraiser, who may come from far away and not be familiar with the local real estate market. This can lead to an appraisal that doesn’t accurately reflect the current local market. In that case, the property owner can dispute the appraisal and ask for another one. It may even be worth hiring a local appraiser for a comparison.
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