What does the term "appraisal inflation" refer to?

The term "appraisal inflation" refers to a phenomenon where property values rise significantly, often beyond what might be considered justified by market conditions or intrinsic property value. This typically occurs when there is excessive demand for properties, speculative buying, or other market forces that create an artificial increase in prices.

In the context of real estate and appraisals, appraisal inflation can lead to inflated valuations that do not accurately reflect the true market conditions. This can affect both buyers and sellers, as well as lenders who rely on accurate appraisals to determine loan amounts. Appraisal inflation is not merely a rise in property values but is characterized by a significant and often unsustainable spike that can create instability in the market.

The other terms presented do not capture the essence of appraisal inflation. A decline in property values, for example, would represent depreciation rather than inflation. Reducing property values pertains more to market corrections or adjustments, while calculating tax assessments involves determining property value for taxation, which does not inherently involve the concept of inflation in valuations.