The certainty of uncertainty - A real estate appraisal perspective - by Bill Pastuszek

In all things today, uncertainty is not an anomaly – it’s the norm. In today’s real estate landscape, appraisers, tasked with interpreting market signals and arriving at defensible value opinion, must navigate a terrain shaped by shifting and often volatile economic, political, and social forces. Over the past few years, appraisers have had the challenges of interpreting market behavior in the aftermath of a pandemic, wars across the world, high interest rates, low volume housing markets, stock market volatility and inflation, and the ups and downs of various real estate sectors. The challenge lies not in the absence of data, but in the complexity of its implications on the behavior of market participants. 

The recovery of real estate markets post-pandemic has been anything but uniform. Residential sectors in some metros surged, while others stagnated. Office markets, especially in urban cores, continue to lag. The “back to the office” movement has been halting, with hybrid models redefining space utilization and long-term demand. Appraisers must now consider not just square footage, but occupancy patterns, lease flexibility, and tenant sentiment.

Tariffs, once expected to reshape material sourcing and pricing, have had surprisingly muted effects in some sectors. In others, the effects have been dramatic. Meanwhile, changes to H1-B visa costs and policies subtly influence demand in tech-centric housing markets, particularly in regions reliant on international talent.

Long term Interest rates have had a dampening effect on investment behavior as cap rates have become elevated in many asset classes and cash flow has been squeezed. Construction costs, driven by labor shortages and supply chain issues, remain elevated, complicating feasibility analyses and dampening new development. High land costs are another factor, particularly in northeast markets. On the other hand, existing assets have improved prices for owners.

In multifamily markets, many apartment owners are prioritizing tenant retention over aggressive rent hikes. With tenant affordability stretched and turnover costs rising, many landlords are choosing stability – offering renewals and incentives to avoid vacancy risk and turnover costs – to preserve cash flow.

Institutional investors are also recalibrating. According to GlobeSt.com, 2025 marks the first time in a decade that institutions have reduced their commercial real estate allocations, citing underperformance and volatility. This shift suggests a broader reassessment of risk and return expectations in commercial real estate portfolios. And much fallout from loans made during the post pandemic, low cost money era is still to come. This divergence challenges traditional valuation models and demands nuanced market analysis.

Adding to the complexity is a growing dichotomy where a soft labor market coexists with resilient consumer spending, particularly at the upper end. Luxury retail and high-end residential continue to perform. But, for many, wage growth and employment metrics falter. 

In this environment, valuation is as much about understanding behavior as it is about crunching numbers. Market participants – buyers, sellers, lenders, tenants – respond not only to economic indicators but to perception, emotion, and risk tolerance. The appraiser’s role is to interpret these responses, recognizing that uncertainty itself shapes value.

As I wrote earlier this year, real estate investors and their markets as a whole tend to be adaptable. Real estate tends to be slower moving with longer event horizons and also lacks the transparency of investment classes. Thus, the impacts of external events and their influence on real estate performance may not be immediately apparent. 

As Grant Cardone aptly put it: “The economy is not the problem, how people respond is the problem!” Gathering the facts of the marketplace is but one aspect of an appraiser’s work: understanding what they mean is the critical part of what an appraiser does. In these markets, uncertainty may be the best certainty we can expect and we should proceed with eyes and ear wide open, considering what is important and not overlooking more subtle signals. Conventional, template driven thinking may not serve well.

Bill Pastuszek, MAI, ASA, MRA heads Shepherd Associates LLC, Needham, Mass.