Every real estate appraiser is familiar with the terms “marketing time” and “exposure time,” but it’s not always clear why and how these are developed in everyday assignments when developing an opinion of market value. Below, we provide a basic overview of exposure time vs. marketing time and sources that can be used to support an opinion of reasonable exposure time.
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USPAP Standards Rule 1-2 (c) requires the appraiser to identify the type and definition of value. When reasonable exposure time is a component of the definition for the value opinion being developed, the appraiser must also develop an opinion of reasonable exposure time linked to that value opinion.
Most lending appraisal assignments require an opinion of market value, unless the appraisal assignment is specific to developing a liquidation value, an insurance replacement value, or a non-market value. Several conditions are implicit to market value as defined by the Federal Agencies. One of the conditions is that a reasonable time is allowed for exposure in the open market.
The standardized Fannie/Freddie residential appraisal report forms do not have a field for reporting the reasonable exposure time. Thus, it is often inadvertently missed by appraisers.
What is exposure time?
According to USPAP, exposure time is the estimated length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. Exposure time is a retrospective opinion based on an analysis of past events assuming a competitive and open market.
Exposure time vs. marketing time
Marketing time is defined as an opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value during the period immediately after the effective date of an appraisal, according to The Dictionary of Real Estate Appraisal, 6th Ed.
Appraisers, lenders, clients, and intended users of an appraisal report often confuse exposure time with marketing time. The major difference is where the period of time under consideration falls within the transaction timeline. Exposure time precedes the effective date while marketing time occurs after the effective date.
Data sources and appraisal reports disclose the “days on market” or the “marketing time” of closed sales. This conventional reporting causes confusion because in reality, the marketing time (or days on market) reported in the housing trends and in the sales comparison grid in the appraisal report is actually historic data; it reflects the length of time a property was exposed to the market prior to its sale. In other words, the marketing data reported is actually exposure time despite the labels. As an appraiser, you must realize that the standardized appraisal reports or market data sources are sharing bygone not forecasted data; thus, the data presented is, in fact, exposure time.
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Marketing time and exposure time may both be based on similar elements: property type, property characteristics, market activity, location, appeal, and price range. However, marketing time is a forecast and must additionally consider anticipated changes in the market. If mortgage rates, unemployment rates, housing inventory, and other market conditions are expected to change in the near future, then marketing time and exposure time opinions are likely to differ. If no immediate market conditions are anticipated to change then the two opinions may be equal.
As an appraiser, you need to look for inconsistencies in your appraisal report based on the housing trends indicated in the neighborhood and the comparable sales’ days on market (exposure time) to the appraisal report’s indicated opinion of reasonable exposure time.
Supporting the opinion of exposure time
Exposure time plays a more significant role in appraisals developed for lending purposes than marketing time. Marketing time is seldom relied on for making a loan approval decision. In fact, the Federal Agencies (OCC, FDIC, FRB, etc.) do not require marketing time to be reported in an appraisal, evaluation, or any other valuation service, but an opinion of exposure time is required based on the Agencies’ definition of market value. However, most appraisers do not support their opinion of exposure time.
How can you support your opinion of exposure time in your appraisal report? Per USPAP’s Advisory Opinion 35, sources that may be relied upon include one or more of the following:
- Statistical information about days on market
- Information gathered through sales verification
- Interviews of market participants
- Information from data collection services
The opinion of reasonable exposure time may be expressed as a range (e.g., 90 to 120 days) or a specific number (e.g., 6 months).
Why is an opinion of exposure time necessary?
An opinion of exposure time is needed for the following reasons:
- It assists in evaluating the suitability of the sales chosen as comparables.
- It aids in evaluating the risk of the loan transaction.
- It can indicate that the opinion of market value is not adequately supported.
- It can indicate a supply and demand imbalance (shortage or oversupply) or a softening market.
Editor’s note: This post was originally published on July 23, 2021 and updated in May 2023.