Appraisal experts say Las Vegas a complex market

Las Vegas is an extremely complex housing market with a two-tiered situation as far as residential appraisers are concerned, the president of Chicago-based Appraisal Institute said Tuesday.

While the high percentage of foreclosure home sales are skewing values downward, they can't be ignored, Leslie Sellers said at the Federal Agency Update at the Flamingo hotel.

Foreclosures accounted for three-fourths of Las Vegas home sales throughout much of 2009, reaching into every neighborhood and bringing down values even for homes not in distress.

That's become a deal-killer for homebuyers and sellers. Appraisals, which are primarily based on comparable home sales in the same neighborhood, are coming in much lower than the agreed sales price in many cases, leaving a gap of $20,000 to $30,000 in financing for a median-priced home.

"We're supposed to do appraisals for a typical market -- a typical buyer and a typical seller -- and that means typical motivation," Sellers said. "When you talk about foreclosures, short sales, divorce cases or relocation, you have a very highly motivated seller, so if you use that sale, the value you come up with does not meet the definition of market value."

There are some techniques and adjustments used by higher-level appraisers, designated as MAI and SRA, that can bring the appraisal more in line with true market value, Sellers said.

It could be a "unique market phenomenon" for Las Vegas in that those who are ordering appraisals are looking for the cheapest and quickest appraisers to do the work, usually the least educated and least experienced, he said.

Las Vegas' robust population growth had a dramatic effect on home prices. It created an imbalance in the supply-demand equation with more buyers than sellers, resulting in consecutive quarters of 40 percent appreciation in 2004.

Prices have fallen about 50 percent since their peak, but have stabilized at $120,000 to $125,000 over the past six months, Las Vegas-based Home Builders Research and SalesTraq reported. Still, many appraisers are making "negative time adjustments" for comparable sales, or calculating a loss of value over a period of time.

"If you have market data that shows we're in a decreasing market, they're obligated to report that," Sellers said. "If you have dwindling demand and swelling supply, again, it's just simple supply and demand economics."

One of the frustrations for homebuilders today is they have a certain amount of dollars in a property and they're looking at cost, Sellers said, but that's not always equal to value.

If 300 homes are appraised and 200 are foreclosures, that can't be ignored. It gets to the point where foreclosures become the market, he said.

Las Vegas was seen as the epicenter for mortgage fraud, prompting an FBI investigation and creation of a mortgage fraud task force. While illegal activity has waned, it still exists to some degree.

The best deterrent to mortgage fraud is using competency as the top criteria for selecting appraisal services, Sellers said.

"The thing about mortgage fraud is you have to have a concerted effort to make it work," he said. "You need a bad mortgage broker, a bad appraiser and a bad lender to make it work."

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.