When real estate markets begin to soften and prices flutter downward, guess where appraisers turn to keep ahead of the market cycle? That's an important question at the moment in dozens of major markets around the country -- from southern California to Florida to Washington D.C., New York and Boston.

Appraisers' valuations in changing markets can be crucial to sales transactions going through. Or they can be deal killers. When the final valuation comes in substantially less than the contract price agreed to by a buyer and seller, the lender may not fund the loan or may require a much larger downpayment. If the valuation confirms the contract number, on the other hand, everybody is happy and the sale can proceed to closing.

The special challenge to appraisers in decelerating markets is to stay abreast of the pace of price declines underway in specific areas or price brackets. That can be tough because residential appraisals make heavy use of "comparables" -- recently-closed sales in the immediate vicinity of houses similar to the one being appraised—and the most recent comparables in some segments may be five to six months old.

If a market segment has turned downward abruptly in the past three to four months, but the only comps available to the appraiser date back five or six months, the appraiser could end up overvaluing the house he or she is currently appraising. That, in turn, could put buyers and lenders into harms way since the expected equity in the property may be illusory.

How to stay on top of changes? A series of interviews with veteran appraisers in key markets in late December provided some intriguing insights about how to deal with valuations in sagging housing markets.

For starters, most say they turn to top realty agents for grass-roots, timely information and insights into softening markets more than they do in rising markets. Frank Gregoire, vice chairman of the Florida Real Estate Appraisal Board and an active appraiser in the St. Petersburg-Tampa metropolitan areas, says, "It is very important for me to have a lot of input (from agents) who I know specialize" in particular locations or categories of houses.

Top agents, says Gregoire, "know where their market is headed on a daily basis." They are on the front lines, dealing with buyers and sellers, and they pick up on the most subtle directional shifts. They also can tell Gregoire with precision what types of houses are sitting dead in the water, what types or price subsegments of the market are outperforming others, and where sellers are backing off their asking prices. Such information often is not published or distributed in any formal way, but it can be of great assistance to an appraiser trying to nail down an accurate, responsible valuation, says Gregoire.

Though he and other appraisers still must use the most appropriate comparables available to them, they can make adjustments to the final appraised values based on supplementary information they receive from agents and brokers.

"When you hear about houses sitting for 90 days and then being relisted at $200,000 or $300,000 less," says Gregoire, "you've got to take that into account," especially when the only comparables available date back a few months.

In the St. Petersburg area, for example, Gregoire sees "an absolute glut" of houses and condos in the upper-middle to upper brackets. That means sellers "haven't quite gotten the message yet" that if you want to sell, you need to back off your listing price even if you know older comparables would support your high price.

In Orange County, California, appraiser Tom Berge of Berge Company, Alhambra, says that the current market there is "completely flat" above the $250,000 entry level segment, "we've got zero inflation here at the moment."

Though top-producing Realtors understand that and pass along the latest intelligence, says Berge, "It's not always possible to talk sense to sellers" on asking prices. It's a bitter pill for an owner of a beautiful, well-maintained house on an attractive lot to realize that the place is now worth $250,000 less than it might have been last spring.

Another concern about valuations, says Berge, is that many of the comparables he sees are sitting with 100 percent financing -- often using piggyback first and second trusts.

"It is scary for an appraiser," he says, "when you think about what even a slight dip" in overall market valuations could mean to thousands of owners who enter 2006 with what is effectively zero equity. And since such a dip "is a real possibility in my opinion" in the months ahead, appraisers' jobs could become even more challenging, not less.