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Year in Review: Navigating Turbulence in the 2023 Commercial Real Estate Appraisal Market, and What We’re Seeing in Early 2024

Dianne Crocker
March 19, 2024 3 mins

Dianne P. Crocker, Principal Analyst, LightBox

Lackluster activity in the commercial real estate investment and lending environment continued through year-end 2023, putting a damper on commercial appraisal demand. From the Fed’s “higher-for-longer” position on interest rates to growing geopolitical tensions, the market was left to navigate uncertain waters last year and the initial forecast for a busier second half failed to materialize. LightBox’s first Year in Review edition explores how 2023 unfolded, and highlights what to expect in the appraisal segment in 2024.

Elevated Interest Rates Depressed Loan Originations 

As 2023 got underway, forecasters did not anticipate that the Fed would continue raising interest rates through mid-year or keep them high for so long. This aggressive stance, in efforts to bring down inflation, effectively depressed lending activity and forced multiple downward reforecasts of loan volume. Adding to the market uncertainty, shockwaves reverberated in March with notable bank failures, highlighting increased scrutiny on commercial real estate risk exposure. Tighter underwriting standards persisted throughout the year as the Fed implemented four more rate hikes. By year-end, 2023 was the slowest year for commercial real estate borrowing and lending in roughly a decade, exerting downward pressure on demand for appraisals.

Headwinds Adversely Impacted Appraisal RFP Volume

In 2023’s challenging market environment, it’s no surprise that appraisal activity faced headwinds, and resulted in the LightBox Appraisal Index hitting its lowest level in three years. Appraisal awards plummeted by 30% year-on-year, reflecting lenders’ cautious stance and the difficulty inherent in originating loans in a high-interest rate environment. Total appraisal fees mirrored this decline, dropping by a significant 41% from the previous year.

RFP Response and Win Rates

Given the heightened competition for appraisal projects in a down market, RFP response rates increased as firms chased a smaller universe of business opportunities. However, despite occasional upticks during 2023, overall RFP issuance for the year declined, reflecting lenders holding back the reins on new originations.

Regional Disparities Evident

An analysis of county-level data revealed varied performance across regions and counties. While some areas experienced growth, others faced significant declines in appraisal awards. The Sunbelt region emerged as a potential hotspot for investment, with metros like Austin and Nashville showing above-average appraisal demand. This is consistent with broader forecasts of commercial real estate investment and lending activity that point to Sunbelt metros as stronger prospects based on high population growth post-COVID, relocations of company headquarters, and strong technology and manufacturing hubs.

Looking Ahead

The industry mindset for 2024 is one of cautious optimism. Any meaningful uptick in lender-driven appraisal volume is unlikely until interest rates begin to decline. There will also be demand related to refinancing as commercial real estate loan maturities are dealt with this year. However, the unknown timing and extent of rate cuts is clouding the forecast. The Q1 2024 Market Snapshot Report, Part 1 will provide the first look into how 2024 is shaping up but preliminary data from the LightBox C360/RIMS platforms reveal that lender-driven appraisal activity in January and February were down a modest 3% compared to corresponding months of last year, an early indication that any meaningful turnaround in appraisals by commercial real estate lenders will not surface until at least Q2.

For More Information

The 2023 Year in Review with Early 2024 Insights Report contains more detailed information and metrics on appraisal trends from the last year, and indicators of 2024.

For more information about this report, email

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